Ensuring Your Client Gifts are Tax Deductible:

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Deducting business gifts to clients:

The basic premise for deducting any business related expense is it must be “necessarily incurred in producing assessable income.” In the case of a business gift to a client, it may be deductible if the purpose of the gift was to generate goodwill and promote the business (to produce more sales/increase client base in the future).

The only exception to the rule however is if the expense is classified as an “entertainment expense,”

in this circumstance the expense would not be deductible.

According to the Income Tax Assessment Act, entertainment is classified as the following:

  • Ready to serve food or drinks (ie opened alcohol/served meals)(apart from light meals served to employees in the office, and alcohol consumed during interstate business trips).
  • Holidays/leisure cruises.
  • Cinema/hired performers.
  • Hire of recreation/sporting equipment.

Generally speaking however, Drinks/food/entertainment that is not expected to be consumed/enjoyed immediately, do not constitute entertainment.

To ensure your client gifts are tax deductible, you could consider giving the following as opposed to the above:

  • Bottled alcohol
  • Food hampers
  • DVD’s
  • Vouchers

For further clarification, please do not hesitate to ask your accountant.

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