When Is a Gift Not a Gift? Understanding Business Gifting and Tax Rules
Gifting in the business world is often more than just an act of generosity; it’s a tool to build relationships, reward loyalty, or show appreciation. But when it comes to tax rules, not all gifts are created equal. The Australian Taxation Office (ATO) has clear guidelines on what counts as a gift, what’s deductible, and—most importantly—what might leave you with a tax bill instead of goodwill.
For businesses, the stakes are higher. From navigating Fringe Benefits Tax (FBT) on employee bonuses to understanding when a client lunch qualifies as entertainment (spoiler: it’s rarely deductible), these nuances can be the difference between tax savings and unexpected liabilities.
In this blog, we’ll guide you through the finer details of gifting and tax compliance in Australia. We’ll uncover the rules around deductible client gifts, FBT exemptions for staff rewards, and even charitable donations. With practical examples and actionable tips, you’ll learn how to stay compliant while making every gift count—whether it’s the holiday season or just good business practice.
The Personal Gift vs. The Business Gift: Key Differences
What Qualifies as a Personal Gift?
Personal gifts are voluntary gestures given without expecting anything in return—think of flowers for a friend or a thoughtful token for a family member. These gifts are generally free from tax implications as long as they remain unrelated to any business purpose. However, personal gifts can become subject to scrutiny if they’re perceived as part of a professional or business relationship.
Defining a Business Gift and its Tax Implications
Business gifts, on the other hand, are given with a purpose: strengthening relationships, retaining clients, or recognising employees. This intent often brings these gifts under the scrutiny of tax laws. For example:
A branded diary gifted to a loyal client may be deductible as it supports revenue generation.
A cash bonus for an employee, while thoughtful, is not a gift—it’s taxable income subject to PAYG withholding and superannuation.
How to Avoid Misclassification between Personal and Business Gifts
The distinction often comes down to intent and context. Here’s how to ensure personal gifts remain personal and avoid triggering unintended tax implications:
Keep Personal Gifts Separate: Always purchase personal gifts using personal funds, not a business account. This prevents them from being classified as business expenses during an audit.
Avoid Branding or Promotion: Personal gifts should not carry logos or promotional messaging that ties them to your business.
Document the Purchase Clearly: Retain receipts and records showing the gift was made with personal finances and is unrelated to business goals.
Mind Employee Gifts: Gifts to employees should not be performance-based if they’re personal. Use personal funds and ensure they are ad hoc to avoid being classified as fringe benefits.
Consider this scenario:
You buy a $50 gift card for your employee as a one-time thank-you gesture. If it falls below the $300 minor benefits threshold and is ad hoc, it’s likely exempt from Fringe Benefits Tax (FBT).
Now imagine that the same $50 gift card is given monthly as part of a rewards program. Suddenly, it becomes a taxable fringe benefit subject to FBT obligations.
Similarly, gifting a colleague a bottle of wine purchased personally will generally remain tax-free. But purchasing the same gift using business funds may classify it as a business expense subject to relevant rules.
Make Business Gifting Work for You—Contact Us to Learn How to Maximize Tax Benefits
Navigating Tax Compliance for Business Gifting
Understanding Fringe Benefits Tax (FBT) and its Applications
Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to employees or their associates (e.g., family members) in place of or in addition to salary and wages. While gifts may seem like a harmless gesture, they can often fall into the category of fringe benefits if they are tied to employment.
How Does FBT Apply to Gifts?
Gifts given to employees are considered fringe benefits unless they qualify for specific exemptions. For example:
A $50 gift card as a one-off reward for an employee may qualify for the minor benefits exemption (explained below).
A $1,000 holiday package gifted to an employee as a reward for hitting a sales target would trigger FBT, as its value exceeds the exemption threshold.
Minor Benefits Exemption: What It Is and How to Use It
To avoid FBT, businesses can utilise the minor benefits exemption, which applies when:
The value of the benefit (e.g., gift) is less than $300 per person (including GST).
The gift is infrequent or irregular—not a recurring or predictable reward.
It is not a reward for services rendered, such as performance-based bonuses.
FBT Rules for Entertainment Gifts
Not all gifts are treated equally. Gifts classified as "entertainment" often fall outside minor benefits exemptions and are fully taxable. Entertainment gifts include:
Tickets to concerts, sporting events, or shows.
Expenses for restaurant meals or recreational outings.
These gifts can complicate compliance as they may not be deductible for tax purposes, and GST credits may not apply.
What About Clients and Customers?
Gifts to clients and customers are not subject to FBT, as they do not fall under employee-related benefits. However, these gifts must still meet specific conditions to qualify as deductible expenses:
Gifts should be given with the intent to build relationships or generate revenue.
The gift cannot be classified as "entertainment." For example:
Deductible: A branded pen or hamper sent to a client.
Non-deductible: Taking the client out for dinner or providing tickets to a game.
Gifting Clients vs. Gifting Employees: What You Need to Know
To stay compliant and reduce tax liability:
Plan Gifts Strategically: Use the minor benefits exemption by keeping individual gifts below $300 and ensuring they are infrequent.
Document the Purpose: Maintain clear records of why the gift was given and to whom, especially when claiming deductions.
Separate Gift Types: For employees, focus on non-entertainment gifts like hampers or vouchers. For clients, avoid mixing entertainment with traditional gifts to preserve deductibility.
Strengthening Relationships Through Giving
Gifts to clients and customers can play a vital role in maintaining and enhancing professional relationships. Whether it’s a small token of appreciation or a gesture of goodwill, these gifts often help foster loyalty and generate future opportunities. However, the rules around tax deductibility for such gifts can be just as nuanced as those for employee benefits.
