The festive season is fast approaching, and we are here to help you navigate the tax implications of rewarding your team this Christmas.
As the year winds down, many businesses are planning how to celebrate their team’s hard work and dedication. Between parties, presents and performance bonuses, the costs can add up quickly. The good news? With smart planning, you can maximise your festive budget while staying on the right side of the tax rules. Let’s break down what you need to know about the three most common Christmas expenditures: celebrations, gifts and bonuses.
Staff Celebrations
Nothing says “thank you for a great year” quite like a Christmas party. Whether you’re booking out a restaurant, hiring a venue, or arranging a casual team lunch, these end-of-year celebrations help your team relax and connect before the holiday break. From a tax perspective, when you host celebrations away from your business premises, they fall under “entertainment” expenditure rules, which means fringe benefits tax (FBT) considerations come into play.
Here’s how it works:
- Keep the cost per employee below $300 and you’ll benefit from the FBT exemption. The trade-off? You won’t be able to claim GST credits or an income tax deduction on these costs.
- Spend $300 or more per employee and you’ll trigger FBT obligations. However, this does open the door to claiming both GST credits and an income tax deduction.
Which approach saves you more money? In most cases, avoiding FBT is your best bet. Since the FBT rate sits at 47% (higher than the company tax rate), keeping per-person costs under $300 typically delivers better value, even without the tax deduction. If your celebration does attract FBT, remember that this is reported for the FBT year running from 1 April 2025 to 31 March 2026, with returns due in May 2026.
Key Tip: The minor benefits exemption hinges on benefits being occasional rather than routine. If you’ve been shouting your team regular lunches, coffees or other entertainment throughout the year, the ATO might decide your Christmas event doesn’t qualify as “infrequent,” potentially triggering FBT even on amounts under $300. Keep a mental tally of how often you’re treating the team.
Staff Gifts
The joy of giving extends to staff gifts, and unfortunately, similar tax rules apply. The $300 minor benefit threshold is your friend here too, stay under this amount per employee and you’ll avoid FBT complications. To get the most value from your gift budget, aim to keep individual gift costs below this threshold.
Here’s a tip: non-entertainment gifts like hampers, wine, gift cards or flowers offer superior tax treatment compared to entertainment-based gifts. These items are fully tax-deductible with no FBT liability, and you can claim GST credits in addition to this. It’s also worth knowing that if you give gifts at your Christmas party, each element (the party cost and the gift) is assessed separately against the $300 threshold, meaning that both can potentially qualify for the exemption.
When it comes to gifts for clients and suppliers, different rules apply. These are generally deductible, though tickets to entertainment events like movies, theatre or sports remain non-deductible.
Bonuses
Perhaps you’d rather put cash in your employees’ pockets this Christmas. Bonus payments are straightforward from a tax perspective as they’re treated exactly like regular wages. This means you’ll need to factor in superannuation contributions, PAYG withholding and payroll tax where applicable.
If you’re considering bonuses, think strategically about how they fit within your broader remuneration approach. Aligning Christmas bonuses with performance goals can help ensure they support both employee motivation and business objectives.
Planning ahead is the secret to stress-free festive spending. By understanding the tax implications before you commit to Christmas celebrations, you’ll make smarter decisions that benefit both your bottom line and your team.
To discuss your specific circumstances and get personalised advice on managing your Christmas business expenses, contact us today. Our experienced accountants and business advisors take the time to understand your needs and provide practical, hands-on guidance for your business and personal finances.
