A Christmas party is one of the few business expenses where spending less can mean paying less tax and claiming nothing at all. Whether FBT applies, and whether you can claim a deduction or GST credits, comes down to where the party is held, who attends and the cost per person.
This guide covers the party itself for the FBT year ending 31 March 2027, which includes Christmas 2026. It explains on-premises and off-premises events, the $300 minor benefit, partners and clients, and the deduction and GST outcome for each. The rules were checked against the ATO entertainment scenarios and TR 2007/12.
It is written for small and medium business owners planning an end-of-year event. For gift cards, hampers and other presents, see our separate guide to gift cards and FBT.
Key takeaways
- Food and drink for current employees on your premises on a working day is exempt from FBT, whatever it costs.
- Off premises, or for partners, the party is exempt only as a minor benefit: less than $300 per person and unreasonable to treat as a fringe benefit.
- The $300 test applies to each person, not the total bill.
- If the party is not subject to FBT, you get no income tax deduction and no GST credits.
- Clients attract no FBT, but their share is generally not deductible.
- Where FBT applies, the rate is 47% and the type 1 gross-up is 2.0802 for the FBT year ending 31 March 2027.
Christmas party tax at a glance
| Who and where | FBT | Deduction and GST credits |
|---|---|---|
| Employees, on premises, working day (food and drink) | Exempt | No |
| Partners at an on-premises party, under $300 per head | Exempt if a minor benefit | No |
| Employees and partners off premises, under $300 per head | Exempt if a minor benefit | No |
| Employees and partners, $300 or more per head | FBT payable | Generally yes |
| Clients, any venue | No FBT | No |
Source: ATO – Common entertainment scenarios for business, ATO – How to work out FBT on entertainment, ATO – FBT rates and thresholds, checked 9 October 2026.
Why does a Christmas party raise FBT at all?
Food, drink and recreation provided to employees or their associates is entertainment. When an employer provides it, it can be a fringe benefit, and FBT is paid by the employer, not the staff member.
The ATO says the outcome depends on how much you spend on each employee, when and where the event is held, who attends, and the value and type of any gifts. Its FBT and festivities update sets out those factors. For the basics of how FBT works, see our FBT guide for employers.
Is an on-premises party different from an off-premises one?
On your premises, on a working day
Food and drink provided to current employees on your business premises on a working day is exempt from FBT. This exemption does not depend on cost, so a $150 lunch and a $350 lunch are treated the same way for employees.
The catch is that exempt benefits are not fringe benefits, so you cannot claim an income tax deduction or GST credits for that food and drink.
At a restaurant, venue or other off-site location
Off premises, there is no automatic exemption. The party is exempt only if it qualifies as a minor benefit, which means the cost per person is less than $300 and the other minor benefit factors are met.
If the cost per person is $300 or more, the minor benefit exemption cannot apply and FBT is payable on the employee and partner share.
How does the $300 minor benefit work for a party?
The ATO minor benefits page says the notional taxable value must be less than $300. It also has to be unreasonable to treat the benefit as a fringe benefit, looking at:
- how frequently and regularly the benefit is provided
- the total value of identical or similar benefits
- the likely total of associated benefits
- how hard it would be to work out the value and keep records
- whether the benefit could be seen mainly as remuneration
Under TR 2007/12, the $300 threshold applies to each benefit for each employee and each associate. An employee who brings a partner and two children receives four separate benefits, each tested on its own. A once-a-year party usually fits the “infrequent and irregular” factor.
A gift handed out at the party is a separate benefit and is assessed separately from the party itself.
What about partners, families and clients?
| Attendee | On premises, working day | Off premises |
|---|---|---|
| Current employee | Exempt (food and drink) | Minor benefit test |
| Partner or family member | Minor benefit test | Minor benefit test |
| Client or supplier | No FBT, not deductible | No FBT, not deductible |
Source: ATO – Common entertainment scenarios for business and TR 2007/12, checked 9 October 2026.
Partners never get the on-premises exemption, because it only covers current employees. Clients sit outside FBT altogether, but the ATO says entertainment provided to clients is generally not deductible.
