Article Summary: 

Fringe Benefits Tax (FBT) is a tax employers may have to pay when providing non-cash benefits to employees or their associates. It applies more often than many small business owners realise, especially where company vehicles, staff entertainment, or gifts are involved. In this article, we explain how FBT works, outline the most common benefits that attract tax, highlight ATO audit focus areas for 2025, and explain why lodging an FBT return (even with no tax payable) is a smart compliance strategy. We also cover recent ATO record-keeping updates and important electric vehicle exemptions.

What is Fringe Benefits Tax and who does it apply to?   

Fringe Benefits Tax is paid by employers on certain benefits provided to employees, their family members, or other associates in addition to salary or wages. 

FBT is: 

  • Separate from income tax 
  • Calculated on the grossed-up taxable value of the benefit 
  • Payable by the employer (not the employee) 
  • Reported annually, with the FBT year running from 1 April to 31 March 

FBT can apply to: 

  • Companies and trusts providing benefits to staff 
  • Sole traders or partnerships that provide benefits to employees (but not themselves) 

What are common examples of fringe benefits? 

According to the ATO, the most common types of fringe benefits include: 

1. Car Fringe Benefits 

If an employer provides a car that is available for private purposes, including commuting, it is generally considered a fringe benefit unless it meets strict exemptions (e.g. a commercial vehicle used minimally for private use). 

2. Entertainment 

This includes meals, drinks, event tickets or recreational activities provided to staff or their associates. While some minor benefits may be exempt, entertainment is a frequent audit target due to confusion around eligibility and valuation. 

3. Expense Payments 

If the business pays or reimburses an employee’s personal expenses (such as school fees, club memberships, or home utility bills), it may attract FBT. 

4. Loans 

Interest-free or low-interest loans to employees are subject to FBT unless they match benchmark interest rates. 

5. Housing or Accommodation 

Providing rent-free housing or subsidised accommodation to employees is also a fringe benefit. 

Tip: You can often reduce or eliminate FBT by using exemptions or employee contributions. For example, an after-tax contribution from the employee can reduce the taxable value of a car benefit. 

What has changed in 2025? Key ATO updates 

CAs of the 2024–25 FBT year, there are several updates business owners should know: 

New ATO record-keeping concessions 

From 1 April 2024, eligible employers can now use corporate records (e.g. logbooks, fleet records or payroll data) instead of traditional employee declarations or travel diaries to substantiate some fringe benefits. This reduces admin and simplifies compliance for many businesses. 

Electric Vehicle (EV) Exemption 

Certain electric and low-emission vehicles remain exempt from FBT if: 

  • First held and used after 1 July 2022 
  • Value is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2024–25) 
  • Used by current employees and not salary-sacrificed prior to 1 April 2025 

Note: Plug-in hybrid electric vehicles will no longer be exempt from 1 April 2025 unless a financial commitment was made before this date. Even where the vehicle is exempt from FBT, a Reportable Fringe Benefits Amount (RFBA) must still be reported on the employee’s income statement under PCG 2024/2. 

Why should I lodge an FBT return even if no tax is payable? 

There are several important reasons to lodge a nil FBT return, even if you don’t expect to owe any tax: 

1. Protect your audit window 

If you do not lodge an FBT return, the ATO can review your records indefinitely. Lodging a return limits the amendment period to three years, helping protect your business from retrospective assessments. 

2. Demonstrate due diligence 

By submitting a return, you demonstrate that your business has reviewed its obligations and taken reasonable care — this can reduce penalties in the event of an audit. 

3. Avoid assumptions about exemption 

The ATO may flag businesses that appear to provide benefits (such as vehicles or entertainment) but report no FBT or lodge no return. Lodging a nil return formalises your position. 

According to Taxpayer Alert TA 2023/2, the ATO is actively targeting situations where private use of company assets is not correctly reported for FBT. 

What happens if I don’t lodge and FBT applies? 

If your business provides fringe benefits but doesn’t register for FBT or lodge a return: 

  • You may be assessed for back taxes, penalties and interest, going back several years 
  • The ATO may conduct a review or audit at any time 
  • Your PAYG summaries may be inaccurate, especially if RFBA disclosures are missed 

Example: A small building company provided cars to several team members but failed to report any FBT or keep valid logbooks. After an audit, they were assessed for three years of FBT and penalties exceeding $25,000. 

How can I reduce or eliminate my FBT liability? 

There are a range of legal exemptions and strategies available: 

  • Minor Benefits Exemption: Benefits under $300 provided occasionally may be exempt if infrequent and not part of a reward scheme 
  • Work-related items: Tools, laptops, phones and safety gear may be FBT-free if primarily used for work 
  • Electric vehicles exemption: Available for qualifying EVs under the LCT threshold 
  • Employee contributions: After-tax contributions from employees can offset the taxable value of fringe benefits 
  • Salary packaging: Correctly structured arrangements can minimise or eliminate FBT obligations  

What is the ATO focusing on in 2025? 

Based on ATO updates and tax agent briefings, the following areas are under increased review: 

  • Private use of company vehicles without documentation 
  • Excessive or incorrectly classified entertainment 
  • Failing to report RFBA amounts for exempt electric vehicles 
  • Not lodging nil returns when benefits clearly exist 
  • Use of minor benefit exemption outside its scope 

Businesses that fail to monitor or document benefits accurately risk being audited and penalised. 

FBT matters, even if you’re a small business 

Fringe Benefits Tax is often misunderstood or ignored by small business owners. But even modest staff perks can trigger FBT obligations if not structured and reported correctly. Lodging a return even when no tax is payable is a smart, protective move. At Cosca, our Strategic Accounting team helps clients manage risk, reduce tax exposure and stay ATO-compliant with tailored FBT reviews and planning. If you’re unsure where you stand, we’re ready to support you. 

FAQs

What is the FBT year?

It runs from 1 April to 31 March.

Is FBT a deductible expense?

Yes. FBT paid is tax deductible to the business.

Can I still lodge a return even if I don’t owe any FBT?

Yes. Lodging a nil return protects your audit window and demonstrates compliance.

Are electric vehicles exempt from FBT?

Some are, provided they meet conditions including value thresholds and first-use dates. Reportable amounts may still need to be disclosed.

Can I use business records instead of employee declarations?

Yes, from April 2024, eligible businesses can use internal systems (e.g. fleet logs) under new ATO concessions.

Contact Us

Our Services