Tax Alert - Christmas Parties & Gifts 2024

Lowe Lippmann Chartered Accountants

Christmas Parties & Gifts 2024


With the well-earned 2024 holiday season on the way, many employers will be planning to reward staff with a celebratory party or event.


However, there are important issues to consider, including the possible FBT and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients.


FBT and 'entertainment'


Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the 'actual method' or the '50/50 method', rather than the '12-week method'.


Using the actual method


Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (eg. clients). Such expenditure on employees is deductible and liable to FBT. Expenditure on non-employees is not liable to FBT and not tax deductible.


Using the 50/50 method


Rather than apportion meal entertainment expenditure on the basis of actual attendance by employees, etc., many employers choose to use the more simple 50/50 method.


Under this method (irrespective of where the party is held or who attends) 50% of the total expenditure is subject to FBT and 50% is tax deductible. However, the following traps must be considered:

  • even if the function is held on the employer's premises – food and drink provided to employees is not exempt from FBT;
  • the minor benefit exemption* cannot apply; and
  • the general taxi travel exemption (for travel to or from the employer's premises) also cannot apply.


(*) Minor benefit exemption


The minor benefit exemption provides an exemption from FBT for most benefits of 'less than $300' that are provided to employees and their associates (eg. family) on an infrequent and irregular basis.


The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and a gift) are not added together when applying this $300 threshold. However, entertainment expenditure that is FBT-exempt is also not deductible.


We note that a $300 gift to an employee will be caught for FBT, whereas a $299 gift may be exempt.


Example: Christmas party


An employer holds a Christmas party for its employees and their spouses – 40 attendees in all. The cost of food and drink per person is $250 and no other benefits are provided.


If the actual method is used: 

  • For all 40 employees and their spouses – no FBT is payable (ie. if the minor benefit exemption is available), however, the party expenditure is not tax deductible.


If the 50/50 method is used:

  • The total expenditure is $10,000, so $5,000 (ie. 50%) is liable to FBT and tax deductible.

Christmas gifts


With the holiday season approaching, many employers and businesses want to reward their staff and loyal clients/customers/suppliers.


Again, it is important to understand how gifts to staff and clients, etc., are handled 'tax-wise'.


Gifts that are not considered to be entertainment


These generally include a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers or a pen set, etc. Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible; and
  • gifts to clients, suppliers, etc. – no FBT, and tax deductible.


Gifts that are considered to be entertainment


These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre. Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible (unless they are exempt from FBT); and
  • gifts to clients, suppliers, etc. – no FBT and not tax deductible.


Non-entertainment gifts at functions


What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees are given a gift or a gift voucher (for their spouse) to the value of $150?


Actual method used for meal entertainment


Under the actual method no FBT is payable, because the cost of each separate benefit (being the expenditure on the Christmas party and the gift respectively) is less than $300 (ie. the benefits are not aggregated).


No deduction is allowed for the food and drink expenditure, but the cost of each gift is tax deductible.


50/50 method used for meal entertainment


Where the 50/50 method is adopted:

  • 50% of the total cost of food and drink is liable to FBT and tax deductible; and
  • in relation to the gifts:
  • the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and
  • as the gifts are not entertainment, the cost is tax deductible.


Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

Liability limited by a scheme approved under Professional Standards Legislation


October 3, 2025
ATO interest charges are no longer tax deductible – What you can do As we explained in our Practice Update for September, general interest charge ( GIC ) and shortfall interest charge ( SIC ) imposed by the ATO is no longer tax-deductible from 1 July 2025. This applies regardless of whether the underlying tax debt relates to past or future income years. With GIC currently at 11.17%, this is now one of the most expensive forms of finance in the market — and unlike in the past, you won’t get a deduction to offset the cost. For many taxpayers, this makes relying on an ATO payment plan a costly strategy. Refinancing ATO debt Businesses can sometimes refinance tax debts with a bank or other lender. Unlike GIC and SIC amounts, interest on these loans might be deductible for tax purposes, provided the borrowing is connected to business activities. While tax debts will sometimes relate to income tax or CGT liabilities, remember that interest could also be deductible where money is borrowed to pay other tax debts relating to a business, such as: GST; PAYG instalments; PAYG withholding for employees; and FBT. However, before taking any action to refinance ATO debt it is important to carefully consider whether you will be able to deduct the interest expenses or not. Individuals If you are an individual with a tax debt, the treatment of interest expenses incurred on a loan used to pay that tax debt really depends on the extent to which the tax debt arose from a business activity: Sole traders: If you are genuinely carrying on a business, interest on borrowings used to pay tax debts from that business is generally deductible. Employees or investors: If your tax debt relates to salary, wages, rental income, dividends, or other investment income, the interest is not deductible. Refinancing may still reduce overall interest costs depending on the interest rate on the new loan, but it won’t generate a tax deduction.
September 9, 2025
Costs incurred in acquiring / forming a business. Further to the recent blog about capitalisation of costs when acquiring an asset, we have received a number of questions in relation to costs incurred in setting up / purchasing a business. Formation costs on establishing a business: These costs would include: Incorporation fees ASIC registration fees Legal fees Business name registration Pre-operating costs Pre-opening costs. The relevant standard for these costs is AASB 138 Intangible Assets and paragraph 69a confirms that these start-up costs are expensed when incurred. There is no identifiable asset controlled by the entity when the costs are incurred as the entity does not exist. Business acquisition costs These costs would include: Legal and accounting fees Due diligence and valuation costs Stamp duty Advisory or brokerage fees Project management costs related to the acquisition Internal costs allocated to the transaction In contrast to the asset acquisition discussed previously, AASB 3 Business Combinations requires all acquisition costs to be expensed as incurred. This means that they are not included as part of the consideration paid and therefore do not affect calculated goodwill.  Entities purchasing businesses should be aware that these costs are not able to be capitalised as they can often be substantial, and purchasers often do not expect the costs to be taken directly to the income statement
September 8, 2025
ATO to include tax 'debts on hold' in taxpayer account balances From August 2025, the Australian Taxation Office ( ATO ) is progressively including 'debts on hold' in relevant taxpayer ATO account balances. A 'debt on hold' is an outstanding tax debt where the ATO has previously paused debt collection actions. Tax debts will generally be placed on hold where the ATO decides it is not cost effective to collect the debt at the time. The ATO is currently required by law to offset such 'debts on hold' against any refunds or credits the taxpayer is entitled to. The difficulty with these debts is that the ATO has not traditionally recorded them on taxpayer's ATO account balances. Taxpayers with 'debts on hold' of $100 or more will receive (or their tax agent will receive) a letter before it is added to their ATO account balance (which can be viewed in the ATO's online services or the statement of account). Taxpayers with a 'debt on hold' of less than $100 will not receive a letter, but the debt will be included in their ATO account balance. The ATO has advised it will remit the general interest charge ( GIC ) that is applied to 'debts on hold' for periods where they have not been included in account balances. This means that taxpayers have not been charged GIC for this period. The ATO will stop remitting GIC six months from the day the taxpayer's 'debt on hold' is included in their account balance. After this, GIC will start to apply.
More Posts