Gifts are something everyone likes to give and receive, but when it comes to business there are rules around whether gifts can be a fully deductible expense or a 50% deductible expense against your taxable income.
Gifts to Clients
Gifts that are entertainment (like food or beverages) are always going to be 50% deductible. Why only 50% deductible? The reason for this is that under the entertainment tax rules, the expense incurred on food or beverages is deemed to provide both a business and private benefit. Refer to our recent post on entertainment for more details of what you can claim.
Other types of gifts that are given to clients or customers, whether it be a thank you gift, festive gift or a random gift of kindness are fully deductible. The following table shows the deductibility of common gifts:
Gifts to staff
Generally, the cost of gifts for staff does not fall within the entertainment tax provisions and are fully deductible. However, in the majority of cases, the gifts constitute fringe benefits.
Staff gifts are “unclassified benefits” under the Fringe Benefit Tax (FBT) rules. Whether FBT will be payable on unclassified benefits provided to your employees depends on the value of unclassified benefits provided to employees during the year. Unclassified benefits are only subject to FBT if the value of these benefits exceeds $1,200 per employee per year or $22,500 per annum for all unclassified benefits provided to all employees.
If at any point any of these thresholds are exceeded, FBT must be calculated and paid on all the unclassified benefits provided.
If you have any questions about the rules surrounding client and staff gifts and how an item should be treated, get in touch with the team at Thrive CA.