It’s that time of year again. You want to thank your staff and clients, but can you claim a tax deduction for doing so? In short, generally, Christmas parties, whether held on your premises or not, will not be tax deductible but gifts to clients and staff can be deductible if they meet certain criteria.
Staff Gifts
When a benefit (in this case, a gift) is provided to staff, it may be considered a fringe benefit and be subject to fringe benefits tax. This can be avoided if it meets certain criteria and is then considered an exempt benefit. The gift or benefit may be a tax deduction to your business if:
- The benefit is minor and infrequent – the minor benefits threshold is less than $300 and ‘infrequent’ means the benefit is provided as a one off or on an irregular basis.
- There is no difficulty in determining the value of the gift
- It is not wholly or principally a reward for services
- It is not considered entertainment
It is this last point regarding entertainment that rules out Christmas parties as being tax deductible. It also rules out gifts such as holidays, tickets to sporting events, the theatre or cinema, and vouchers to restaurants as these are all considered entertainment.
Examples of gifts that may meet the above criteria and be tax deductible are unopened bottles of alcohol (to be consumed elsewhere, not at the Christmas party), flowers, and hampers.
Client Gifts
Gifts to clients may be deductible if they are made for the purpose of producing future assessable income. The ATO provides the following example:
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. Sally is entitled to a deduction under section 8-1 of the ITAA 1997.
As always, if you have any questions about gifts, give us a call to clarify.
Enjoy your end of year festivities!
