As the year wraps up, many businesses are planning their end-of-year celebrations. But with rising costs and tight margins, it’s no surprise business owners want to know – what Christmas party expenses can actually be claimed at tax time? The good news is, there are deductions available. The catch? It all depends on how much you spend, who attends, and where the party is held.
Let’s break it down so you can reward your team without blowing your tax position or triggering unnecessary Fringe Benefits Tax (FBT).
Are Christmas Party Expenses Tax Deductible?
The ATO generally considers Christmas parties to be a form of entertainment, which is not usually tax deductible. However, there are exceptions.
Key factors that impact deductibility:
- Where the party is held (on-site vs off-site)
- Who attends (employees only vs clients or associates)
- How much you spend per head
To help clarify these rules, the ATO provides a list of common entertainment scenarios.
On-Site Parties vs Off-Site Events
If your Christmas party is:
- Held at your business premises
- During a workday
- Attended by current employees only
Then No FBT is payable and no deduction is allowed.
If the party is held off-site (e.g. at a restaurant) and costs under $300 per head, it’s considered a minor benefit:
- No FBT, but still not tax deductible
Go over $300 per person? FBT is likely to apply, but now the expense becomes deductible
If clients attend, their portion is not deductible and not subject to FBT.
If you are unsure what applies for your work situation, chat to our team and we can advise on your situation.
Are Staff Gifts Tax Deductible?
Gifts are treated differently from parties. Non-entertainment gifts (like gift cards, hampers, or wine) under $300 are tax deductible but not subject to FBT.
Entertainment gifts (like event tickets or experiences) follow different rules and may attract FBT, even if under $300.
Don’t Forget About Fringe Benefits Tax (FBT)
Fringe Benefits Tax applies when employees (or their associates) receive benefits outside of salary and wages like fancy dinners, boat cruises, or even accommodation for events.
To avoid unexpected FBT bills:
- Keep costs under $300 per head
- Stick to non-entertainment gifts
- Host parties on-site during business hours
Christmas Bonuses vs Gifts
If you’re thinking about cash bonuses instead of gifts, these are treated as normal salary/wages and are subject to PAYG withholding and super. They are tax deductible for the business.
If you’re unsure whether to go down the gift or bonus route, talk to your accountant to weigh up the tax implications.
Is It Worth Having a Party If It’s Not Deductible?
In many cases – absolutely. A Christmas party is more than just a tax consideration. It can boost team morale, celebrate achievements and show appreciation after a busy year.
Just be aware of the cost implications so you’re not caught off guard at tax time.
Need Help Navigating the Rules?
If you’re not sure what you can claim this year, speak to your accountant. At Schofields Accountants, we can guide you through the rules around FBT, gifts, entertainment, and Christmas party expenses so you can celebrate without worry.
Contact our team today so you can start planning your Christmas party with confidence!
