Every time a business owner provides a non-cash benefit to a staff member — whether that’s a company car, a team dinner, or a gym membership — they potentially create a fringe benefits tax (FBT) liability they haven’t planned for. The tax is automatic. Many business owners don’t realise they’ve triggered it until the ATO comes looking. One major exception is electric cars: see our guide to the electric vehicle FBT exemption.
FBT is one of the most expensive and least-understood taxes in Australia. At 47% — the same rate as the top individual marginal rate — every unplanned benefit comes straight out of your business profit, not your employee’s pay. And unlike income tax, FBT is the employer’s responsibility, not the employee’s.
In this guide, I’ll walk you through what FBT is, what triggers it, which benefits are completely exempt, how the electric vehicle FBT exemption works, and the strategies Australian business owners use to legally minimise their FBT bill. If you’re looking for the broader overview, see our Fringe Benefits Tax guide for business owners.
Before diving in — if you need a quick estimate of your FBT liability, use our FBT calculator for 2025–26. It covers expense payments, car benefits, loans, housing, and more.
What Is Fringe Benefits Tax?
Fringe benefits tax is a tax paid by employers on certain non-cash benefits they provide to employees (or their associates) in addition to, or instead of, salary and wages.
A few key facts every business owner needs to know:
- The FBT year runs from 1 April to 31 March — not the standard income tax year.
- The FBT rate for 2025–26 is 47% — equal to the top marginal income tax rate including Medicare Levy.
- FBT is paid by the employer, not the employee who receives the benefit.
- FBT applies to benefits provided to current employees, former employees, and their associates (such as spouses and children).
- FBT is a separate tax from income tax and GST — it has its own registration, lodgement, and payment requirements.
The ATO’s FBT guide for employers covers the full legislative framework.
What Benefits Trigger FBT?
The Tax Act breaks fringe benefits into specific categories. Each category has its own rules for calculating the taxable value. The most common triggers for business owners are:
Car Benefits
Providing a car to an employee for private use is the most common FBT trigger. This includes company cars, novated leases, and any vehicle made available for personal use. Even if the employee only uses the car for work, if it’s “available” for private use (garaged at their home overnight, for example), FBT applies.
Entertainment Benefits
Meals, drinks, tickets to events, and hospitality provided to employees or their associates are FBT-taxable. This catches a lot of business owners who assume client entertainment is simply a business deduction. The rules differ depending on whether entertainment is provided on business premises, off-site, or to clients versus employees.
Expense Payment Benefits
If you pay an employee’s personal expenses — school fees, gym memberships, private health insurance, or home bills — you’ve created an FBT liability. Reimbursing an employee for a private expense is treated the same as paying it directly.
Loan Benefits
Interest-free or low-interest loans from an employer to an employee create a loan fringe benefit. The taxable value is the difference between the ATO’s benchmark interest rate and the rate you actually charged. This commonly arises in family businesses where a company lends money to a related employee.
Other Taxable Benefits
- Debt waivers (forgiving a loan owed by an employee)
- Housing and accommodation
- Living away from home allowances (LAFA) above exempt amounts
- Property benefits (goods, shares, or other assets)
- Residual benefits (anything not covered by the above)
FBT-Free Benefits: What You Can Provide Without Triggering FBT
Here’s where it gets useful. Many benefits are either fully exempt or reduced to zero FBT — and knowing the rules lets you provide genuine value to your team without the tax hit.
Work-Related Items
The following are exempt from FBT when primarily used for work purposes, limited to one item per employee per FBT year per type:
- Portable electronic devices (laptops, tablets, smartphones)
- Tools of trade
- Protective clothing and equipment
- Briefcases and calculators
- Computer software
This is one of the most practical exemptions for business owners. Providing an employee with a work laptop or smartphone carries no FBT, provided it’s used primarily for work.
The Minor Benefits Exemption
Benefits with a taxable value under $300 per benefit, provided on an infrequent and irregular basis, are completely exempt from FBT. This is a useful rule for small gestures — a birthday gift, an end-of-year voucher, or a one-off team lunch. The key conditions are:
- Each individual benefit must be under $300 in taxable value
- The benefit must be infrequent and irregular (not a recurring entitlement)
- It would be unreasonable to count it as a regular benefit
A $250 birthday gift? Exempt. A $250 gift card provided every month? Not exempt — it fails the infrequency test.
The Otherwise Deductible Rule
If an employee could have claimed the expense as a tax deduction in their own return (had they paid for it themselves), the benefit is either fully or partially exempt from FBT. This rule covers work-related conferences, professional memberships, technical books, and tools used for income-producing activities.
Other Common Exemptions
- Employer contributions to complying superannuation funds
- Relocation assistance for new employees (including removal costs and temporary accommodation)
- Work-related medical expenses (first aid and injury prevention)
- Emergency assistance in a natural disaster
The Electric Vehicle FBT Exemption
The EV FBT exemption is one of the most significant tax changes in recent years for business owners. Since 1 July 2022, eligible electric vehicles made available to employees under a salary sacrifice arrangement are exempt from FBT entirely.