Deductible vs. Non-Deductible Client Gifts
The Australian Taxation Office (ATO) has clear guidelines for determining whether a gift to a client or customer qualifies as a deductible expense. Here’s the key distinction:
Deductible Gifts: These are non-entertainment items given for business purposes, such as:
Branded promotional items (e.g., pens, diaries).
Hampers, wine, or gift vouchers.
Practical tokens like calendars or notebooks.
Non-Deductible Gifts: Entertainment-related gifts, such as:
Tickets to concerts, sporting events, or shows.
Restaurant meals or recreational outings.
Marketing Opportunities with Client Gifts
Client gifts also present an excellent opportunity to reinforce your brand. Branded items like diaries or eco-friendly tote bags can leave a lasting impression while keeping your business top of mind.
Avoid Gifting Pitfalls—Contact Cordner Today
Charitable Giving—When Is It a Gift?
The Generosity of Giving Back
Making a charitable donation is one of the most meaningful ways to give back. For businesses, it’s also a chance to demonstrate corporate social responsibility and align with causes that reflect their values. However, the Australian Taxation Office (ATO) has specific rules governing the tax treatment of donations, and not all contributions are considered deductible.
What Counts as a Deductible Donation?
For a donation to qualify as tax-deductible:
The recipient must be a deductible gift recipient (DGR) organisation. DGRs are charities or organisations registered with the ATO, such as environmental groups, educational institutions, or health-related charities.
The donation must be a genuine gift—voluntary and not tied to receiving any material benefit.
What Doesn’t Count as a Deductible Donation?
Donations tied to material benefits or transactions are generally not deductible. Examples include:
Purchasing items from a charity auction (e.g., artwork or gift baskets).
Buying merchandise where a portion of proceeds goes to charity (e.g., T-shirts or cookies).
Tickets to fundraising events or dinners.
Maximising the Impact of Charitable Giving
To ensure your generosity aligns with tax rules and maximises impact:
Verify the Organisation’s DGR Status: Before making a donation, check the Australian Business Register to confirm the organisation is a registered DGR.
Document the Contribution: Retain receipts and records specifying the donation amount and the DGR’s details.
Understand the Rules for Non-Cash Contributions: Donations of property or goods may be deductible, but their valuation and timing are subject to strict ATO guidelines.
Gifting Through the Business
Some businesses choose to make donations on behalf of their clients or employees as a way to show gratitude while supporting meaningful causes. For example:
A company might donate $50 to a local animal shelter for every client referral received during December.
Alternatively, a business could let clients select a charity to support in lieu of traditional holiday gifts.
These donations remain deductible as long as they meet DGR requirements and are appropriately documented.
Let Us Help You Navigate Gifting and Tax Compliance—Contact Our Team Today!
Making Every Gift Count
Generosity with Purpose
Gifting in business is about more than just giving—it’s about building connections, expressing gratitude, and aligning your gestures with strategic goals. But as we’ve explored, not all gifts are treated equally in the eyes of the Australian Taxation Office (ATO). From Fringe Benefits Tax (FBT) obligations to the deductibility of client gifts, the rules surrounding business gifting require careful navigation.
Understand the Difference Between Personal and Business Gifts: Personal gifts are tax-free when kept separate from business activities. Business gifts, on the other hand, are subject to strict rules depending on their value and purpose.
Leverage FBT Exemptions: Use the minor benefits exemption to avoid unnecessary tax liabilities on employee gifts under $300.
Avoid Entertainment Traps: Stick to non-entertainment items for clients and employees to maximise deductibility and minimise tax complications.
Align with DGR Guidelines for Donations: Ensure your charitable contributions meet deductible gift recipient (DGR) requirements to claim tax benefits.
Plan Strategically: Incorporate gifting into your annual business plan, tailoring gestures to fit recipients’ preferences while adhering to compliance standards.
Cordner's Christmas Toy Drive: Spreading Joy with Act for Kids
We hope you have found this blog beneficial for both you and your business. On the topic of gifts and giving, during this holiday season the team at Cordner are proud to support Act For Kids, an incredible charity dedicated to preventing and treating child abuse and neglect. Through our Christmas Toy Drive, we aim to bring smiles to children in need, spreading joy and hope during the holiday seasons.
Act For Kids has been transforming lives for over 30 years, offering free therapy and support to children and families across Australia. We encourage you to join us in supporting their life-changing work. Whether it’s through donations, volunteering, or simply spreading awareness, together, we can make a real impact.
If you would like more information about Act for Kids and their inspiring mission visit Here.
Frequently Asked Questions
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Personal gifts are voluntary gestures with no connection to business and are usually not subject to tax.
Business gifts, however, are given with professional intent, such as building relationships or recognising employees, and fall under specific ATO gift tax rules that determine whether they are deductible or taxable.
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No. Only non-entertainment items like branded products, hampers, or vouchers are typically deductible under ATO gift tax rules. Entertainment gifts, like concert tickets or client dinners, usually don’t qualify as deductible business expenses.
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Employee gifts can attract Fringe Benefits Tax (FBT) unless they qualify for the minor benefits exemption, which applies if the gift is:
Less than $300 in value (including GST).
Infrequent and not tied to performance.
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No. Gifts to clients are not subject to Fringe Benefits Tax but must meet certain ATO criteria to qualify as deductible expenses. Non-deductible items include entertainment-related gifts like sporting event tickets or restaurant outings.
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To stay compliant:
Keep clear records of gift purposes and recipients.
Separate personal and business gifts using appropriate accounts.
Focus on non-entertainment gifts to maximise deductibility while adhering to gifts and taxation guidelines.
