‘Tis the season of giving (to clients)

Christmas giving to clients

Tis the season of giving to clients

With the festive season fast approaching, supply chains having been affected by the pandemic, and Australia Post struggling to keep us with demand, now is the time to think about how to meaningfully share the peace and joy with your clients, and the tax implications related to seasonal giving.

It is easy to get caught up in the joy of giving, but when the dust settles, how do you deal with these expenses for tax purposes? And what GST can and can’t you claim on your BAS?

When it comes to giving to clients at Christmas, there are only two broad categories of expenditure: entertainment and gifts.

What expenses fall under which category and what are the tax and GST consequences?

Client Entertainment

The Grinch side of Christmas giving to clients is that ‘entertainment’ is not deductible for tax purposes and you can’t claim the GST back.

But what is ‘entertainment’? Essentially, it is entertainment provided by way of food, drink or recreation.

Generally, entertainment can be characterised by reference to the time the item is used and its connection with the entertainment:

  • entertainment occurs soon after provision of the item of property;
  • the usefulness of the item of property expires after consumption;
  • there should be a direct connection between the item of property and the entertainment;
  • the entertainment should arise from the use of the item of property;
  • the entertainment is the expected outcome of the provision of the property.

So, unfortunately, this means that Christmas lunches or dinners for clients, whether provided on or off work premises, are not deductible for tax purposes and the GST is not claimable because they are classed as entertainment.

Of course, you can still take your clients out to lunch or dinner, but you will not be able to deduct the cost for tax purposes or claim the GST.

Client Gifts

The good news of giving to clients at Christmas is that the cost of providing gifts to clients is deductible for tax purposes and the GST is claimable, as long as the gift is not ‘entertainment’.

Provided a gift is not made for personal reasons and is given with a reasonable expectation that it will generate future business from the client, increase the goodwill of the business, or make the client more inclined to give referrals, the cost of the gift will be deductible for business tax purposes and the GST can be claimed on the BAS of the business entity.

Here are some examples of Christmas gifts you could give to your clients that are tax deductible and GST claimable because they are not entertainment:

  • Christmas cards
  • Christmas hampers
  • Bottles of wine, spirits or champagne
  • Gift vouchers (e.g. movies, groceries, health & wellness, books)
  • Flowers
  • Skincare or beauty products
  • Perfumes, cologne, aftershave
  • Plants (great for the work from home environment!)

It doesn’t matter whether the gifts are branded with your business logo and colours or not – they will still be tax deductible and the GST claimable.

So, enjoy the gift of giving to your clients this Christmas, and remember, drink responsibly and stay safe!

For expert advice and assistance in dealing with your Business Tax Deductions in Australia, please contact Mathews Tax Lawyers on 1800 685 829

Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.

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