Tax Alert - FBT: Christmas Parties & Gifts

Lowe Lippmann Chartered Accountants

FBT: Christmas Parties & Gifts

With the well-earned 2022 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.



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.


November 4, 2026
ATO to continue accepting credit cards until 30 June 2027, but the clock it still ticking Last month, in our Practice Update for October 2026 ( see here ), we noted the Australian Tax Office ( ATO ) announced it will stop accepting credit cards as a payment method after 30 November 2026, following the Reserve Bank of Australia’s ( RBA ) ban on card surcharges from 1 October 2026. The ATO has since confirmed that it will continue to accept credit card payments for tax obligations until 30 June 2027 . After 30 June 2027, taxpayers who wish to continue using a credit card to meet their tax obligations may continue to use third-party payment providers as outlined at www.ato.gov.au/howtopay What do these change mean for you? The extension does not cancel the planned withdrawal of direct credit card payments. From 1 July 2027, you will need to use another method to pay the ATO directly. Available alternatives include: Debit card BPAY Bank transfer Direct debit Payment at Australia Post (where available) International money transfer services (where applicable) Some third-party payment providers may continue to offer ways to pay tax using a credit card after the deadline. However, these services may charge additional fees and take longer to process payments. Check the total cost, processing time and payment conditions before relying on one. Why does your payment method matter? Credit cards can help bridge short-term cash-flow gaps, but the convenience comes at a cost. Interest, annual fees and other charges can erode the benefit, particularly if you regularly carry a balance. There is also a risk that a payment will not be processed in time, potentially leaving you with an overdue tax liability and additional interest. Switching to BPAY, bank transfer or direct debit may provide a simpler and more predictable way to manage tax payments. The right option will depend on your circumstances, including when funds are available in your business account and whether you need to retain flexibility over payment dates. Pay particular attention if you have an existing ATO payment plan linked to a credit card. The ATO has been contacting affected taxpayers, but you should check your own arrangements rather than assume they will continue unchanged. Confirm how future instalments will be paid and allow enough time to update the payment method before the deadline. What should you do now? Use the extended timeframe to prepare rather than leaving the change until the last minute. Review your current arrangements. Check whether you use a credit card for one-off tax payments, regular instalments or an ATO payment plan. Choose an alternative. Consider which payment method best suits your cash-flow cycle, taking account of fees and processing times. Update recurring payments early. Make sure any new arrangements are in place well before 30 June 2027 and check that payments are processed successfully. Review your cash flow. If you rely on the credit card interest-free period to manage tax liabilities, consider whether you need to set aside funds earlier or adjust your payment planning. Seek advice if needed. If tax payments are putting pressure on your cash flow, speak with us early so we can help you review your position and consider practical ways to manage upcoming liabilities. The extension to 30 June 2027 gives businesses more time to adjust, but it should not be mistaken for a permanent reprieve. Planning ahead can help you avoid unnecessary fees, missed payments and last-minute disruption when the ATO’s direct credit card facility closes.
October 7, 2026
ATO to stop accepting credit cards as payment method after 30 November 2026 The Australian Tax Office ( ATO ) has announced it will stop accepting credit cards as a payment method after 30 November 2026. The move follows after the Reserve Bank of Australia’s ( RBA ) Review of Merchant Card Payment Costs and Surcharging, where the RBA concluded that “it is in the public interest” to scrap surcharging for all designated card networks from 1 October 2026 (including EFTPOS, Mastercard, and Visa). It said that as a government agency, the ATO has decided it would not be appropriate for the cost of credit card merchant fees to be transferred to the community. The ATO recognises that some taxpayers currently rely on credit card payments to manage their tax payments and understands this change may require some adjustments. The ATO is writing directly to those who currently have a payment plan linked to a credit card to explain the changes and outlining the steps they need to take. There are alternative payment options available for taxpayers, including direct deposit, direct debit from a debit card, direct debit from an Australian cheque or savings account, Government EasyPay, in person at Australia Post, by mail, or international money remitter. The ATO said it is committed to helping taxpayers transition to alternative payment methods and will continue to support those experiencing financial hardship or other circumstances that make it difficult to meet their obligations. Alternative payment options for taxpayers are outlined at www.ato.gov.au/howtopay Taxpayers who need extra support are encouraged to visit www.ato.gov.au/supporttolodgeandpay , contact the ATO on 13 11 42 during business hours or speak with their registered tax professional.
September 4, 2026
Yesterday, Treasurer Jim Chalmers released draft legislation to implement the key components of the 30% minimum trust tax on discretionary trusts announced in the Federal Budget during May 2026.
More Posts