Deductibility for gifts to clients and airport lounge membership fees

October 10, 2016

The ATO has recently issued the following two Taxation Determinations. They apply for income years commencing both before and after their date of issue.

Deductibility of gifts to clients

Taxation Determination TD 2016/14 states that a taxpayer that carries on a business is entitled to a deduction under s 8-1 of ITAA 1997 for an outgoing incurred on a gift made to a former or current client, if the gift is made for the purpose of producing future assessable income. The ATO notes that a gift is not deductible if the outgoing is capital, relates to gaining non-assessable, non-exempt income, or is non-deductible under another provision.

The ATO provided the following examples.

Example 1

Sally is carrying on a renovation business. She 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.

The outgoing Sally incurred for the champagne is not of a capital nature.

Sally is entitled to a deduction under s 8-1 of ITAA 1997.

Example 2

Bernard is carrying on a business of selling garden statues. Bernard sells a statue to his brother for $200. Subsequently, Bernard gifts a bottle of champagne to his brother worth $170. Apart from his transaction, Bernard provides gifts only to clients who have spent over $2,500 during the last year.

The gift has been made for personal reasons, and is of a private or domestic character.

Bernard is not entitled to a deduction under ss 8-1 or 40-880 of ITAA 1997.

Deductibility of airport lounge membership fees for employers

Taxation Determination TD 2016/15 states that an employer taxpayer is entitled to a deduction under s 8-1 of ITAA 1997 for annual fees incurred on an airport lounge membership for use by its employees, where that membership is provided because of the employment relationship. The determination notes that the fees will not be deductible if they are related to gaining or producing exempt income or non-assessable, non-exempt income. The determination indicates that the fees will be deductible in full even if there is substantial private use of the lounge membership by employees (eg while they are on holiday).