As the festive season approaches, many businesses are preparing to host end-of-year parties and reward employees with gifts. While celebrations are an important way to recognise team achievements, it’s equally important to understand the Fringe Benefits Tax (FBT) implications that may arise.
The ATO has firm rules around entertainment benefits, minor benefits, client attendance, and the tax deductibility of gifts. Getting it right can mean the difference between FBT-free festivities or unexpected tax costs.
Below is a comprehensive guide to help you plan tax-effective Christmas parties and gifts for employees and clients.
FBT on Christmas Parties: When Is the Party Exempt?
- Location and Attendees Matter
Your FBT liability largely depends on where the party is held and who attends.
A Christmas party is generally exempt from FBT if:
- It is held on business premises,
- During a working day, and
- Attended only by current employees.
In this case, the cost of food and drinks is not subject to FBT even if the spend per head is high.
Minor Benefits Exemption (under $300 per person)
If your party is off-site or includes employees’ associates (partners or family members), it may still be FBT-free if:
- The cost per person is under $300, and
- The benefit is considered “infrequent” and “minor”.
This minor benefits exemption is one of the most important tools for planning tax-efficient staff celebrations.
Gifts and Entertainment: How They Are Taxed
- Gifts Under $300 — Often FBT-Free
Providing gifts at the party or separately during the festive season can also be FBT-exempt if:
- The value is less than $300,
- The gift is provided infrequently, and
- It is not tied to a salary-packaging arrangement.
Common FBT-free staff gifts under $300 include:
- Gift hampers
- Wine or gourmet food
- Flowers
- Retail gift cards
- Gifts Over $300 — FBT Applies
Once a gift exceeds the $300 threshold, FBT is typically payable — even if the gift is a one-off.
- Entertainment Gifts — Special Rules Apply
If the gift is recreational, such as:
- Concert tickets
- Movie vouchers
- Sporting events
- Theme park passes
then no income tax deduction or GST credit can be claimed, even if the gift is FBT-exempt.
Inviting Clients: No FBT on Client Costs
Costs relating to clients attending your event whether a party, dinner, or function are not subject to FBT.
However,
- You cannot claim a tax deduction for entertainment provided to clients, and
- You cannot claim GST credits for these expenses.
Still, inviting clients does not increase your FBT bill.
How to Calculate FBT on Parties and Meals
When entertainment is provided to employees, the ATO offers several methods for working out the taxable amount.
- Actual Cost Method
You calculate FBT based on the actual cost of food, drinks, and entertainment provided to employees and their associates.
If clients or contractors attend, their costs must be apportioned out.
Example:
If a restaurant dinner includes employees and clients, only the employee-related portion is subject to FBT.
- 50/50 Split Method
If you hire or lease entertainment facilities (e.g., function rooms), you may choose the 50/50 split method.
- 50% of all entertainment costs are subject to FBT.
- The other 50% remains non-deductible entertainment.
This method simplifies record-keeping but is not always the cheapest option.
- Meal Entertainment Valuation
For meals without recreation (e.g., a dinner only), you can use:
- the 50/50 split method, or
- the 12-week register method, which calculates the taxable portion of total meal entertainment across a sample period.
Important Considerations for Employers
- Record-Keeping
Maintain detailed records including:
- Total costs and per-person costs
- Attendee lists (employees vs clients vs associates)
- Calculation methods used
- Whether gifts qualify for minor benefits
- Number of entertainment events provided annually
Good records protect you during any ATO review.
- Claiming Deductions and GST Credits
If your Christmas party or staff gift is exempt from FBT, you generally cannot claim:
- income tax deductions, or
- GST credits.
This is a key misconception for many businesses.
- Gifts to Clients
Client gifts are:
- Not subject to FBT, and
- Tax-deductible, provided the gift is not “entertainment.”
Examples of deductible client gifts:
- Christmas hampers
- Branded corporate gifts
- Wine or whisky
- Books
Not deductible:
- Tickets to concerts
- Sporting events
- Meals or drinks with clients (these are entertainment, not gifts)
Christmas Party Scenarios (ATO-Style Examples)
Example 1: High-Cost On-Premises Party (FBT-Exempt)
A law firm hosts an employee-only Christmas celebration in the office garden on a Friday afternoon.
The event includes a marquee, live band, premium drinks and a banquet prepared by a celebrity chef.
- Cost per person: $490
- FBT outcome: Exempt (on business premises, working day, employees only)
Example 2: Off-Site Party Under $300 Per Person
An electrical company hosts its Christmas party at a local restaurant.
10 employees and 10 partners attend , total 20 people.
- Total cost: $5,000 ($250 per person)
- FBT outcome: Exempt under the minor benefits rule
Final Thoughts: Plan Early & Keep Good Records
The end-of-year season is a perfect time to reward staff and celebrate business success, but it should be done tax-smart.
To avoid FBT surprises:
- Choose the right event location
- Track per-person costs
- Apply the minor benefits exemption correctly
- Understand gift rules
- Maintain clear records
With careful planning, your business can enjoy a festive season that’s both meaningful and tax efficient.
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