Are Client Gifts Tax Deductible? Gifts to Clients, Suppliers, Contractors and Staff
Updated: 7 hours ago
Are client gifts tax deductible? Generally, non-entertainment gifts to clients, suppliers and genuine independent contractors can be deductible when they are given to maintain or generate business income, rather than for private reasons. Hampers, bottled wine, flowers and branded items may qualify. GST credits are a separate question: you must be registered for GST, the purchase must include GST and satisfy the creditable-purchase rules, and you must hold the required evidence.
Tickets to an event, a long lunch or a night out generally do not qualify, because client entertainment is generally non-deductible and its GST credits are denied.
Gifts to your own staff and the Christmas party follow different rules again. With the end-of-year gifting season coming up, here's how it works and what the choice is worth.
Does this apply to my gifts?
Start with two questions: who receives the gift, and does it count as entertainment? Then check the income tax, GST and any FBT treatment separately.
Not entertainment: something the person takes away and uses on their own time, such as a hamper, wine, flowers, a gift voucher, a book or a branded item.
Entertainment: food, drink or recreation in a social setting, such as tickets to the
footy or theatre, a restaurant meal, a golf day or a holiday.
A bottle of wine in a gift box is a gift. The same wine poured over a long lunch is entertainment.
Then ask who it's going to. Clients, suppliers and contractors fall under the general tax rules. Your employees, including you if you're a director of your own company, fall under fringe benefits tax (FBT).
What does the choice cost?
A consulting firm turning over $1.5 million has 40 key clients and 15 staff. For this illustration, assume it qualifies for the 25% company tax rate, is registered for GST and can use its deductions. Actual outcomes depend on the purchases and the firm's circumstances.
Here's what its Christmas looks like.
Option A: hampers. Forty hampers at $150 each cost $6,000. Assuming the full purchase price includes GST and the firm is entitled to claim it, the GST credit is about $545. The remaining $5,455 deduction saves about $1,364 in income tax. Net cost: about $4,091. Check the supplier's invoice: a hamper containing GST-free items may have less GST to claim.
Option B: event tickets. 40 pairs of tickets at $250 is $10,000. No GST back and no deduction. Net cost: the full $10,000.
The staff side. A $100 standard face-value retail gift card for each of 15 staff costs $1,500. Assume these are non-entertainment gifts and the minor-benefits exemption applies after considering all relevant circumstances. There is then no FBT. The purchase of these face-value gift cards generally carries no GST, so there is no GST credit on their face value. A $1,500 deduction at the assumed 25% company tax rate saves $375, giving an after-tax cost of $1,125. Separate fees may have a different GST treatment.
The off-site Christmas dinner at $180 a head for 15 staff and 10 partners costs $4,500. If the minor-benefits exemption applies to each person's benefit, there is no FBT and no income tax deduction or GST credit for this entertainment. Being under $300 per person is not sufficient by itself. This illustration assumes the actual method of valuing meal entertainment.
Tickets aren't the wrong choice. They can build a relationship a hamper won't. But at this scale the gap between the two options is about $5,900 after tax, and that's worth knowing before you book the box at the races.
Want to know what your Christmas gifting is really costing after tax?
How do I get it right?
Gifts to clients, suppliers and contractors
Non-entertainment gifts may be deductible when they have the required connection with earning business income. GST credits are available only where GST was charged and the normal credit requirements are met. Standard face-value gift cards generally have no GST credit on purchase. Client entertainment is generally non-deductible and its GST credits are denied. Gifts to genuine independent contractors do not ordinarily attract FBT unless there is a relevant employment or associate connection.
Gifts to staff
Staff gifts need to be assessed under the FBT rules. For the minor-benefits exemption, the notional taxable value must be less than $300, including GST where applicable, and it must be unreasonable to treat the benefit as a fringe benefit after considering the statutory criteria. Frequency, similar or associated benefits, their combined value and the circumstances of the gift all matter. An annual gift is not automatically exempt.
Non-entertainment gifts: the business cost is generally deductible. A GST credit depends on GST actually being charged and the normal credit requirements; standard face-value gift cards generally have no GST credit on purchase.
Entertainment gifts: where the minor-benefits exemption applies, there is generally no FBT, income tax deduction or GST credit. Where the benefit is subject to FBT, the deduction and GST treatment may differ.
At $300 or more, the minor-benefits exemption is unavailable. Check whether another exemption, concession or employee contribution changes the FBT outcome. Do not assume a GST credit exists merely because FBT is payable.
More detail is in our FBT support for employers.
The Christmas party
On your premises, on a working day, current employees only: no FBT. No deduction or GST credit either.
Off site, or for employees' partners: assess each person's benefit separately. A benefit below $300 may qualify for the minor-benefits exemption after considering all relevant criteria. Exempt entertainment generally has no income tax deduction or GST credit. Different outcomes can arise under elected meal-entertainment valuation methods.
Clients at the party: no FBT on their share, and no deduction or GST credit.
The party and a gift are assessed separately against the less-than-$300 threshold. However, associated benefits and their total value still matter when assessing the other minor-benefits criteria.
Cars, staff dinners through the year and the FBT year-end are covered in our FBT guide for employers.
