Jingle All the Way to Tax Savings: A Christmas Guide for Smart Givers

Don’t want to pay tax on Christmas? Here are our top tips to help your business avoid giving the Australian Tax Office (ATO) a festive bonus this season.

To avoid tax on team gifts, make sure they are spontaneous and under $300. The minor benefit threshold for Fringe Benefits Tax (FBT) is $300, so any gift at or above this amount will incur a 47% tax rate. To qualify as a minor benefit, the gift must be ad hoc—no monthly memberships or multiple vouchers adding up to $300

If you plan to give your team a cash bonus, remember that it will be taxed just like salary and wages. PAYG withholding will apply, and the bonus will generally be considered ordinary time earnings (unless it’s for overtime). This means it will also be subject to superannuation guarantee obligations.

Beyond tax, consider the personal value of your gift. The best gifts are those that resonate with the individual. A bottle of wine for a non-drinker, chocolates for a health-conscious person, or extra time off for someone with excess leave won’t foster goodwill. Sometimes, a heartfelt personal message can have more impact than a generic gift.

To avoid paying tax on your work Christmas party, host it in the office on a workday. This way, FBT is unlikely to apply, regardless of the cost per person. Additionally, taxi fares to or from the office are exempt from FBT, so you can ensure safe transport for your team without incurring extra costs.

If the party is off-site, aim to keep costs under $300 per person to avoid FBT. However, if FBT doesn’t apply, your business can’t claim deductions or GST credits for the expenses.

If the party is held outside your business premises, taxi fares are considered a separate benefit. As long as each benefit is under $300 per person, the gift, party, and taxi ride can potentially all be FBT-free. Just remember, the minor benefits exemption depends on various factors, including the total value of benefits provided throughout the FBT year.

If you host a more extravagant event and exceed the $300 threshold, FBT applies, but your business can claim deductions and GST credits for the expenses. However, deductions are only useful if your business pays tax—if not, they won’t offset the party’s cost.

Taking clients out for lunch or entertainment isn’t tax-deductible, nor can you claim back GST on these expenses. Activities like meals at restaurants, shows, golf outings, and corporate race days fall under the ‘entertainment’ category, which has strict rules about deductions and GST credits.

However, if you send a customer a gift (provided it’s not considered entertainment), that gift is tax-deductible as long as there’s an expectation of business benefit. Better yet, personally delivering the gift and wishing your client a Merry Christmas will leave a lasting impression.

If you’re going to invest in gifts, ensure they’re memorable and relevant to your business. You could also make a donation on behalf of your clients, allowing your business to take the tax deduction, or let your clients take the deduction themselves by donating in their name.

Charities love cash donations because they don’t have to spend resources on auctions or events to receive it. From a tax perspective, cash donations are the safest way for you or your business to claim a full deduction.

However, there are a few rules to keep in mind:

Navigating the tax implications of Christmas gifts, parties, and bonuses can be tricky, but with careful planning, you can spread holiday cheer without a hefty tax bill. By keeping team gifts spontaneous, hosting cost-effective office parties, and opting for thoughtful client gifts or charitable donations, you can avoid the ATO’s festive grasp. 

This holiday season, focus on what will make a meaningful impact—whether that’s a personal gesture, a well-thought-out gift, or a charitable donation—while keeping your business compliant with tax regulations. Happy holidays from Accru, and may your festivities be both joyous and tax-savvy!