Fringe Benefits Tax (FBT) in Australia: A Guide for Employers
Fringe benefits tax (FBT) is a tax employers pay on non-cash benefits they give employees or their associates, such as the private use of a company car, a paid gym membership or a staff dinner. It's separate from income tax, runs on its own year from 1 April to 31 March, and is charged at 47% on the grossed-up value of the benefit. The employer pays it, not the employee.
For a small business with a couple of staff, FBT is often a non-event. For a business with 10, 30 or 80 employees, cars, and a director who draws on the company, it's one of the easier places to overpay tax or get caught out. This guide covers both. If you'd rather hand it over, see our FBT support for employers.
Does my business have to pay FBT?
If you own and work in your company, you're an employee for FBT. Benefits the company gives you count, the same as benefits to your staff.
Run through this list. One "yes" means FBT is worth checking.
Does anyone take a company car or ute home, or use it on weekends?
Does the business pay any private bills for you or your staff, such as school fees, a gym membership or a personal phone plan?
Do you run staff dinners, events or a Christmas party, or hand out tickets?
Has the company lent money to a director or employee at low or no interest?
Do staff get goods free or at a discount?
Do you provide staff parking at work, in an area where a commercial car park nearby charges more than about $11 a day for all-day parking?
What's usually exempt
Small, occasional benefits under $300 each, such as a Christmas gift.
Work tools used mainly for work: a phone, laptop, tablet, protective clothing, tools of trade.
Utes and vans where private use is limited to driving between home and work and minor, occasional use.
Light meals and refreshments on your premises during work hours.
Eligible electric cars (see below).
Is a benefit better than paying more salary? Not by default. The 47% FBT rate matches the top marginal tax rate plus the Medicare levy, so a taxable benefit costs about the same as paying the same value in salary to a top-rate earner. The saving only comes from benefits that are exempt or taxed at a reduced value.
How much will FBT cost on a company car?
Because of the gross-up, a benefit can cost the business close to double its value in FBT if nobody contributes.
The gross-up works out FBT as if the benefit had been paid as salary and taxed at the top rate. There are two gross-up rates: Type 1 (2.0802) when the business can claim a GST credit on the benefit, and Type 2 (1.8868) when it can't.
Worked example
A company with 25 staff provides three petrol cars to managers, each with a base value of $60,000. The cars are garaged at home and available for private use. The company claims the GST credits on them, so the Type 1 rate applies.
Taxable value per car: $60,000 × 20% = $12,000
Grossed up: $12,000 × 2.0802 = $24,962.40
FBT: $24,962.40 × 47% = $11,732.33 per car
Three cars: $35,197 a year in FBT, on top of the cost of running the cars.
What changes the answer:
Logbooks. Each manager keeps a 12-week logbook and the business switches to the operating cost method, which taxes only the private-use share of actual running costs.
Employee contributions. Each manager pays $12,000 a year from after-tax pay toward the car, which reduces FBT to nil. The business must pay GST of 1/11 of each contribution, so $1,090.91 on $12,000.
An electric car at the next replacement, if it qualifies for the exemption.
Each option has a cash, payroll and staff-relations cost, so the right choice depends on the people involved, not only the tax.
Not sure what your company cars are really costing in FBT?
How to reduce FBT in Australia
Cars and electric vehicles
Cars are where most FBT in a growing business comes from. There are two ways to value a car benefit:
Statutory formula: 20% of the car's base value each year, however much or little it's used privately. Simple, but often expensive.
Operating cost method: the car's actual running costs multiplied by the private-use percentage from a valid 12-week logbook. Usually cheaper when business use is high.
Electric cars. An eligible battery electric or hydrogen fuel cell car is exempt from FBT if it was first held and used on or after 1 July 2022, and its value is below the luxury car tax threshold for fuel-efficient vehicles: $91,661 for 2026–27 ($91,387 for 2025–26).
The benefit still has to be reported on the employee's income statement (their end-of-year payment summary). Plug-in hybrids stopped qualifying from 1 April 2025, apart from limited existing arrangements.
Announced but not yet law. The government has announced that from 1 April 2027, only electric cars costing $75,000 or less will keep the full exemption. Dearer cars below the luxury car tax threshold would get a 25% discount instead, and from 1 April 2029 all eligible cars would get the 25% discount. Existing leases won't be affected. If you're planning a car purchase or a novated lease, check the status first. See also before you buy a business vehicle.
The Christmas party
On your premises, on a working day, for current employees only: no FBT, whatever the cost per head.
Off premises, or with partners attending: no FBT for each person whose share of the cost is under $300, because it counts as a small, occasional benefit. Work this out per head, including partners.
Partners count as your employees' family, so their share is tested the same way. Clients' share is never subject to FBT.
The trade-off: if the party is exempt from FBT, the business can't claim a tax deduction or GST credit for it.
The party and a gift are tested separately. A $200 party and a $100 gift aren't added together. More on staff and client gifts.
Staff dinners and events through the year
There are three ways to work out FBT on meals and events:
Actual method: track each event and who attended.
50/50 split: treat half of all meal entertainment as subject to FBT and half as not.
12-week register: record every event for 12 continuous weeks and use that split for up to five years.
The method you choose affects both FBT and how much you can deduct, so it's worth running the numbers once your entertainment spend is meaningful.
Salary packaging
Salary packaging (salary sacrifice) swaps pre-tax salary for benefits. Done well, it can suit both sides. Done without a plan, it moves tax from the employee to the business. Electric car novated leases are the main packaging item that still works well while the exemption lasts. Laptops, phones and home office costs stop working from 1 April 2027 (see below). Review your arrangements alongside payroll and salary packaging each year, not only when someone asks.
What changes on 1 April 2027?
These changes are law and apply from the FBT year starting 1 April 2027.
