Are Client Gifts Tax Deductible? Gifts, Lunches and the Footy

Last week we covered your own team and the Christmas party. This week is everyone who does not work for you: clients, referral partners, suppliers, and whoever you take to the footy. The rule underneath is the same. Entertainment is not deductible and you cannot claim the GST on it, unless you pay fringe benefits tax on it.

The catch is that fringe benefits tax only reaches your employees and their families. Your clients are not employees, so there is no FBT on them, which sounds like good news until you realise it also means no deduction and no GST credit. Gifts are the exception, and most business owners do not know it.

Prefer to listen? We covered this in Clients, Gifts and the Footy, episode 60 of the Aevum Accounting Podcast.

Talking business changes nothing

The law is blunt: you are taken to provide entertainment even if business discussions or transactions occur. The ATO's own example is a business development manager who goes to lunches, cocktail parties and dinners to meet potential new clients, talks work the whole time, and still cannot claim what he spends. Split a client lunch by head. The client's share gets no FBT, no deduction and no GST credit. Your own share depends on how you are set up. If you are an employee of the business, including a director of your own company, your meal is a fringe benefit: taxed and deductible, or an exempt minor benefit and not deductible. If you are a sole trader or partner, there is no FBT on your meal, and it is simply not deductible. Referral partners and suppliers get the same answer as a client.

The narrow ways a client meal is deductible

There are a couple. Coffee and sandwiches at a working meeting in your own office are not entertainment at all, so they are deductible and the GST is claimable. And if you and the client are both away from home on business, the ATO's ruling says the meals are not entertainment and the business can deduct both, the client's included. It has to be both of you, and a floor show makes it entertainment again. One caveat, as last week: all of this assumes you value meal entertainment on actual cost. Under the 50/50 split method, half of everything you spend on meal entertainment, clients included, is taxed and half is deductible. All three methods are compared in part three.

A gift to a client is deductible

This is the good news, and it rests on a binding public ruling, TD 2016/14. A business can deduct a gift to a former or current client if it is made for the purpose of producing future income. The ruling's example is Sally, who runs a renovation business and sends a bottle of champagne to a client whose renovation she finished within the year, hoping for repeat work or referrals. She gets the deduction. The gift has to be for the business. The ruling's second example is a man who sells garden statues and gives his brother a bottle of champagne. His brother had bought a statue, so he was technically a client, but the gift was for family reasons, so it is private and not deductible.

As long as the gift is not entertainment

The deduction only works if the gift is not entertainment, so ask whether the gift is itself hospitality or recreation. A bottle of wine, a hamper or flowers are presents, and the ATO does not treat them as entertainment. Theatre tickets, a round of golf or a hired entertainer are recreation, which is entertainment even if the tickets are used next month, and on a client you get nothing. A restaurant voucher sits in the same camp in our view, though the ATO has not said so directly. It produces one odd result: at the same Christmas party, the bottle of wine you hand a client at the door can be deductible, and the glass you pour them inside is not.

Gifts to your own team, including gift cards

Staff gifts split the same way, with a twist in your favour. A gift that is not entertainment, like a hamper or wine, is usually an exempt minor benefit if it is under $300 and a one-off, and you still get the deduction and, for most gifts, the GST credit. An entertainment gift like movie tickets is exempt on the same terms, but then there is no deduction or GST credit. Gift cards need care. Whether a card counts as entertainment probably depends on what it can be spent on, and the ATO has not said directly for a card you can spend anywhere. A card bought months ago in a sale is valued at what your employee would pay for it on the day, usually its face value. And when your employee spends a gift card on themselves, nobody gets the GST back.

The footy, the box and the sponsorship

Tickets to a client get nothing. Tickets to staff are a fringe benefit: likely exempt under $300 if it is not a regular thing, but at $300 or more, or tickets all season, you pay FBT and get the deduction back. A corporate box is facility hire, like a hired marquee, a function room hired to the exclusion of others, or a golf course for a corporate day. A seat at the match, a club dining table or green fees are not. For clients the answer is the same either way; for staff, hired facilities can be valued with a 50/50 split of the whole cost. With advertising signage, the ATO generally accepts 5 per cent of a box's cost as advertising. And if a sponsorship deal comes with a viewing box, the law lets the ATO treat as much of the sponsorship as it thinks reasonable as entertainment, so itemise the package at realistic values.

The $20,000 lunch deduction that never happened

Clients still ask about it. Before the 2025 federal election the Coalition promised small businesses a deduction of up to $20,000 a year for business meals, excluding alcohol, for two years. It never became law, it is not in any budget, and the Coalition did not form government. The $20,000 figure that is real is the instant asset write-off, which is for assets, not lunches.

If you would like a hand working out what you can claim this Christmas, book a consultation with our team. Our small business accountants in Perth can check how your entertainment is being valued and what your gifts will actually cost. If you are already a client, bring your entertainment accounts to your next catch-up.

The information in this article is general in nature and does not take into account your personal circumstances. It does not constitute specific tax or financial advice. Everyone's situation is different, so we recommend speaking with a qualified professional at Aevum Accounting before acting on anything you have read here.