Put it in a one-page gifting policy
Once several managers are choosing gifts, the tax treatment drifts. One page covering who gets what, the spend limits, and which account each type is coded to in Xero keeps it consistent. Code client gifts and entertainment to separate accounts so the non-deductible items are easy to find at year end.
Would a clear gifting policy save you a clean-up at year end?
We can help you set the rules, spend limits and Xero coding, so gifts and entertainment are treated correctly from the first invoice.
Where do larger businesses get caught?
Staff gifts become regular. A monthly lunch voucher, a birthday gift and a Christmas gift to the same person can lose the under-$300 exemption even if each one is under $300.
Directors are employees. If your company buys you a gift, that's an FBT question, not a client gift.
Family counts. Gifts to an employee's partner or children are treated as gifts to the employee.
Vouchers that can only be used for entertainment, such as a restaurant or cinema voucher, may be treated as entertainment.
Mixed events. Identify employees, associates and clients and use a supportable allocation of costs. The FBT valuation method can change the result; a simple head-count allocation does not resolve every case.
The cost of getting it wrong: ineligible GST credits and any missed FBT need to be reviewed and corrected. An eligible GST error may be corrected on a later BAS if the ATO's conditions are met; otherwise the earlier BAS may need revision. Penalties and interest depend on the circumstances.
What records do I need to make sure client gifts are tax deductible?
Keep enough information to explain both the business purpose and the tax treatment:
Keep the invoice or receipt, purchase date, gift description and cost, including any GST actually charged. A valid tax invoice is generally required for GST-credit claims on purchases over $82.50, including GST.
Record who received the gift and their relationship to the business: client, supplier, independent contractor, employee or employee's associate.
Note the business purpose and whether the gift is entertainment. For vouchers, record the voucher type, face value, fees and any restrictions on use.
For staff gifts and events, record the cost per person, dates, other similar or associated benefits and the reasons for any FBT exemption relied on.
Keep client gifts, staff benefits and entertainment separately identifiable in the accounts, with the basis for any cost allocation and GST coding.
When should I get advice?
Your gifts and entertainment add up to more than a few thousand dollars a year.
Staff and clients attend the same events.
You give staff several gifts or rewards through the year.
You're a director receiving gifts or benefits from your own company.
If you're sending gifts to dozens of clients, running a team Christmas party and have directors drawing on the company, this is worth 20 minutes of planning before December rather than a clean-up at year end. We do it as part of year-round tax planning and advisory support for established businesses.
Quick reference: how each gift is treated
Who receives it | Type of gift | Tax deduction | GST credit | FBT |
Client, supplier or independent contractor | Non-entertainment goods, such as hampers or wine | Generally, for a qualifying business purpose | Only if GST is charged and credit conditions are met | Ordinarily no employment-related FBT |
Client, supplier or independent contractor | Entertainment, such as event tickets or a social meal | Generally no | Generally no | Ordinarily no employment-related FBT |
Employee or associate | Non-entertainment goods below $300; minor-benefits exemption applies | Generally yes | Only if GST is charged and credit conditions are met | No, where exemption applies |
Employee or associate | Entertainment below $300; minor-benefits exemption applies | Generally no | Generally no | No, where exemption applies |
Employee or associate | Gift of $300 or more | Depends on the benefit and FBT treatment | Depends on GST charged and credit eligibility | Minor-benefits exemption unavailable; assess other rules |
Table notes: standard face-value gift cards generally have no GST credit on purchase, whether given to clients or staff. Non-entertainment gift cards may still be deductible. The FBT examples assume a commercial, income-tax-paying employer using the actual method for meal entertainment. Other exemptions and elected valuation methods can change the outcome.
FAQ
Are client gifts tax deductible in Australia?
Yes, if the gift isn't entertainment and it's given for a business reason. Hampers, wine and branded items usually qualify. Tickets, meals and events usually don't.
Can you claim GST on client gifts?
Potentially, if you are registered for GST, the purchase includes GST and the normal GST-credit requirements are met. Client entertainment generally does not qualify. Standard face-value gift cards generally have no GST credit on purchase.
Are gifts to contractors tax deductible?
They're treated the same way as client gifts: deductible if they're not entertainment. There's no FBT because contractors aren't employees.
Is there a dollar limit on client gifts?
No set limit, but the gift has to be reasonable for a business purpose. The $300 threshold applies to staff gifts, not clients.
Do I pay FBT on staff Christmas gifts or the Christmas party?
A benefit valued below $300 may qualify for the minor-benefits exemption, but the other criteria must also be satisfied. The type of benefit and your meal-entertainment valuation method affect the result. Non-entertainment gifts may remain deductible even when exempt from FBT; exempt entertainment generally is not.
What if we've claimed GST on entertainment in the past?
Review whether the credit was ineligible. You may be able to correct an eligible GST error on a later BAS within the ATO's time and value limits. Otherwise, revise the earlier BAS. Penalties and interest depend on the circumstances.
Planning client gifts or a staff Christmas event? Bring your proposed spending and questions to a free 15-minute discovery call. We can discuss whether HelloLedger's ongoing accounting and tax support suits your business.
This is general information only and doesn't take into account your personal circumstances.
