Customer Appreciation Gifts

by Gayle
(Calgary)

I have a client who purchased gifts for his customers during the Christmas holidays.

Currently there is no expense account this would really fit under in the Chart of Accounts.

Would you suggest I set up a new expense account under General and Administrative Expenses called "Marketing" to post customer gifts to.

Thank you.

Hi Gayle,

I usually put this type of expense to Advertising and Promotions ... as I don't like my chart of accounts to become too large and unweilding.

What I'm not sure of ... is if there are limits set by CRA regarding customer appreciation gifts ... and I'm short on time to research it at present ... so you may want to isolate Customer Appreciation Gifts as a sub-account of Advertising and Promotions and bring it to the attention of the accountant and/or tax preparer at year-end.

There is a 2006 paper I like. It is written by Theresa Man of Carters Barristers Solicitor Trademark Agents titled Corporate Giving: A Tax Perspective. Be aware that the parts of the publication may be out date as court cases may change the interpretation of the Tax Act.

While the paper was dealing mainly with corporate sponorships and charitable donations, page 13 section 1 (c) deals with the deductiblity of business expenses. Theresa explains it very simply and clearly. She states that section 18 of the Act requires 6 tests be met:

1. it must be of an income nature not a capital expenditure;


2. be reasonable in amount;


3. be incurred for the purpose of earning income; (There is no requirement that income must be earned after having incurred the expenditure.)


4. not be a personal expenditure;


5. not be expressly prohibited by the Act;


6. not constitute "abusive tax avoidance".

Theresa goes on to say that Section 67 of the Act provides that only expenses reasonable in the circumstances can be deducted.

She states that "what is reasonable is a question of fact, by comparing the expense in question with amounts paid in similar circumstances in comparable businesses."

I only mention this because ... although bookeepers don't have to worry about the tax deductibility of a business expense, it helps the accountant/tax preparer if the bookkeeper can isolate expenses they think should be brought to the attention of the accountant / tax preparer.