Which Vehicles Qualify?
- Battery electric vehicles (BEVs)
- Hydrogen fuel cell electric vehicles (FCEVs)
- The vehicle’s first home-charging date must be on or after 1 July 2022
- The car’s cost must be below the luxury car tax (LCT) threshold for fuel-efficient vehicles: $91,387 for 2025–26
- Note: from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer exempt — only zero-emissions vehicles qualify going forward
How Much Does This Save?
Without the exemption, a $65,000 electric vehicle provided to an employee would attract significant FBT. Using the statutory method with a 20% rate, the taxable value would be $13,000 per year. After the 2.0802 gross-up and 47% FBT rate, that’s approximately $12,700 in annual FBT. The exemption reduces this to zero.
For employees using salary sacrifice to obtain a new EV, this creates a genuinely tax-effective arrangement — particularly when combined with running costs being pre-tax. See the ATO’s guidance on electric vehicles and FBT for full eligibility details.
One important caveat: even though the EV is exempt from FBT, the taxable value may still need to be reported as a reportable fringe benefit on the employee’s income statement if it exceeds $2,000. More on this shortly.
Are you setting up salary sacrifice or FBT arrangements for your team?
At Pinnacle Accounting & Advisory, we help Melbourne business owners structure employment benefits to minimise FBT and maximise what your team actually gets. Book a consultation with Mina to find out where you stand.
Book a Consultation →How Is FBT Calculated?
FBT is not calculated on the face value of the benefit — it’s calculated on the grossed-up value. This is because FBT is designed to put the employer in the same position as if they’d paid a salary high enough for the employee to buy the benefit themselves, after tax.
The formula is: FBT payable = Taxable value × Gross-up rate × 47%
There are two gross-up rates:
- Type 1 (2.0802): applies where the employer is entitled to a GST input tax credit on the benefit (e.g. providing a car with GST in the purchase price)
- Type 2 (1.8868): applies where no GST credit is available (e.g. providing a residential rental property)
Example: You pay for an employee’s gym membership ($1,200/year). The gym is GST-registered, so you use the Type 1 rate. FBT = $1,200 × 2.0802 × 47% = $1,173 in FBT — nearly as much as the membership itself. This is why planning matters.
The good news: FBT is fully deductible for income tax purposes as a business expense.
Strategies to Minimise Your Fringe Benefits Tax
FBT planning isn’t about avoiding your obligations — it’s about structuring benefits properly so you’re not paying tax that doesn’t need to be paid. Here are the most effective strategies used with Melbourne business owners at Pinnacle Accounting & Advisory.
1. Prioritise Exempt Benefits Over Taxable Ones
Where you have a choice between a taxable benefit and an exempt one, choose the exempt option. Providing a $2,000 laptop attracts no FBT. Providing a $2,000 entertainment voucher can attract over $1,900 in FBT on top. The employee receives the same dollar value, but your tax outcome is completely different.
2. Use the Minor Benefits Exemption Strategically
For staff recognition and team culture, structure small benefits to stay under $300 per item and keep them genuinely irregular. Rather than a monthly $300 gift card (taxable), consider a quarterly team lunch (potentially exempt if under $300 and not on a fixed roster).
3. Take Advantage of the EV Exemption
If you or your employees are considering a new vehicle, an eligible electric vehicle under a novated lease or salary sacrifice arrangement is currently FBT-free. This can significantly reduce the effective cost compared to a petrol vehicle that would attract full FBT.
4. Apply the Otherwise Deductible Rule
Before paying for any employee expense, ask: could this employee have claimed a deduction if they paid for it themselves? If yes, apply the otherwise deductible rule to reduce or eliminate the FBT liability. This applies to technical books, professional memberships, and work-specific equipment.
5. Keep Records Before You Pay
Many FBT exemptions and reductions are lost because records weren’t kept at the time the benefit was provided. Employee declarations for work-related items, logbooks for vehicles, and records of the business purpose of entertainment all need to exist before 31 March. Retroactive documentation doesn’t work.
6. Review Your Arrangements Before 31 March
The FBT year closes on 31 March. Any restructuring, cancellations, or changes to benefit arrangements need to happen before that date to affect the current year’s FBT liability. Don’t wait until May when the return is due — by then it’s too late to change the outcome.
For vehicle-specific deductions and how they interact with FBT, see our guide on claiming motor vehicle expenses on tax.
Reportable Fringe Benefits — What It Means for Your Employees
Even after you’ve minimised your FBT liability, some benefits still need to be reported on your employee’s income statement. This is called a reportable fringe benefit amount (RFBA), and it can have real consequences for your team members.
