Christmas tax deductions: What you can claim for staff parties and gifts
The end of the year is the perfect time to thank your team and build morale. A Christmas party or a thoughtful gift does more than lift spirits. It helps strengthen loyalty and connection.
But smart business owners also ask an important question: How do I make this tax effective?
This is where ATO rules such as the Minor Benefit Exemption and Fringe Benefits Tax become important. When you get it right, you can celebrate without FBT. When you get it wrong, you can face FBT of 47% on the grossed up value.
Inspired Accounting makes the rules simple. Here is a clear guide to making your Christmas celebrations tax effective:
How the Minor Benefit Exemption works
The Minor Benefit Exemption lets you provide a benefit to an employee or their associate without paying FBT.
To qualify, the benefit must meet two conditions:
It must cost less than $300 including GST.
It must be infrequent and irregular. A once a year Christmas party or gift usually qualifies.
Important: The $300 limit applies per benefit per person. This means a party and a gift are assessed separately.
If the cost reaches $300 or more, the entire amount becomes subject to FBT. Aim for $299 or less every time.
| Party Scenario | FBT Status | Income Tax Deduction | GST Credit Claim |
|---|---|---|---|
| On Your Business Premises (Working Day, Employees Only, Food & Drink) | Exempt Property Benefit (No FBT) | Not Deductible | No GST Claim |
| Off-Site Venue (Restaurant, Function Centre) AND Cost LESS THAN $300 per Person (Minor Benefit Exemption) | FBT Exempt | Not Deductible | No GST Claim |
| Off-Site Venue (Restaurant, Function Centre) AND Cost $300 or MORE per Person | FBT Payable | Tax Deductible | GST Claimable |
Best strategy:
Hold the party off-site and keep the cost under $300 per person. This avoids FBT completely and is almost always the most cost effective choice.
If you invite an employee's spouse, their individual cost also needs to stay under $300.
Tax-smart employee gifts
Employee gifts fall into two categories. The category determines whether the gift is deductible and whether GST can be claimed.
Category A: Non-entertainment gifts (the favourites!)
These are the most tax effective. They include items that are not food, drink or recreation.
| Gift Type | FBT Status | Income Tax Deduction | GST Credit Claim |
|---|---|---|---|
| Cost LESS THAN $300 (e.g., Hamper, Voucher, Wine, Flowers, Alcohol) | FBT Exempt (Minor Benefit Rule) | Fully Deductible | Fully Claimable |
| Cost $300 or MORE | FBT Payable | Fully Deductible | Fully Claimable |
Best strategy:
Give non-entertainment gifts valued at less than $300 (GST-inclusive). You avoid FBT AND you get a full income tax deduction and GST credit.
Category B: Entertainment gifts
These involve experiences or recreation.
| Gift Type | FBT Status | Income Tax Deduction | GST Credit Claim |
|---|---|---|---|
| Cost LESS THAN $300 (e.g., Movie/Concert Tickets, Sporting Event Passes) | FBT Exempt (Minor Benefit Rule) | Not Deductible | No GST Claim |
| Cost $300 or MORE | FBT Payable | Fully Deductible | Fully Claimable |
Best practice:
Avoid entertainment gifts unless there is a specific reason to offer them. Even when they are FBT free, you lose the tax deduction.
Gifts for clients and suppliers
Gifts to clients and suppliers do not attract FBT because they are not employees.
Non-entertainment gifts such as wine or hampers
Usually deductible
GST credit usually claimable
Entertainment gifts such as dinners or event tickets
Usually not deductible
To keep it tax effective, choose non entertainment gifts for clients.
Your FBT-free festive checklist
Set a budget of $299 per person for the party
Set a separate $299 limit for employee gifts
Choose non entertainment gifts for maximum benefit
Keep accurate records of costs, attendees and whether spouses or clients were present
Avoid cash bonuses because they are treated as salary for PAYG and super
With the right planning, you can reward your team, stay compliant and avoid unnecessary FBT costs.
Don't let tax uncertainty dampen your holiday spirit.
With a small amount of planning, you can reward your hardworking staff, maximise your tax benefit, and celebrate confidently.
Important Note:
The information provided in this article is general in nature and does not constitute financial or tax advice. This information has not been prepared taking into account your specific objectives, financial situation or needs. Before acting on any information in this article, you should consider its appropriateness to your circumstances and consult with a registered tax agent or financial advisor.
Grow and protect your business - the Inspired way
Inspired Accounting helps ambitious businesses achieve their growth goals through proactive accounting strategies and clear, actionable advice.
Phone us: 0409 383 855