Festive celebrations and FBT: check before you book
Insight Publications | November 2026
End-of-year celebrations are a good way to thank a team, but they can also create a fringe benefits tax (FBT) obligation that is easy to overlook until the books are being closed.
On 4 November 2026 the ATO reminded employers to work through the FBT position before arrangements are finalised and costs are incurred, rather than afterwards. This article sets out how the rules generally apply to Christmas parties and staff gifts for the FBT year ending 31 March 2027
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01 Background
FBT is paid by employers on certain benefits provided to employees or their associates, such as partners and family members. It is separate from income tax.
Food, drink and recreation provided at a social function are generally treated as entertainment, so a staff Christmas party is an entertainment-related benefit that needs to be assessed.
The ATO's festive-season message asks employers to consider five things before they celebrate: where the event is held (on the business premises or off-site), when it is held (during or outside normal working hours), who attends (employees, their associates, contractors, clients, or a mix), the cost per person (including food, drink, entertainment and other associated expenses), and the value and type of any gifts.
Who it applies to
The rules apply to employers who provide food, drink, recreation or gifts to employees and their associates. Benefits provided to business clients are not subject to FBT, which is why the mix of attendees matters so much to the outcome.
02 How the rules generally apply to a Christmas party
The ATO's published scenarios for commercial businesses point to the following outcomes.
Two points are worth stressing.
First, the on-premises exemption for employees applies to food and drink consumed on a working day regardless of cost, and it does not extend to partners, whose food and drink must instead qualify as a minor benefit.
Second, the $300 threshold is all-or-nothing: once the benefit reaches $300 per person, FBT applies to the whole benefit, not just the excess
Businesses can refer to the following common scenarios to gain a preliminary understanding of the potential tax implications of different event arrangements.
03 The $300 minor benefits test
The minor benefits exemption has two limbs, and both must be met.
The notional taxable value of the benefit must be less than $300, and it must be unreasonable to treat the benefit as a fringe benefit. In assessing the second limb the ATO looks at factors such as how frequently and regularly the benefit is provided, the total value of identical or similar benefits, the value of other associated benefits, and the circumstances in which the benefit was provided.
A few practical consequences follow:
The test is applied per person. Benefits provided to an employee's partner are not added to the employee's own benefit.
Where separate but connected benefits are provided (for example, a party and a gift), the $300 threshold applies separately to each benefit. However, the value of associated benefits is also relevant to the second limb, so splitting a large spend across several items is not a safe harbour.
As a conservative approach, we suggest working to $300 including GST.
The minor benefits exemption is not available where an employer has elected to use the 50:50 method for meal entertainment.
04 Why "no FBT" often means "no deduction"
This is the point many employers do not expect.
Where a Christmas party is not subject to FBT, the ATO's position is that the employer cannot claim an income tax deduction for its cost, and cannot claim GST credits on it. That applies to the exempt employee and partner costs, and to client costs, which are outside FBT altogether.
The alternative is rarely attractive. FBT is charged at 47% for the year ending 31 March 2027, but on the grossed-up taxable value. With the Type 1 gross-up rate of 2.0802, the FBT payable works out to roughly 98 cents for each dollar of taxable value. The deduction and GST credit that come with a taxable benefit are unlikely to offset that cost for most businesses. In our view, keeping a function within an exemption and forgoing the deduction is usually the cheaper outcome, although each case should be modelled on its own facts.
05 Staff gifts
The ATO notes that infrequent gifts to employees valued at less than $300 per person can qualify as a minor benefit. The tax treatment of the gift then depends on whether it is entertainment:
Take-home, non-entertainment gifts such as a hamper or an unopened bottle of wine are generally treated as deductible with GST credits available, even though no FBT is payable. This reflects common practitioner treatment, so confirm the position for the specific gift.
Entertainment gifts such as event or theatre tickets, and restaurant or ticketing vouchers, are entertainment. Under $300 there is no FBT, but generally no deduction or GST credit either. A retail voucher is a different case from a restaurant voucher, so the type of voucher matters.
Cash bonuses are not fringe benefits. They are paid through payroll as salary and wages, and the employee pays income tax on them. PAYG withholding, superannuation and payroll tax obligations may also need to be considered.
06 Practical considerations
Decide the venue, timing, guest list and per-person budget before booking, and test each against the exemptions above.
Keep records of costs, attendee numbers (employees, partners and clients separately) and the exemption relied on for each benefit.
Check the classification of gifts and vouchers before purchase, not after.
Confirm whether the business elects to use the 50:50 or 12-week method for meal entertainment, as this affects the availability of the minor benefits exemption.
Treat the party and any gift as separate benefits, but keep the combined spend per person in view.
07 Conclusion
For most small and medium-sized employers, a Christmas party kept within the on-premises or minor benefit exemptions will not attract FBT, but it will usually not be deductible either. The risk sits at the boundaries: spend that reaches $300 per person, events that mix employees, partners and clients, and gifts that turn out to be entertainment. A short check before booking is far cheaper than an unexpected liability when the FBT return is prepared.
If you are unsure how FBT applies to a planned celebration or gift, our Business & Tax team at WIS Australia can help you work it through before commitments are made.
Sources
Disclaimer
This article reflects publicly available information regarding the exposure of draft legislation as at the date of publication and is general in nature. It does not constitute tax, financial, or legal advice and should not be relied upon without obtaining professional advice tailored to your specific circumstances. To discuss how these proposed changes may affect you or your business, please contact our advisory team at Wis Australia.
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