Your guide to what counts, what doesn’t, and how to keep off the ATO naughty list this festive season.
By Bec Faucett, Director at Fuse Wealth
It’s that time of year again. The office is buzzing, Mariah has already started (too soon) and someone has sent a meeting invite titled “End of Year Celebration Planning”. Which raises the question every good business owner eventually asks:
“What part of this is actually tax deductible?”
Here’s a rundown of how the ATO treats Christmas parties, gifts and everything in between.
Christmas Parties: The Rules Behind the Festivities
The ATO’s view of Christmas parties is simple: they’re entertainment. That’s not a value judgement, it’s a tax classification. And it drives everything that follows.
Let’s break it down.
Parties On Site
If your event is:
- on a standard working day
- on your business premises
- attended only by employees
…then there’s no FBT on the food and drink.
However, because it’s classified as entertainment, you can’t claim a tax deduction or GST credits. Even if the catering is modest, the treatment is the same.
If You Head Off Site
Restaurants, venues, rooftops, they all fall into the same category.
You can generally rely on the minor benefits exemption if:
- the cost is under $300 per person, and
- it would be unreasonable to treat it as a fringe benefit
That means no FBT, but still no income tax deduction for the event itself.
If Partners Come Along
Partners (associates) sit under the same rules.
If their cost is under $300, the minor benefits exemption applies.
If it’s above $300, FBT can be triggered.
If Clients Attend
This one is straightforward:
- No FBT, regardless of cost
- Still no tax deduction
Client attendance doesn’t improve the tax outcome of a Christmas function.
Gifts for the Team: Often a Better Option
Gifts under $300 per person that are considered minor and infrequent are typically exempt from FBT.
If you’re giving gifts at the event, remember:
The party and the gift are treated as separate benefits, each needing to fall under $300 individually.
What About Gifts for Clients?
Client gifts are usually where the rules become more favourable.
Most non-entertainment client gifts are tax deductible, including:
- hampers
- wine
- books
- stationery
- branded items
Where you lose deductibility is anything classified as entertainment, such as:
- restaurant vouchers
- tickets to events
- experience-based gifts
There’s no $300 threshold for client gifting, because FBT isn’t relevant here — and client gifts never attract FBT.
In short:
A physical gift? Usually deductible.
Something they attend? Usually not.
A Real Life Example: How the ATO Views It
A business hosts an on-site Christmas lunch with employees, partners and clients.
Cost: $125 per person, plus taxis home.
Tax treatment:
- employees: no FBT
- partners: no FBT (minor benefit under $300)
- clients: no FBT
- income tax deduction: none
- GST credits: none
The function is allowed. It just isn’t deductible.
Quick Checklist Before You Confirm Your Plans
- Venue influences the tax treatment
- Weekday vs weekend can matter
- Clients don’t trigger FBT
- Most Christmas parties remain non-deductible
- Gifts under $300 for employees and associates usually avoid FBT
- Party and gift costs must be assessed separately
- Keep your receipts
Remote and Hybrid Work Considerations
As workplaces continue shifting between in-office, hybrid and fully remote arrangements, the ATO has updated its guidance to reflect how modern teams celebrate. Virtual events and distributed gatherings still fall under the entertainment rules — just with a few new nuances to be aware of.
Virtual and Distributed Celebrations
The minor benefits exemption now explicitly applies to virtual Christmas functions, provided the usual requirements are met.
Key points to note:
- Total expenditure must remain under $300 per head
- Employers can send meal kits, hampers or entertainment packages directly to remote employees
- These items count as part of the overall entertainment expenditure for the event
- If packages are sent individually to different locations, the ATO allows them to be aggregated when assessing FBT liability
Example
A business with 20 remote staff sends each employee a $150 meal kit and access to a virtual activity.
Total spend: $3,000.
Because the cost remains under $300 per person, the arrangement would generally qualify as a minor benefit.
This gives remote teams a way to participate in end-of-year celebrations without triggering unexpected FBT obligations — provided the structure is sensible.
Key Considerations for Remote Packages
If you’re planning to send something to remote employees, the ATO expects:
- The value to be reasonably comparable to what an in-person attendee would receive
- Packages to be offered consistently across eligible employees
- Benefits not convertible to cash
- Items to maintain a legitimate work-related purpose, such as connection, engagement or morale
In practice: thoughtful, structured recognition is fine. Cash-like benefits or significantly uneven treatment across teams are not.
Best Practice Tips
If you want clarity before you book, ask early.
Document everything.
And keep your plans conservative unless you’re certain of the tax outcome.
If you’d like us to review your end-of-year arrangements, we’re here. Book in for a chat. A little planning now avoids unpleasant surprises later — which is the real gift at tax time.
