Are Christmas Parties Tax Deductible?

UPDATED: November 2025

Certain Christmas parties can be tax deductible in Australia, but others are not — it depends on who attends and the type of function held.

Are your attendees employees, partners, or suppliers? Each category affects tax deductibility, GST credits, and Fringe Benefits Tax (FBT).

FBT is a very unpopular (and costly) tax that’s best avoided wherever possible — so let’s look at how to plan a party that’s fun and tax-smart.

Types of Christmas Parties and Their Tax Implications

Below are the common Christmas party scenarios recognised by the ATO, and the corresponding tax, GST, and FBT treatment.
(Note: “Yes” below means the option is tax-favourable.)

1. Parties held on business premises, with a light meal and no alcohol.
   • Employees and employee’s partners:
     1. Tax Deductible = Yes
     2. Claim GST = Yes
     3. FBT Exempt = Yes
   • Customers & Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

2. Parties held on business premises with a substantial meal and or alcohol (under $300 per person) and infrequent:
   • Employees, employee’s partners, Customers and Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

3. Parties held off premises costing less than $300 per attendee and infrequent:
   • Employees, employee’s partners, Customers and Suppliers:
     1. Tax Deductible = No
     2. Claim GST = No
     3. FBT Exempt = Yes

4. Parties costing $300 or more per attendee:
   • Employees and employee’s partners:
     1. Tax Deductible = Yes
     2. Claim GST = Yes
     3. FBT Exempt = No

• • Customers & Suppliers:
    1. Tax Deductible = No
    2. Claim GST = No
    3. FBT Exempt = Yes

Option: Staff Social Club Funds

Some employers have an optional Social Club Fund. Employees can choose to contribute a small amount from their wages (eg $4 per week) to the fund and this goes to pay or partly pay for the staff Christmas Party. This approach spreads the cost and can help keep your main business expenditure lower.

Understanding the True Cost of Your Christmas Party

While the tax implications may not determine the type of event you host, they definitely affect the ultimate cost.
It’s worth factoring this into your planning to avoid nasty surprises later.

Most small businesses fall into Category 3 (off-premises under $300) — but remember:

A Category 3 party will cost roughly 35% more than Category 1, because of the forgone tax deduction and lost GST claim.

So, if you plan to spend $60 per head, the true after-tax cost is closer to $81 per attendee.

A Category 4 party (over $300 per head) may seem generous, but it attracts FBT and costs almost double a Category 1 party — around 98% more overall!

Workplace Safety Still Applies at Christmas Parties

Don’t forget your workplace obligations to the safety extend to staff functions.
Set clear behavioural expectations to avoid issues such as excessive drinking, harassment, or inappropriate conduct.
Encourage or arrange safe travel options to and from the event — taxis, rideshares, or courtesy buses are all good options.

🎁 Need Help with ATO Christmas Party Rules?

If you need clarification on tax deductibility for Christmas parties or how FBT applies to your event, we can help.
👉 Book a Meeting with one of our business tax experts or Get Your Free Tax Guides Here for more tips.

📘 Disclaimer

The information in this article is general in nature and may not apply to your specific circumstances.
Please arrange a meeting with one of our Accountants at Accountants 2 Business to discuss your particular needs.