Key Highlights

  • Venue, timing, attendance, cost per head and gifts all affect treatment.
  • The FBT rate is 47% for the year ending 31 March 2027.
  • Benefits below $300 may qualify for the minor benefits exemption, subject to its conditions.
  • The reminder provides guidance on existing rules rather than changing the law.

The office Christmas party is back on the calendar, and so is the tax question that comes with it. On Wednesday 11 November the Australian Taxation Office published a fresh reminder titled "Staff parties, events and gifts: have you considered FBT?", nudging employers to think about Fringe Benefits tax before the invitations go out. With the fringe benefits tax rate sitting at 47% for the year ending 31 March 2027, a poorly planned celebration can carry a surprisingly large bill.

What the ATO's 11 November reminder says, and the rates behind it

The ATO's new item does not change the law. It is guidance, and it points employers to the factors that determine whether a party or gift creates an FBT liability.

According to the ATO, the things that matter are the location of the event, its timing, who attends, the cost per head and any gifts handed out. Each of those can tip an otherwise tax-free celebration into taxable territory.

The ATO's published rates for the current FBT year, updated on 20 May 2026, set the FBT rate at 47%. That rate mirrors the top marginal personal tax rate plus the Medicare levy.

The gross-up rates are 2.0802 where the employer can claim GST credits on the benefit (type 1) and 1.8868 where it cannot (type 2). Those factors convert the value of a benefit into a pre-tax equivalent before the 47% rate is applied.

Other figures for the year include a benchmark Interest Rate of 8.27%, a car parking threshold of $11.48 and a record-keeping exemption threshold of $10,962.

The gross-up is what surprises many small Business owners. Because the taxable value is roughly doubled before the 47% rate applies, the FBT payable on a taxable benefit can end up close to the cost of the benefit itself.

Why $300 a head is the number most employers watch

The figure that dominates Christmas party planning does not appear in the ATO's rates table. It comes from the long-standing minor benefits exemption in the FBT law.

In general terms, a benefit valued at less than $300 (including GST) may be exempt as a minor benefit, provided it is provided infrequently and irregularly and meets the other conditions in the law. The ATO has long treated a once-a-year Christmas function as capable of qualifying.

The test is generally applied per person, per benefit. That is why cost per head features so prominently in the ATO's reminder.

Gifts are a separate consideration. The ATO has generally treated a gift given at a party, such as a hamper or a voucher, as a separate benefit from the party itself when applying the $300 test. That means a $200 meal and a $150 gift would usually be assessed individually rather than added together, although employers should check how the rules apply to their own circumstances.

There is a trade-off. Where entertainment is exempt from FBT as a minor benefit, the cost is generally not income tax deductible, and GST credits are generally not available either.

On-premises parties and the working-day rule

Location is the second big variable. Under general FBT principles, food and drink provided to current employees on the employer's business premises on a working day can be exempt from FBT.

That is why a modest lunch in the office boardroom on a Friday is often treated differently from a dinner cruise on a Saturday night.

The exemption is generally limited to current employees. Where partners or other associates of employees attend an on-premises function, the cost attributable to them may be a taxable benefit unless another exemption, such as the minor benefits exemption, applies.

Hypothetical example: what a party could cost in FBT

Hypothetical example: a small firm hosts a Saturday night dinner at a restaurant for 20 employees and 10 partners, so 30 people in total. The employer can claim GST credits, so the type 1 gross-up rate of 2.0802 applies.

Scenario one: the cost is $250 per head, or $7,500 in total. Each person's benefit is under $300, so, assuming the other minor benefit conditions are met, the party may be exempt from FBT. The trade-off is that the $7,500 would generally not be tax deductible.

Scenario two: the venue upgrades the menu and the cost rises to $350 per head, or $10,500 in total. The minor benefits exemption is no longer available because each benefit is $300 or more.

The grossed-up taxable value is $10,500 multiplied by 2.0802, which gives $21,842.10. Applying the 47% FBT rate produces an FBT Liability of about $10,265.79.

In other words, a $100-a-head menu upgrade, worth $3,000 across the group, could add more than $10,000 in FBT, although in that case the employer could generally claim an income Tax deduction for both the entertainment cost and the FBT paid.

Some employers instead use the 50/50 split method for meal entertainment, which changes the calculation. The right method depends on the employer's circumstances and records.

Gifts, cars and the rest of the FBT picture

Gifts outside the party also need attention. Non-entertainment gifts, such as hampers, gift cards or a bottle of wine, are treated differently from entertainment, and the deductibility and GST rules can differ from those for a party.

Employers also face wider FBT changes. The Treasury Laws Amendment (Tax Reform No. 4) Bill, which is still a bill and not yet law, would continue the 100% FBT discount for eligible electric cars valued up to $75,000 from 1 April 2027 to 31 March 2029.

From 1 April 2029, the bill would give eligible electric vehicles a 25% discount on the 20% statutory formula rate, with existing eligible cars keeping their current treatment, according to the Treasurer's second reading speech of 27 October.

What to watch before the FBT year closes

The FBT year ends on 31 March 2027, so the costs of this year's Christmas functions will feed into returns for the year ending on that date.

Employers who expect a liability may want to keep invitations, attendee lists, receipts and per-head calculations, because those records are what the ATO's factors turn on.

The Senate Economics Legislation Committee is due to report on the government's trust and housing tax bills on 13 November, and Tax Reform No. 4, including the electric car FBT changes, is still before the Senate.

The mid-year economic and fiscal outlook is due in December. Then 1 April 2027 marks the start of the next FBT year, when new rates and thresholds will apply.