If the total taxable value of fringe benefits provided to an individual employee exceeds $2,000 in an FBT year, you must report a grossed-up amount on their income statement via Single Touch Payroll (STP). The reportable amount equals the taxable value × 1.8868.
The RFBA affects the employee’s:
- Medicare Levy Surcharge assessment
- HECS/HELP and student loan repayment thresholds
- Private health insurance rebate entitlement
- Family Tax Benefit, Child Care Subsidy, and other Centrelink payments
- Superannuation co-contribution eligibility
The RFBA is included in “adjusted taxable income” for the above calculations, even though it doesn’t affect taxable income directly. This catches many employees by surprise, especially those salary packaging into an EV or other benefits.
FBT Lodgement Deadlines
Missing FBT deadlines attracts interest and penalties — and the ATO is increasingly active in this space. Here are the key dates:
- FBT year ends: 31 March each year
- FBT return and payment due (self-lodge): 21 May
- FBT return due via registered tax agent: 28 June (extended lodgement date)
- FBT instalment notices: issued quarterly if your estimated FBT liability exceeds $3,000
If you provide benefits but have nil FBT liability (because all benefits are exempt), you may not need to lodge a return — but you should confirm this with a registered tax agent. The ATO’s FBT lodgement guide has the full requirements.
When Should You Talk to a Tax Adviser?
FBT has more rules, exemptions, and exceptions than almost any other tax in Australia. The difference between a well-structured benefit arrangement and a poorly structured one can be thousands of dollars per employee per year. Talk to a registered tax adviser:
- Before setting up any new salary sacrifice or employment benefit arrangement
- Before purchasing a vehicle that will be available for employee private use
- When your team is growing and you want to offer competitive benefits packages
- If you’ve never reviewed your existing benefit arrangements for FBT compliance
- Before the 31 March FBT year end — not after
At Pinnacle Accounting & Advisory, we work with Melbourne business owners to review their benefit arrangements, identify where FBT liabilities exist, and restructure where possible. Our Virtual CFO service includes proactive FBT reviews as part of your ongoing advisory relationship.
Frequently Asked Questions
What is the FBT rate in Australia for 2025–26?
The FBT rate is 47% for the 2025–26 FBT year (1 April 2025 to 31 March 2026). This rate has remained the same since the 2015–16 FBT year, when the temporary budget repair levy was incorporated.
Are all company car benefits subject to FBT?
Most cars provided to employees for private use are subject to FBT. However, eligible electric vehicles costing under the LCT threshold ($91,387 for fuel-efficient vehicles in 2025–26) are fully exempt. Work vehicles that are not available for private use — utes and vans used only at work and secured overnight — may also be exempt, but you need logbook evidence and the vehicle must be genuinely unavailable for private use.
What is the minor benefits exemption for FBT?
Benefits with a taxable value under $300 that are provided infrequently and irregularly are exempt from FBT. The $300 threshold applies per benefit, not per employee per year. You cannot turn a minor benefit into a regular entitlement — the infrequency test is a genuine condition, not a technicality.
How does the electric vehicle FBT exemption work in practice?
Under a salary sacrifice arrangement, an employee’s pre-tax salary is reduced in exchange for the employer providing an eligible EV. Because the vehicle is FBT-exempt, there is no FBT liability on the car benefit itself. The employee effectively saves income tax on the portion of salary they sacrifice. However, if the taxable value exceeds $2,000, a reportable fringe benefit amount still appears on their income statement — which can affect Medicare Levy Surcharge and HECS repayments.
Do I need to lodge an FBT return if all my benefits are exempt?
Not necessarily — but this depends on your specific circumstances. If you’ve previously lodged FBT returns and now have nil liability, you should notify the ATO. If you’ve never lodged and believe all benefits are exempt, confirm this with a registered tax agent before assuming no lodgement is required. Getting it wrong creates compliance risk.
Frequently Asked Questions
What is fringe benefits tax?
Fringe benefits tax (FBT) is a tax employers pay on certain non-cash benefits provided to employees or their associates, such as company cars, entertainment and expense payments. It is separate from income tax and is calculated on the grossed-up value of the benefits provided.
How can I minimise fringe benefits tax?
Common strategies include providing exempt or concessionally treated benefits such as certain work devices, using employee contributions to reduce the taxable value, choosing FBT-friendly vehicles, and salary packaging within the rules. Good records, such as logbooks, are essential.
What benefits are exempt from FBT?
Certain benefits are exempt or receive concessions, such as portable work-related electronic devices, minor and infrequent benefits under the minor benefits threshold, and some work-related items. The rules are specific, so check each benefit against current ATO guidance.
When is the FBT year and when is FBT due?
The FBT year runs from 1 April to 31 March, separate from the income tax year. If you provide fringe benefits you generally must lodge an FBT return and pay by the due date each year. An accountant can help you calculate and legally minimise it.
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.
Managing FBT is one piece of a wider set of tax minimisation strategies for Melbourne businesses.
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