How to claim staff gifts and Christmas parties

If you're an employer, there are some important tax considerations to keep in mind when organising Christmas celebrations or handing out gifts. Being aware of these can help you manage your tax obligations and make the most of any available deductions.

Christmas parties

When you host a Christmas party for your staff outside of your business premises, this is considered an ‘entertainment’ expense for tax purposes. You can only claim a tax deduction for these entertainment costs to the extent that you are required to pay Fringe Benefits Tax (FBT) on the expense. Whether you’re liable for FBT depends on the method you use to calculate FBT on meal entertainment for the FBT year.

An FBT exemption may apply if the total cost per employee (including their associates) is under $300, and such events are not held regularly. This full exemption is only available if you use the actual cost method to work out your meal entertainment benefits for the year. If you use the 50/50 split method or the 12-week register method, you won’t be eligible for the full exemption. In this case, the exemption will be 50% or be based on the percentage determined under the register.

No matter which method you choose, you will only be able to claim a tax deduction for the expense to the extent that you actually pay FBT on it.

If your generosity means the cost reaches $300 or more per staff member, you can claim the entire expense as a deduction provided you use the actual cost method—but you’ll need to pay FBT on those entertainment costs.

If you’re organising functions for clients or referrers, there’s no FBT to worry about for these guests. However, you can’t claim those costs as an income tax deduction.

Gifts

Gifts given to staff are categorised as ‘non-entertainment’ are tax deductible. This rule also covers gifts for other occasions like birthdays. Provided these gifts aren’t given frequently and the gift is under $300 to the employee, there will be no FBT on the cost. If a gift is $300 or more, FBT will apply to the whole expense, but the expense remains deductible.

If you’re giving gifts to clients or suppliers, these are generally tax deductible and not subject to FBT, regardless of the amount spent.

It’s important to ensure that any gift you plan to deduct meets the ‘non-entertainment’ criteria. Examples include gift cards, bottles of wine or spirits, hampers, groceries, board games, flowers, beauty products and tech items like computers.

Gifts classified as ‘entertainment’, such as theatre or concert tickets, tickets to sporting events, holidays (including accommodation), and amusement park passes, are not deductible.

Tax implications to consider

GST input tax credits related to the cost of a party or gift can only be claimed in your next Business Activity Statement if the expense itself is tax deductible.

The tax treatment of Christmas parties and gifts, including FBT and income tax, can differ based on the cost and the FBT election method you use.

Before finalising your staff Christmas celebrations this year, it’s a good idea to speak with your usual Forvis Mazars adviser, or one of our specialists, about the tax implications and other strategies that could be considered.

Published: 1/12/2025

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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