The ATO example of a $125 per head on-premises lunch with employees, partners and clients, plus taxis home, ends with no FBT for anyone and no deduction or GST credits for any of it.
When can I claim a deduction and GST credits?
The ATO guidance on entertainment says you can generally claim an income tax deduction and GST credits for entertainment that is a taxable fringe benefit. This does not apply to exempt benefits.
So if part of the party is subject to FBT, that part is deductible and its GST credits can go on your BAS. Our activity statement guide explains where credits are claimed. The exempt parts and the client share are not deductible.
Where FBT applies, the taxable value is grossed up at 2.0802 (type 1, where you can claim GST credits) or 1.8868 (type 2), and FBT is 47% of the grossed-up amount, according to the ATO FBT rates page.
Worked example: an off-site party over $300 a head
A business holds a dinner at a restaurant in December 2026 for 10 employees, 10 partners and 4 clients (24 people). The bill is $8,580 including GST, so the cost per head is $8,580 / 24 = $357.50. That is above $300, so the minor benefit exemption cannot apply.
Employees and partners: 20 x $357.50 = $7,150 taxable value. Grossed up at type 1: $7,150 x 2.0802 = $14,873.43. FBT at 47%: $14,873.43 x 0.47 = $6,990.51.
Deduction and GST: the $7,150 share is a taxable fringe benefit, so the business can generally deduct $6,500 and claim $650 in GST credits ($7,150 / 11 = $650).
Clients: 4 x $357.50 = $1,430, with no FBT, no deduction and no GST credits. Check: $7,150 + $1,430 = $8,580.
If the same dinner had cost $290 a head, the employee and partner benefits could be exempt minor benefits: no FBT, but also no deduction or GST credits.
Rule of thumb: Work out the cost per person before you book. Under $300 a head usually means no FBT and no deduction; $300 or more means FBT on staff and partners, with a deduction and GST credits on that share.
Common mistakes with Christmas party FBT
- Claiming a deduction for an exempt party. No FBT generally means no deduction and no GST credits.
- Testing the total bill against $300. The test is per person, per benefit.
- Assuming partners are covered on premises. The on-premises exemption is for current employees only.
- Forgetting the client split. Client costs are not subject to FBT but are generally not deductible either.
- Lumping gifts in with the party. Gifts are separate benefits and need their own assessment.
For other year-end costs you can claim, see our small business tax deductions guide and our wider tax deduction guide. The ATO website also has a full FBT section.
FAQ about Christmas party FBT
Is a staff Christmas party tax deductible in Australia?
Only if it is subject to FBT. The ATO says that if the party is not subject to FBT, for example because it is an exempt minor benefit or food and drink on your premises on a working day, you cannot claim an income tax deduction for it. If FBT applies to the employee and partner portion, that portion is generally deductible.
Is the $300 limit per person or for the whole party?
Per person. TR 2007/12 says the threshold applies to each benefit provided to each employee and to each associate, such as a partner, not to the total spend. A party can cost thousands of dollars in total and still be under $300 for every person who attends.
Do partners change the tax treatment of an on-premises party?
Yes. The on-premises exemption for food and drink on a working day only covers current employees. Partners and other associates have to be assessed under the minor benefits rules instead, so their share is exempt only if it costs less than $300 per person and it would be unreasonable to treat it as a fringe benefit.
What about clients who come to our Christmas party?
The ATO says there is no FBT on benefits provided to clients. However, entertainment provided to clients is generally not deductible, and you cannot claim GST credits on their share. Keep a guest list that separates clients from employees and partners so you can split the cost correctly.
Can I claim GST credits on the Christmas party?
Only for the part that is a taxable fringe benefit. The ATO says you can generally claim an income tax deduction and GST credits for entertainment that is subject to FBT, but this does not apply to exempt benefits. If the whole party is exempt, there are no GST credits to claim on your BAS.
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If you are planning an end-of-year event or need an FBT return for the year ending 31 March 2027, Nanak Accountants can work through the numbers with you. See our FBT return service, call 1300 626 258 or book a discovery meeting.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO entertainment, minor benefits and FBT rates pages and TR 2007/12 on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
