Fringe benefits tax (FBT) is a tax employers pay on certain non-cash benefits given to employees, such as company cars, entertainment, and expense payments. It is separate from income tax, calculated on the grossed-up value of benefits, and the FBT year runs from 1 April to 31 March.

Many business owners don’t realise they’ve triggered a fringe benefits tax (FBT) liability until the ATO comes knocking. Unlike income tax, FBT sits completely outside your regular tax return — it has its own year, its own rate, and its own lodgement deadline. Miss it, and you could face penalties, interest, and an amended assessment that stings.

If your business provides anything to employees beyond their salary — a car, a phone, a meal, a gym membership — there’s a chance FBT applies to you. The good news is that with proper planning, there are legitimate ways to reduce your FBT exposure significantly.

In this guide, I’ll explain exactly what fringe benefits tax is in Australia, what counts as a fringe benefit, how FBT is calculated, and the most effective strategies for keeping your liability under control. If you’d like help applying this to your specific situation, our tax planning service is designed exactly for that.

What Is Fringe Benefits Tax (FBT)?

Fringe benefits tax is a tax that employers pay on certain non-cash benefits they provide to their employees (or the employees’ associates, such as family members) in addition to their regular salary or wages. It’s separate from income tax — the employer pays FBT, not the employee.

The ATO administers FBT under the Fringe Benefits Tax Assessment Act 1986. The current FBT rate is 47%, which is deliberately aligned with the top marginal income tax rate plus Medicare levy. This ensures there’s no tax advantage in providing salary as benefits rather than cash wages.

One point that trips up many business owners: the FBT year runs from 1 April to 31 March — not 30 June like your income tax year. So if you provide a benefit in May 2026, it falls in the FBT year ending 31 March 2027, and the FBT return won’t be due until May 2027. You need to track and manage FBT obligations across a completely separate 12-month period.

For the ATO’s full explanation, see the ATO’s fringe benefits tax overview.

What Counts as a Fringe Benefit?

The range of things that can trigger FBT is broader than most business owners expect. The most common fringe benefits include:

• Car fringe benefits: Providing a car to an employee for private use — or allowing any private use of a company vehicle. This is by far the most common FBT trigger in small businesses.
• Car parking: Providing a car parking space near a commercial parking station that charges above the car parking threshold ($10.40 per day in 2025–26).
• Expense payments: Reimbursing or paying private expenses for an employee — such as health insurance, gym memberships, or school fees.
• Loans at below-market interest rates: If you lend money to an employee at a rate below the ATO’s benchmark interest rate, the difference is a fringe benefit.
• Accommodation and housing: Providing housing or holiday accommodation.
• Entertainment: Meals, event tickets, or entertainment provided to employees. (Client entertainment is generally not FBT-applicable but has other tax implications.)
• Property benefits: Providing goods such as a laptop or phone — if more than incidental private use is involved.

Importantly, benefits provided to employees’ family members or associates are also caught by FBT. If you let an employee’s spouse use the company car on weekends, that’s a fringe benefit.

How FBT Is Calculated

FBT is not calculated on the straight taxable value of the benefit. It uses a gross-up mechanism, which means you’re taxed on a “grossed-up” amount — essentially what you would need to earn in pre-tax income to provide that benefit after paying income tax.

There are two gross-up rates:

• Type 1 (GST-creditable benefits): Gross-up rate of 2.0802
• Type 2 (non-GST-creditable benefits): Gross-up rate of 1.8868

The formula is: Taxable value × Gross-up rate × FBT rate (47%)

Here’s a real example. Say you provide a company car with a taxable value of $10,000 for the FBT year (this would be a moderately-used car under the statutory formula method):

• Grossed-up value: $10,000 × 2.0802 = $20,802
• FBT payable: $20,802 × 47% = $9,777

That’s nearly $10,000 of FBT on a $10,000 car benefit. You can see immediately why FBT needs to be planned carefully — and why the exemptions matter so much.

FBT Exemptions and Concessions That Save You Money

Not everything is caught by FBT. There are several important exemptions and concessions that every business owner should know about.

Electric Vehicle FBT Exemption

Since 1 July 2022, eligible battery electric vehicles and plug-in hybrid electric vehicles (PHEVs) provided to employees are exempt from FBT, provided the vehicle is below the luxury car tax threshold ($91,387 in 2025–26 for fuel-efficient vehicles). This is one of the most significant FBT opportunities in recent years. If your business is considering upgrading the vehicle fleet, the numbers on EVs can be compelling.

Note: the PHEV exemption ended for new leases entered after 31 March 2025, but EVs continue to qualify. See our full guide to the electric vehicle FBT exemption for the current rules.

Work-Related Electronic Devices

One portable electronic device per employee per FBT year is exempt from FBT, provided it’s primarily for use in the employee’s employment. This covers laptops, tablets, and mobile phones. If the device is mainly used for work (more than 50% work use), you can provide one per category per employee with no FBT.

Minor Benefits Exemption

Benefits with a taxable value of less than $300 that are provided on an irregular or infrequent basis are exempt from FBT. This is commonly used for staff gifts, hampers, and one-off entertainment. It doesn’t apply to salary packaged items or recurring benefits — but for ad hoc recognition, keeping each item under $300 can save you FBT entirely. There is a catch worth knowing: where meal entertainment is exempt as a minor benefit it is no longer a fringe benefit, so the income tax deduction is denied. Our guide to staff amenities versus entertainment works through where that line falls.

Work-Related Items

Items such as work uniforms, protective equipment, and tools of trade provided primarily for use in the employee’s employment are exempt or have reduced taxable values under various FBT concession provisions.

