With the arrival of the festive season, it is common to express your goodwill and appreciation by providing gifts to your existing clients. And since gifts are business expenses, they are normally considered as tax deductible.
Be aware that the ATO has been paying more attention to the tax treatment on the act of gifting, and related cases had been brought to court.
One interpretation is that, if you expect that the gift will increase your future revenue from the client, or that it will lead to having your client referring your services to others, then your gift is considered to be a marketing expense.
Another way of interpreting the gift is, where the act of gifting is conducted up to 12 months after the cessation of the services, this might be deemed as spendings that would generate future assessable income. With that, the ATO will consider your gift expenditure as the cost for business continuity and to generate assessable income.
It is important to note that the cost of gifts should not be part of your provision for entertainment, a non tax deductible expense.