Christmas parties and end-of-year celebrations are a great way to reward your team, but the tax treatment of these expenses can be tricky. In 2026, the ATO's minor benefits exemption and entertainment rules mean that with careful planning, businesses can host a tax-effective Christmas event while staying fully compliant. Here is everything Australian businesses need to know about claiming Christmas expenses.

The $300 Minor Benefits FBT Exemption

The most important rule for Christmas parties in 2026 is the minor benefits FBT exemption: a benefit is exempt from Fringe Benefits Tax if its value is less than $300 per person (including GST) and it is provided on an infrequent and irregular basis. If your Christmas party costs less than $300 per head, no FBT applies. However, you also cannot claim an income tax deduction for exempt minor benefits — the two benefits cannot be combined.

On-Premises vs Off-Premises Christmas Parties

  • On business premises, during a business day, for current employees only: Exempt from FBT under the "exempt property benefit" rule, regardless of cost. No income tax deduction available.
  • Off-premises or includes associates (spouses, partners): Subject to FBT if cost per head exceeds $300. If cost stays under $300 per head, minor benefits exemption applies and no deduction is available.
  • Gifts given alongside the party: Each benefit is assessed separately — a $250 party plus a $100 gift is two separate benefits, each tested against the $300 threshold individually.

Christmas Gifts to Employees in 2026

Christmas gifts to employees are a common area of confusion. The key distinction is between entertainment gifts (cinema tickets, experience days, restaurant vouchers) and non-entertainment gifts (gift cards, hampers, bottles of wine). Non-entertainment gifts under $300 per employee attract no FBT and are fully tax-deductible as a business expense. Entertainment gifts are subject to FBT if over $300 per person.

  • Hampers, wine, chocolates under $300: No FBT, tax deductible
  • Gift cards for retail (not restaurants) under $300: No FBT, tax deductible
  • Restaurant vouchers or entertainment tickets: Entertainment — subject to FBT rules
  • Gifts to clients and suppliers: Generally deductible; no FBT (FBT applies only to employees)

GST and Christmas Entertainment

If your Christmas entertainment is not deductible for income tax (because it is exempt from FBT under the minor benefits rule), you generally cannot claim the GST input tax credit either. However, if FBT applies (and you pay it), the full cost is deductible and you can claim GST credits.

2026 Christmas Expense Planning Checklist

  • Keep the party cost under $300 per person (inclusive of GST) to avoid FBT
  • Hold the party on business premises during a working day to maximise exemptions
  • Keep associates (partners/spouses) costs under $300 per head separately
  • Choose non-entertainment gifts under $300 per employee for full deductibility
  • Document all expenses with tax invoices and a guest list

Frequently Asked Questions

Can I claim a Christmas party as a tax deduction?

If the party qualifies as an exempt minor benefit (under $300 per head, infrequent), you cannot claim an income tax deduction. If you pay FBT on the entertainment (cost over $300 per head), the expense becomes fully deductible and GST credits can be claimed.

What is the FBT rate in 2026?

The FBT rate for the 2026 FBT year (1 April 2025 to 31 March 2026) is 47%, applied to the grossed-up taxable value of fringe benefits. The FBT year runs from 1 April to 31 March — separate from the income tax year.

Are gifts to clients tax deductible?

Gifts to clients and suppliers are generally deductible as a business expense, provided they are not entertainment gifts (meals, drinks, tickets). Non-entertainment gifts like hampers or branded merchandise are fully deductible. No FBT applies to client gifts.

Need help planning your end-of-year expenses for maximum tax efficiency? Contact AWTS before your next event.