Christmas parties, gifts & tax: what actually works!

Every December I see businesses make the same mistake. They spend good money on Christmas parties and gift and accidentally make them tax-inefficient.

A few simple choices can mean the difference between a deduction with no FBT or no deduction at all.

Here’s how the rules actually work:

1. Christmas party on business premises, during work hours
   This is the most tax-effective option.
   • Light meals and drinks are deductible.
   • No FBT applies.
   • GST credits can be claimed.
   • The food can be multiple courses — but no alcohol.
   • It must not be lavish (a 10-course degustation won’t pass the test) Once it becomes entertainment, the tax benefit disappears.
2. Christmas party at a restaurant or external venue
   This is where many businesses get caught out.
   • If food, drinks and alcohol are under $300 per employee, no FBT applies.
   • But the employer cannot claim a tax deduction or GST credit.
   • Go over $300, and FBT may apply. No FBT doesn’t always mean good tax.
3. Staff Christmas gifts (often the best option)
   Non-entertainment gifts under $300 per employee are generally:
   1. Tax-deductible
   2. No FBT
   3. GST credits available (if registered)

Examples include:

• Coffee machines
• Books
• Flowers or chocolates
• Gift hampers
• Wine, spirits or liqueur
• Perfume or aftershave
• Retail vouchers (David Jones, Myer, etc.)
• Watches, handbags or wallets

The takeaway?

Christmas generosity is great but structure matters. A small change in how you celebrate can make a meaningful difference to your tax outcome.