GST core
Gifts
A gift is something given with nothing expected in return, and a genuine gift is not a taxable supply for GST, though a business can still claim credits on items it buys to give away.
For GST purposes, a gift is a transfer of something with no consideration received in return. Because GST applies only to supplies made for consideration, a genuine gift is generally outside the GST system. If you give a friend a present, or donate to a charity without receiving anything in return, no GST is payable on the gift.
Business gifts are common, such as a gift basket for a client or a bottle of wine for a supplier. A business that buys these items may be able to claim a GST credit on the purchase if it holds a valid tax invoice, the purchase is for a creditable purpose and the item is not of a kind that is denied credits. The business generally has no GST to pay when it hands over the gift, because no consideration is received.
The details can matter. If a business gives something in return for a benefit, such as a discount, a promise of future business or a reward for referring customers, the arrangement may be consideration and not a pure gift. A promotional giveaway with a condition attached, for example a free item with purchase, is generally part of the sale and affects the price rather than being an independent gift.
Entertainment rules can restrict credits for some gifts. If a gift is provided in the form of food, drink or recreation, it might be treated as entertainment, in which case GST credits and income tax deductions are generally denied unless fringe benefits tax applies. Gifts to employees may also have fringe benefits tax or other consequences. These rules are separate from the basic rule that a gift is not a supply.
Common misunderstandings include thinking you must charge GST on any free item you hand out, or that you can claim credits on any purchase labelled a gift. Another is assuming a gift to an associate or a related party is always outside the GST rules, whereas special rules can apply in some situations where supplies are made to associates for less than market value.
Keep records that show why you bought a gift, who received it and whether anything was received in return. For donations, also keep any receipts issued by the recipient. This page is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered consultant buys a $220 hamper including GST to thank a client, and holds a tax invoice. GST included is $220 / 11 = $20. Because the hamper is a genuine gift and is not entertainment, the consultant may be able to claim the $20 credit if the purchase is for a creditable purpose. No GST is payable when the hamper is given because nothing is received in return.
Practical tips
- Check whether a business gift is entertainment, because credits and deductions may then be denied.
- If you give something in exchange for a benefit, treat it as a supply with consideration rather than a gift.
- Set a simple internal policy for business gifts, covering who approves them, how they are recorded and how GST credits are treated.