Salary-sacrificed work items become taxable. Phones, laptops, tablets, software, protective clothing, briefcases and tools of trade will no longer be exempt when an employee salary sacrifices them. They stay exempt if the business provides them outright.
Salary-sacrificed work expenses lose a discount. At the moment, FBT on reimbursing a work expense is reduced if the employee could have claimed it as a tax deduction themselves (the "otherwise deductible" rule). From 1 April 2027 that reduction won't apply to salary-sacrificed home office, home phone and internet, and self-education costs covered by the new standard deduction for employees of up to $1,000.
More than one work item is fine. Where the business provides items outright and they're mainly for work, it can give an employee more than one item with the same function in a year (a replacement laptop, say) and keep the exemption.
What it means in practice: if staff currently package laptops, phones or home office costs, those arrangements will create FBT from April 2027. The usual fix is for the business to provide the item outright and adjust pay, or to stop packaging it. Either way, sort it out before 1 April, not after.
Is your salary packaging ready for 1 April 2027?
If your staff package laptops, phones or home office costs, we can work through what changes and what to do before the new FBT year starts.
Where do growing employers get caught?
Nobody owns FBT. Payroll assumes the accountant has it; the accountant hears about the cars in May.
The work ute that isn't. Weekend and holiday use can take a ute outside the exemption.
Old salary packaging menus. Packaging set up years ago still offers laptops and phones, which become taxable when salary sacrificed from 1 April 2027.
Directors paying private costs from company money. Depending on how it's recorded, that's a fringe benefit, a Division 7A loan (the rules for money taken out of a private company other than as wages or dividends) or wages. Each is taxed differently.
No logbooks and no odometer readings at 31 March, which forces the more expensive statutory method.
Benefits missing from income statements (the employee's end-of-year payment summary). Reported benefits can affect staff through things like the Medicare levy
surcharge, HELP repayments and child support.
The cost of getting it wrong: if you should have lodged FBT returns and didn't, the ATO can apply failure-to-lodge penalties and the general interest charge on the unpaid FBT from the original due date, plus further penalties if the amount was understated.
What should I do before 31 March?
List every car, who uses it and where it's garaged. Record odometer readings at 31 March.
Check each logbook is current. A logbook can be used for up to five years if nothing major changes.
Collect employee contributions and make sure they're paid before 31 March.
Pull entertainment, gifts and staff events from Xero and choose the method.
Review director and shareholder drawings for private expenses.
List every salary-sacrificed laptop, phone, tool and home office or self-education cost, and decide what happens to each from 1 April 2027.
Identify any employee whose reportable benefits will exceed $2,000.
When should I get advice?
You provide cars, or you're planning a car purchase or a novated lease before April 2027.
Staff salary sacrifice work items or home office costs.
You have more than a handful of employees and staff events through the year.
Directors or shareholders use company funds for private costs.
You've never lodged an FBT return but suspect you should have.
If you've got cars on the road, a team of 10 or more and directors drawing on the company, FBT is worth an hour of planning each year rather than a surprise in May. We handle it as part of an ongoing relationship with established businesses, so the decisions happen during the year, not after it. More on our FBT support for employers.
Key dates and figures
FBT year: 1 April to 31 March.
Returns: due 21 May if you lodge yourself or on paper; 25 June if a tax agent lodges electronically.
Registration: not automatic. You register once you know you have an FBT liability.
No liability? If you're registered and owe nothing for the year, lodge a non-lodgment advice (a short form telling the ATO no return is needed) rather than a return.
Instalments: if last year's FBT was $3,000 or more, you'll usually pay quarterly instalments through your activity statement.
1 April 2027: salary-sacrificed work items and some work expenses become taxable (law). Electric car exemption changes announced (not yet law).
Records: keep them for five years.
FBT year ending 31 March 2027 | |
FBT rate | 47% |
Car statutory rate | 20% |
Benchmark interest rate (for loans to employees) | 8.27% |
Car parking threshold | $11.48 per day |
Reportable fringe benefits | Taxable value over $2,000 per employee |
Minor benefit threshold | Less than $300 |
LCT threshold, fuel-efficient vehicles (2026–27) | $91,661 |
FAQ
What is the FBT period in Australia?
The FBT year runs from 1 April to 31 March.
What is the FBT rate?
47%, applied to the grossed-up taxable value of the benefit.
Is FBT tax deductible?
Yes. The FBT the business pays is deductible, and so is the cost of most benefits you provide. The main exception is entertainment that's exempt from FBT, such as a qualifying Christmas party, which isn't deductible.
Do I pay FBT on the Christmas party?
Not if it's held on your premises on a working day for current employees only. If it's off-site or partners attend, there's usually no FBT where the cost is under $300 a head. Either way, an exempt party isn't tax deductible.
Can staff still salary sacrifice a laptop or phone?
Until 31 March 2027, yes, generally without FBT. From 1 April 2027, salary-sacrificed laptops, phones and other work items attract FBT. If the business provides them outright, they stay exempt.
Do small businesses pay FBT?
Yes, if they provide fringe benefits. Business size doesn't create an exemption, though many small-business benefits fall under exemptions for small benefits or work tools.
What happens if I should have lodged an FBT return and didn't?
The ATO can charge failure-to-lodge penalties and the general interest charge on the unpaid FBT from the original due date. Coming forward voluntarily usually reduces penalties.
Are electric cars exempt from FBT?
Eligible battery electric and hydrogen cars valued below the luxury car tax threshold for fuel-efficient vehicles ($91,661 for 2026–27) are exempt for now. Changes from 1 April 2027 have been announced but aren't law yet.
When is the FBT return due?
21 May if you lodge yourself, or 25 June if your tax agent lodges electronically.
This is general information only and doesn't take into account your personal circumstances.