The FBT Year and Lodgement Obligations

If your business is liable to pay FBT, you need to register for FBT with the ATO and lodge an annual FBT return. Key dates:

• FBT year: 1 April to 31 March
• FBT return due (self-lodging): 21 May following the end of the FBT year
• FBT return due (via tax agent): Extended deadline, typically 25 June
• FBT instalments: If your FBT liability exceeds $3,000 per year, you’ll pay quarterly FBT instalments via your BAS

One important note: if your FBT liability is under $3,000 for the year, you’re not required to pay instalments — but you still need to lodge the return if you’re registered. And even if you think you have no liability, if you provide benefits to employees that could be fringe benefits, you should check your position.

This is directly connected to your broader business tax planning — FBT, PAYG withholding, superannuation, and income tax all need to be coordinated across different periods and deadlines.

How to Legally Reduce Your FBT Liability

There are several legitimate strategies available to reduce the FBT your business pays:

Use the Operating Cost Method for Cars

For car fringe benefits, you can choose between two calculation methods — the statutory formula method and the operating cost method. The statutory formula applies a flat 20% to the base value of the car as the taxable value. The operating cost method uses actual running costs multiplied by the private use percentage based on a logbook.

If an employee uses the car predominantly for work, the operating cost method can result in a dramatically lower taxable value than the statutory formula. Keeping a 12-week logbook (valid for 5 years if the pattern of use doesn’t change significantly) is well worth the effort. Read our guide on claiming motor vehicle expenses on tax for more detail on logbook requirements.

Consider Salary Sacrifice Arrangements

Some employees value certain benefits more than the FBT cost — particularly in situations where the employee would have spent the money anyway. A well-structured salary sacrifice arrangement can still result in a net tax advantage for employees in higher tax brackets, even after accounting for FBT.

Switch to EVs for Fleet Vehicles

As noted above, eligible EVs under the luxury car tax threshold are completely exempt from FBT. If your business plans to replace vehicles in the next few years, factoring in the FBT exemption can significantly change the financial analysis in favour of EVs.

Keep Ad Hoc Benefits Under $300

Structure irregular employee benefits — Christmas gifts, team lunches, recognition rewards — so each item’s taxable value stays below $300. Combined with infrequency, these qualify for the minor benefits exemption and attract no FBT. For a comprehensive step-by-step action guide covering all available strategies, see our article on how to minimise fringe benefits tax.

Common FBT Mistakes Melbourne Business Owners Make

In my work with Melbourne business owners, I regularly see the same FBT oversights come up:

• Not registering for FBT at all — assuming that because you’ve never been told you need to register, you don’t. If you provide a car for private use, you almost certainly have an FBT obligation.
• Using the statutory formula without checking the operating cost method — particularly where the car is used heavily for work, the operating cost method can cut the taxable value by 60–70%.
• Forgetting associate benefits — allowing the director’s spouse or family member to use a company vehicle without accounting for that use.
• Missing the EV exemption — there are still business owners who don’t know this exists. An eligible EV provided to an employee carries zero FBT.
• Treating entertainment for clients the same as entertainment for staff — staff entertainment is potentially FBT-applicable; client entertainment generally isn’t but is only 50% income tax deductible. They’re different rules.

If your business also employs tradespeople or other workers and provides tools, equipment, or vehicles, our tradie tax deductions guide covers the interaction between FBT and the deductions available to trade-based businesses.

Frequently Asked Questions

Do I need to register for FBT if I provide a company car?

Yes, in most cases. If you provide a vehicle that an employee uses for any private purposes — including home-to-work travel — you have a car fringe benefit and need to register for FBT and lodge an annual FBT return. There are limited exceptions (such as commercial vehicles with no private use), but the default position is that a company car = FBT registration required.

What is the FBT rate in Australia for 2025–26?

The FBT rate is 47%, which is the same as the top marginal income tax rate plus the 2% Medicare levy. This rate has remained at 47% for a number of years and reflects the ATO’s intent that there should be no tax advantage in paying benefits rather than wages.

Are electric vehicles exempt from FBT in Australia?

Yes — eligible battery electric vehicles (BEVs) and some plug-in hybrid vehicles provided to employees are exempt from FBT under the electric car exemption introduced in 2022. The vehicle must be below the luxury car tax threshold for fuel-efficient vehicles ($91,387 in 2025–26). The PHEV exemption ended for new arrangements after 31 March 2025, but BEVs continue to qualify. This is one of the most valuable FBT concessions currently available.

Can I claim FBT paid as a tax deduction?

Yes. FBT is an allowable income tax deduction for the business that pays it. So while you pay 47% FBT on the grossed-up value of benefits, you can deduct the FBT amount (and the cost of the benefit itself) from your assessable income, which partially offsets the cost.

What is the minor benefits exemption under FBT?

Benefits with a taxable value of less than $300 provided on an infrequent and irregular basis are exempt from FBT under the minor benefits exemption. This is commonly used for staff gifts and ad hoc entertainment items. To rely on this exemption, the benefit must genuinely be irregular — it doesn’t apply to salary packaged items or regular recurring benefits.

Is FBT separate from income tax?

Yes — FBT is an entirely separate tax with its own legislation, year, registration, lodgement process, and rate. FBT is paid by the employer (not the employee), operates on a 1 April to 31 March year, and is administered separately from your income tax and GST obligations. Many business owners are surprised to discover they have both income tax and FBT obligations arising from the same business activity.

Understanding your FBT obligations is one of those areas where getting the right advice early saves you significantly more than the cost of that advice. If you suspect your business may have FBT exposure — or if you want to restructure how you provide benefits to take advantage of available exemptions — contact Pinnacle for a confidential discussion.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

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