As the festive season approaches, many Australian businesses start planning Christmas parties and end-of-year rewards for staff. While it’s a great time to show appreciation, it’s important to understand the Fringe Benefits Tax (FBT) implications—especially when it comes to entertainment vs. gifts.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a tax paid by employers on certain non-cash benefits provided to employees (and their associates, such as spouses). This includes things like entertainment, cars, or even holiday accommodation.
Christmas parties, meals, and drinks are considered entertainment, and therefore potentially subject to FBT—unless certain exemptions apply.
Are Christmas Parties Subject to FBT?
In many cases, no FBT is payable on the cost of a Christmas party if:
- The party is held on a working day and on business premises, and
- The cost per employee is under $300 (including GST)
This is known as the minor benefits exemption. It can also apply to off-site functions, but only if the cost per head (including for partners) stays under $300 and the benefit is considered “infrequent and irregular.”
However, if these thresholds are exceeded, or if you’re providing significant entertainment (e.g., venue hire, performers, open bars), FBT may apply—and that cost can add up fast.
Gifts vs Entertainment: A Tax-Savvy Alternative
Instead of throwing an expensive event, consider giving employees a non-entertainment gift—like a hamper, gift card, or bottle of wine. These are generally not considered entertainment and can also qualify for the minor benefits exemption if under $300.
The advantage? Non-entertainment gifts under $300 are usually fully FBT-exempt and also tax-deductible, making them a more cost-effective way to reward staff.
In contrast, entertainment expenses (like parties or event tickets) are not tax-deductible if FBT doesn’t apply—so even if you avoid FBT, you miss out on the deduction.
Final Thought
While a Christmas party may be more memorable, the tax implications can’t be ignored. If you’re looking for a festive thank-you that’s tax-smart and simple, a well-chosen gift might be the better option. As always, consult your accountant to find the best balance for your business.
