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Claiming tax deductions on client gifts

The giving of gifts to clients at Christmas time is becoming increasing popular these days and may help you to win new clients and generate more income for your business. The Australian Tax Office (ATO) has ruled that gifts to a current or former client for the purpose of producing future assessable income may be deductable at tax time (Tax Determination 2016/14).

However, the ATO has specific criteria which means not all gifts are tax deductable. For example, gifts which constitute the provision of entertainment such as sporting or theatre tickets would not be deductable.

It is important to seek advice from your accountant or qualified tax professional before deciding to purchase client gifts this Christmas.

An ATO example of client gift giving that is tax deductable

Sally is carrying on a renovation business. Sally gifts a bottle of champagne to a client who had a renovation completed within the preceding 12 months. Sally expects the gift will either generate future business from the client or make them more inclined to refer others to her business. Although Sally got on well with her client, the gift was not made for personal reasons and is not of a private or domestic character.

The outgoing Sally incurred for the champagne is not of a capital nature. Sally is entitled to claim a deduction.

An ATO example of a client gift that would not be tax deductable

Bernard is carrying on a business of selling garden statues. Bernard sells a statue to his brother for $200. Subsequently, Bernard gifts a bottle of champagne to his brother worth $170. Apart from his transaction, Bernard provides gifts only to clients that had spent over $2,500 over the last year. The gift has been made for personal reasons, and is of a private or domestic character. Bernard is not entitled to claim a deduction.

More information

Visit our tax deductions and concessions page for more information on eligible tax deductions and concessions for small business owners.

Speak to your accountant or qualified tax professional before committing to purchasing gifts for clients this Christmas and to determine what can be claimed as a tax deduction.

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