It’s that time of year again: Christmas party season. Time to let your hair down, bond with your team and get into the festive spirit. But watch out for the Grinch Who Stole Christmas Parties, also known as fringe benefits tax (FBT).

FBT can confuse business owners and managers, and our accounting team fields plenty of FBT-related questions each November and December.   

In this article, we explain the FBT exemptions for Christmas entertainment and gifts so you can enjoy the festive season without unexpected tax bills later on.    

What’s fringe benefits tax, and why does it matter at Christmas?  

Simply put, fringe benefits tax, or FBT, is a tax businesses pay on certain perks (or ‘fringe benefits’) they provide to their employees beyond their regular salary. Fringe benefits include things like:  

  • Entertainment expenses  
  • Personal use of company cars 
  • Car parking
  • Rent-free accommodation 
  • Gym memberships 
  • Salary sacrificing benefits.  

An easy way to think about it is that any non-cash benefits you provide to your employees will probably be a fringe benefit of some sort with FBT being the way to tax those benefits.

When it comes to the festive season, a Christmas party put on for staff will generally fall under the ‘entertainment expense’ fringe benefit category. This can apply to food, drinks and entertainment.

But don’t let this dampen your festive spirit – there are some ATO-approved exemptions you should know about.  

FBT exemptions for Christmas parties  

There are two main exemption categories:  

  1. Exempt property benefits 
  1. Exempt minor benefits. 

Here’s how these exemptions work:  

1. Property benefit exemption for on-site Christmas parties  

If you’re keeping your Christmas celebrations low-key, rejoice! The property benefit exemption means on-site celebrations are usually FBT-free. They just need to meet these conditions:  

  • they’re held on-site at the business premises 
  • they’re held on a working day, during work hours 
  • only employees attend (not non-employees or clients).  

2. $300 minor benefit exemption for off-site Christmas parties  

Planning a fancy do at a venue or restaurant? It’s important to remember that off-site celebrations can attract FBT.  

But here’s some good news: the cost of providing an employee Christmas party can be FBT-exempt if considered to be a ‘minor benefit’. That’s a benefit that:  

  • is provided infrequently 
  • is valued at less than $300 per head (including GST)  
  • is not considered a reward for services. 

Here are some extra conditions that you need to keep in mind:  

  • The exemption applies to current employees and their partners/spouses (but not clients). 
  • The cost per head needs to be under $300, including GST. 
  • Remember to include all costs – not just food and drink but also venue hire, equipment, and entertainment. 
  • Employee gifts are considered a separate benefit, so you don’t need to include them in this calculation — we explain this in more detail below.   
  • If you invite clients, no FBT applies to their attendance.   

Christmas party tax deductions  

Here’s where it gets tricky. If your party qualifies as a minor benefit and is FBT-exempt or is an exempt property fringe benefit, you generally can’t claim income tax deductions or GST credits for the expense. This affects the actual cost of your celebrations, so it’s worth keeping in mind when you’re planning.

The key is to find a balance between festive cheer and financial smarts. Understanding how FBT exemptions and income tax interact will help you throw a great party while keeping your business fiscally responsible. Our team can help determine the best scenario for your business needs.  

FBT exemptions for Christmas gifts 

Christmas isn’t Christmas without a sprinkling of gifts, but it’s important to understand their tax implications. The rules differ for employees, clients, and different gift types. 

Employee Christmas gifts  

  • Are generally FBT-exempt under the minor benefit exemption if they cost less than $300 (GST inclusive) per employee. This includes both entertainment and non-entertainment gifts.  
  • Non-entertainment gifts (like hampers or vouchers) under $300 can be claimed as income tax deductions. You may be able to claim GST credits if you’re registered for GST and claiming a tax deduction for the cost.
  • Entertainment gifts (like event tickets) under $300 are exempt from FBT, but you can’t claim tax deductions or GST credits. 

Client Christmas gifts 

  • Are not subject to FBT.  
  • Non-entertainment gifts can often be claimed as tax deductions and GST credits.  
  • Entertainment gifts don’t qualify for tax deductions or GST credits.  

Need help celebrating Christmas with FBT in mind?  

Chat with our experienced accounting team  

FBT can be tricky, especially around the Christmas season. Please don’t hesitate to reach out if you need a hand navigating your FBT obligations. Our accounting team would be happy to discuss your specific situation and help ensure everything runs smoothly this Christmas. 

You can reach out to us by:   

We wish you a wonderful Christmas season full of connection, community and joy.  

Stay informed with our monthly newsletter  

For the latest tax tips, financial news, and business advice from our industry experts, subscribe to our monthly newsletter, The General Account.   

This article was written by Tax and Business Services Director, Kylie McEwan. 

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.