In: Accounting
(2) Miscellaneous expenses
Expense accounts for overseas sales persons
Christmas gifts to office staff by owners
Kindly indicate those that are allowable expenses and those that are disallowable expenses if any.
You can claim tax deduction for expenses that are wholly and
exclusively incurred in the production of income.
The following conditions must be met before any deductions are
made:
Since time immemorial, it is generally considered that anything one gives or receives for free or without consideration gives happiness and deepens the relationship between persons. Now, why does this happen? Is it because we (the receiver of the gift) are not paying anything or that it raises the relationship to the next level by giving in consideration like trust, love and affection which is not valid consideration in law to cease the transfer as gift.
Gifts, in whatever form, whether cash or kind, is are a transfer of movable or immovable property from donor (Giver) to donee (Receiver) without any consideration in return. Without any consideration/No consideration is the ‘sine qua non’ of the term gift. So when this hallmark is replaced with even inadequate consideration, the transfer ceases to be gift. The expenses on gift can be incurred by one family member for another or by a distant relative or by a business for its clients.
Speaking from the perspective of a businessman, there are many reasons for buying gifts for the customers and business associates like maintaining good work relations, opening doors for opportunities, professional networking, and a thank-you for a job well done. There’s also one more incentive to make those gift purchases. All or part of the cost of your business gifts can actually become tax deductions.
Businesses generally offer gifts to their clients to set up long-lasting and durable relationship with them, and these serve as an expense to expand and earn income for the business which in turn lead to deduction of these expenses from the income so as to pay less tax. The important principle to understand here is that the expenses that are incurred should be in the nature of business promotion and not in the nature of capital expenditure and personal expenses of the assesse.