The end of the year is when many small businesses feel generous, have a get together and then get a surprise from the Australian Tax Office in the new year. A nice staff Christmas party that seemed modest, a bonus paid in a hurry, or a quiet January that drains the bank account can all turn a festive season into a stressful one.
This guide looks at the three issues we see most often at this time of year At how Christmas parties and gifts are taxed, what to know before paying staff bonuses, and how to protect your cash flow over the holiday break.
Quick summary
- A Christmas party is treated as “entertainment”, and that label drives most of the tax rules (ATO).
- Where entertainment is exempt from FBT, you generally cannot claim a deduction or GST credits for it (ATO).
- Non-entertainment gifts under $300 per person are usually the most tax-effective way to say thank you (ATO Community).
- A Christmas bonus counts for super at 12%, (ATO) and since 1 July 2026 that super is due within 7 business days of payday (ATO).
- Cash flow gets tight in January. Plan for it in November.
Part 1: The Christmas party
The ATO treats a staff Christmas party as entertainment, because its purpose is for people to enjoy themselves. Whether Fringe Benefits Tax (FBT) applies depends on where it is held, who attends and what each person’s share costs (ATO: common entertainment scenarios for business).
On your premises, on a working day, current employees only. You don’t pay FBT on the food and drink (ATO).
Off-site, or partners invited. You avoid FBT only if the benefit is a “minor benefit”. That means a notional taxable value under $300 per person, and it must be unreasonable to treat the benefit as a fringe benefit. The ATO looks at how often you provide it, the total value of similar benefits, and the circumstances. A cost of exactly $300 does not qualify. The $300 test applies separately to each benefit, and benefits to partners are not counted in the employee’s $300. The exemption is also not available if you use the 50:50 method for meal entertainment (ATO: minor benefits exemption).
The trap: exempt does not mean deductible. The ATO says that if the party is not subject to FBT, you can’t claim an income tax deduction for its cost. In its on-premises example, with employees, partners and clients at $125 a head, the employer can’t claim a deduction or GST credits for the food, drink or taxi travel (ATO). Deductions and GST credits are generally available only for entertainment that is a fringe benefit (ATO: how to work out FBT on entertainment).
The reverse also holds. In the ATO’s off-site golf day example at $320 a head, FBT applies to the employee and partner, and the employer can claim a deduction and GST credits for those costs. That does not make a bigger party cheaper overall, so ask us to model your numbers before you book.
Clients and suppliers. There is no FBT on benefits for clients, but you can’t claim a deduction or GST credits for entertainment provided to them (ATO).
Keep a record of who attended and what each person’s share cost, so you can support the per-head figure if asked.
Part 2: Gifts
The first question to ask for any gift is whether it is entertainment. In other words, is food, drink or recreation being provided for enjoyment (ATO: when is food, drink and recreation considered entertainment).
Non-entertainment gifts to employees. These are usually exempt from FBT if the cost is under $300 including GST per employee. The ATO’s examples include flowers, non-entertainment gift vouchers, hampers and skincare. A tax deduction and GST credits can still be claimed (ATO Community). At $300 or more per person, FBT can apply (ATO).
Entertainment gifts to employees. Tickets, restaurant vouchers and a night out are entertainment. If they escape FBT under the minor benefits exemption, the cost is generally not deductible and no GST credits are available (ATO).
Gifts to clients and suppliers. Gifts that are not entertainment are generally tax deductible (ATO Community). Entertainment for clients is not (ATO).
Cash is not a gift. A cash Christmas bonus is salary or wages – so it is not a gift. Part 3 covers what that means for PAYG withholding, super and payroll tax.
Part 3: Staff bonuses
A bonus is a reward way to reward a team but it carries payroll obligations.
- PAYG withholding. Bonuses and other additional payments that don’t relate to a single pay period are generally taxed using ATO Schedule 5 (ATO: Schedule 5).
- Superannuation. The minimum super guarantee is 12% of qualifying earnings. Christmas bonuses and performance bonuses count. A bonus paid solely for work done entirely outside ordinary hours does not (ATO: what payments are qualifying earnings).
- Payroll tax. This is a state tax, so check your own state. In Victoria, see the State Revenue Office. Revenue NSW says bonuses are wages liable for payroll tax, and the Queensland Revenue Office lists bonuses as taxable (Revenue NSW, Queensland Revenue Office).
- Single Touch Payroll. Employers report both qualifying earnings and the super liability through STP (ATO).
What Payday Super has changed. Since 1 July 2026, super must generally be received by the employee’s fund within 7 business days after payday, unless a longer period applies, such as for new employees. If you pay a bonus on 20 December, the super on it is due within days, and the public holidays reduce the business days you have.
If super is late, the ATO assesses the super guarantee charge (SGC). You can claim a deduction for the SGC itself for payments relating to paydays from 1 July 2026, but not for the interest or the late payment penalty. In the first year (1 July 2026 to 30 June 2027) the ATO says it will support employers who are trying to do the right thing (ATO: compliance in the first year of Payday Super).
Also note that the ATO’s Small Business Superannuation Clearing House closed permanently on 1 July 2026, with no replacement.
Part 4: Cash flow over the quiet period
The holiday break is when income slows but costs do not. Wages, rent, loan repayments, super and tax obligations keep coming while customers go quiet and some pay late.
Do these in November:
- Chase overdue invoices now. Anything unpaid at the start of December is likely to stay unpaid until February.
- Invoice early. Bill completed work before your shutdown rather than after it.
- Build a simple 13-week cash forecast. Mark every payday, bonus, super payment (now due within 7 business days of each payday), BAS and PAYG instalment, then see where the low point falls.
- Check your lodgement dates. Monthly BAS is due on the 21st of the following month, so a December statement is due on 21 January. Quarterly statements are due on the 28th of the following month, except the October to December quarter, which is due on 28 February.
- Plan pay runs around public holidays. Payday Super counts business days, so a holiday week leaves you less time to get super to the fund.
- Understand your leave obligations. If a public holiday falls during a shutdown, employees should still get the day off without loss of pay, or be paid public holiday rates if they work. Employees who keep working during a shutdown should receive their normal pay. Whether you can direct staff to take annual leave depends on the award or agreement. (Fair Work Ombudsman).
- Talk to your accountant early if money is tight. The ATO asks you to contact it as soon as possible if you can’t lodge or pay on time. Payment plans are available, but general interest charge still applies and compounds daily.
A simple checklist before you spend
- Is the party on premises, and are partners or clients attending?
- Is each person’s share under $300 including GST, with the party and any gifts tested separately?
- Are your gifts non-entertainment?
- Have you checked bonus withholding, super and payroll tax?
- Do you know when the super on December pay is due?
- Have you forecast January’s cash position?
How we can help
Every business is different, and the right answer depends on your numbers, your staff and your structure. We can review your Christmas plans, model your bonuses and set up a cash flow forecast before the holiday rush.
