Christmas Parties and Gifts: What You Can (and Can’t) Claim for Tax & FBT

The Christmas Cheer Comes with Tax Rules

December is the season for celebration — staff parties, client lunches, and thoughtful gifts. It’s a great time to thank your team and build relationships. But it’s also one of the most misunderstood times of year when it comes to tax deductibility and FBT.

The ATO has very specific rules on what counts as entertainment, what’s deductible, and when FBT applies. If you get it wrong, your good intentions could turn into unexpected tax costs.

This guide breaks it all down, so you can enjoy your Christmas events with confidence and keep the tax office happy.

1. What is Fringe Benefits Tax (FBT)?

FBT is a separate tax that employers pay on certain benefits provided to employees (or their associates) in place of salary or wages.

It covers things like:

• Entertainment (meals, events, functions)

• Gifts

• Use of company assets for private purposes

• Expense payments made on behalf of employees

FBT is calculated on the grossed-up value of the benefit, which can make it expensive. The good news? Many Christmas-related benefits can be FBT-free if managed correctly — mainly under the $300 minor benefits exemption.

2. The $300 Minor Benefits Exemption

The key to avoiding FBT on Christmas expenses is the minor benefits rule.

To qualify:

• The benefit must cost less than $300 per person (including GST)

• It must be infrequent and irregular

• It must be provided to employees or their associates (like partners)

If it ticks those boxes, no FBT applies — and while you generally can’t claim a tax deduction or GST credit for entertainment, that’s usually still a better outcome than paying FBT.

Here’s how it typically works in practice.

3. Christmas Parties: On-Site vs Off-Site

The location of your party and who attends makes a big difference to the tax treatment.

Scenario 1: Party held on business premises

• Employees only: Generally no FBT, even if the cost is over $300 per person.

• Employees + family members: The employees’ portion remains FBT-free, but the family portion may attract FBT unless it’s under $300 each.

• Clients attending: Costs related to clients are not subject to FBT and not deductible (because they’re classed as entertainment).

Scenario 2: Party held off-site (restaurant or venue)

• Employees only: FBT applies if the cost per person is over $300.

• Under $300 per head: Exempt under the minor benefits rule.

• Clients: No FBT, but again, no deduction.

A quick tip — keeping an itemised guest list and cost per head makes it much easier to prove which expenses fall under each category.

4. Staff Gifts vs Client Gifts

The treatment of gifts depends on who receives them and what type of gift it is.

Gifts to Employees

• If the gift is under $300, provided infrequently, and not entertainment in nature (for example, wine, hampers, gift cards, or gadgets), it’s FBT-exempt and tax deductible.

• If it’s entertainment-based (tickets, holidays, restaurant vouchers), you usually can’t claim a deduction, but FBT may still apply if over $300.

Gifts to Clients

• Always no FBT, because they’re not employees.

• Usually deductible, provided they’re not entertainment.
  A bottle of wine, gift hamper, or branded merchandise is fine. A concert ticket or meal voucher generally isn’t deductible because it’s entertainment.

In short: non-entertainment = deductible. Entertainment = likely not deductible.

5. Common Mistakes Businesses Make

Even experienced business owners can trip up at Christmas. Here are the top errors we see every year:

• Not separating staff and client costs in Xero, which makes FBT and deduction analysis impossible later.

• Claiming entertainment deductions that aren’t actually deductible.

• Exceeding the $300 limit by forgetting to include GST or incidental costs (like transport or drinks).

• Providing frequent small gifts that, when combined, lose the “infrequent” status under the minor benefits rule.

A few minutes of proper coding and record-keeping now can save hours of review and potential adjustments later.

6. How to Record Christmas Costs in Xero

Set up clear expense accounts to separate each category:

• Entertainment – Staff

• Entertainment – Clients

• Gifts – Staff

• Gifts – Clients

When entering expenses:

• Attach receipts for each transaction

• Add a note about who attended or received the gift

• Code client-related costs separately from staff ones

Doing this ensures your accountant can easily determine what’s deductible, what’s subject to FBT, and what’s purely entertainment.

7. Travel and Accommodation Costs

If your Christmas event involves travel or an overnight stay, the rules tighten further.
For example:

• Airfares or accommodation for staff or partners are generally subject to FBT unless under $300 per person and infrequent.

• Transport home (like taxis or rideshares) from an off-site venue is exempt from FBT if provided on the same day as a work-related function.

So if you’re paying for Ubers home after the party, that’s fine — but flying staff interstate for an end-of-year trip could trigger FBT if you’re not careful.

8. Charitable Donations Instead of Gifts

Another tax-effective option is to make charitable donations on behalf of your clients or staff instead of giving physical gifts.

• These are fully deductible (if made to a registered DGR charity).

• There’s no FBT, because it’s not a benefit to an employee.

• It’s also a nice gesture that reflects positively on your brand values.

You can even record these as “Donations – Deductible” in Xero for clean reporting.

9. Entertainment Alternatives That Are Still Fun

If you’d rather avoid the grey areas of entertainment, there are plenty of creative ways to celebrate while keeping things tax-friendly.
Examples include:

• Holding a casual in-office lunch instead of a big external event

• Offering gift vouchers or hampers instead of restaurant meals

• Hosting an activity-based event during work hours (like a trivia day or volunteering session)

• Giving each team member a personalised gift under $300

These options reduce FBT risk and are often just as meaningful for your team.

10. Plan Before You Spend

A few minutes of planning can save thousands in unnecessary FBT or lost deductions.
Before you confirm your Christmas budget, consider:

• Who’s attending (staff, families, clients)

• Where the event will be held

• What you’re giving (gift vs entertainment)

• How much each benefit costs per head

If in doubt, ask your accountant for a quick review. They can help you structure the event or gifts to minimise FBT exposure and ensure you’re claiming what you’re entitled to.

Practical Example

Let’s take a typical scenario:

• You hold an off-site restaurant party for 10 employees and 2 clients.

• Total cost: $2,640 including GST ($220 per head).

• You also give each employee a $100 gift card.

Result:

• The party cost is under $300 per employee, so no FBT and no deduction (entertainment).

• Client portion is not deductible and no FBT applies.

• The $100 gift cards are FBT-exempt and deductible.

This simple setup gives your team a great experience and avoids unnecessary tax.

Final Thoughts

Christmas should be a time to celebrate, not stress about tax rules. With a bit of awareness and the right structure, you can thank your team and clients in a tax-effective way.
The goal isn’t to cut back on generosity, it’s to make sure your money is spent wisely, with the best possible tax outcomes.

A good accountant will help you plan this seamlessly, so you can focus on what matters: finishing the year strong and enjoying the holidays.

Call to Action:
Thinking about a Christmas party or client gift this year? Contact us before you finalise your plans. We’ll help you make sure it’s structured tax-effectively, FBT compliant, and still full of festive cheer.