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Avoiding the FBT Christmas Grinch For Your Customers

It’s that time of year again – what to do for the Christmas party for the team, customers, gifts of appreciation for your favourite accountant (just kidding), etc. Here are our top tips for a generous and tax-effective Christmas season:

What to do for customers?

The most effective way of sharing Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST.  There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses related to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.

However, if you send your customer a gift, then the gift is tax-deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment).  Even better, why don’t you deliver the gift yourself to your best customers and personally wish them a Merry Christmas?  It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift.

From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business rather than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts, then make it something people remember and appropriate to your business.

You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction).  Donations to deductible gift recipients (DGRs) above $2 are often tax deductible and can make an active difference to a cause.

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