Providing Christmas Gifts to Client’s and Employees? What is and isn’t tax deductible.

It is that time of the year where businesses are looking to provide staff and clients with a gift to thank them for their effort and business during the year. If you are looking at buying your staff and clients a thank you gift this year below is a summary of what is and isn’t tax deductible.

The tax deductibility of gifts comes down to if the gift is deemed to be classified as entertainment. Gifts in the form of entertainment such as sporting tickets, holiday accommodation, theatre tickets and lunches will be considered entertainment and not tax deductible to the business. This is the case whether the gift is provided to an employee or client.

On the other hand gifts provided to employee’s that cost less than $300 per employee and are not classified as entertainment should be tax deductible to the business, GST should be claimable and there should be no fringe benefits tax payable. The same rules apply on gifts to clients and suppliers however the $300 limit does not apply in this case.

Gifts that will not be considered entertainment include gift hampers, flower arrangements, bottles of alcohol, beauty products and gift cards.

If you as a business are feeling overly generous you are still able to provide staff with a gift of over $300. As a business you will still be able to claim a tax deduction for the gift and the GST credits back however do not FBT will be payable on the grossed up value at a rate of 49%.

As a guide to claiming a tax deduction for gifts and avoiding any Fringe Benefits issues:

• Make sure your gift to employees is less than $300 (including GST)
• Ensure the gift is not considered entertainment
• The gifts should be a once off (not a regular occurrence)
• Keep records and receipts to prove that the expenses were actually incurred and the overall cost.

If you keep these tips in mind when you are rewarding your team and clients this year you can ensure that you make the most bang for your buck this festive season.