Fringe Benefits Tax (FBT) Updates and Risk Areas for Employers 2025-26

The Fringe Benefits Tax (FBT) year in Australia ends on 31 March. We’ve outlined the hot spots for employers and employees to help identify potential compliance risks and planning considerations ahead of the FBT lodgement period.

 

What is Fringe Benefits Tax in Australia?

FBT is a tax paid by employers in Australia on certain non-cash benefits provided to employees, such as cars, entertainment, expense reimbursements or discounted services.

 

Quick Summary – Key FBT Issues for Australian Employers • The FBT year ends on 31 March, and businesses must review employee benefits provided during the year. • Electric vehicle benefits may qualify for an FBT exemption, but plug-in hybrids lose this exemption from 1 April 2025 unless transitional rules apply. • The ATO is increasing data-matching activity, particularly targeting vehicle benefits and businesses failing to lodge FBT returns. • Misreporting private use of work vehicles is one of the most common FBT compliance issues. • Businesses engaging contractors should review worker classification to confirm whether FBT obligations could arise. • New legislative instruments allow simplified record-keeping approaches, reducing compliance burden where appropriate.

 

Electric Vehicle FBT Exemption in Australia

Fringe Benefits Tax is governed by the Fringe Benefits Tax Assessment Act 1986, which sets out how taxable benefits provided to employees are valued and reported.

Employers in Australia that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

• The employer owns or leases the car and allows a current employee to use the car;
• The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
• The car is both first held and used on or after 1 July 2022; and
• The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $91,387 for the 2025–26 financial year).

Plug-in hybrid vehicles no longer FBT exempt

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

• The use of the vehicle was exempt before 1 April 2025, and
• There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption won’t normally be available any more.

 

Overlooking or misreporting FBT on private use of work vehicles

The ATO is actively using sophisticated data analytics to target employers who fail to report or incorrectly report fringe benefits. ATO compliance teams are specifically looking for businesses that:

• Fail to lodge FBT returns despite providing vehicles for private use.
• Misunderstand exemptions, particularly the common misconception that dual-cab utes are automatically exempt from FBT.
• Neglect record-keeping, such as failing to maintain valid logbooks or odometer readings to support their claims.
• Incorrectly apportion usage, often treating private travel including garaging a vehicle at an employee’s home as business use.

To ensure compliance, the ATO emphasises that a vehicle is considered “available for private use” if it is garaged at or near an employee’s home, regardless of whether they have permission to use it.

Employers are expected to:

• Correctly identify the vehicle type (which impacts on whether they are providing a car benefit or a residual benefit).
  • Maintain robust documentation, as invalid logbooks can lead the ATO to apply the statutory formula method, often resulting in higher tax liabilities.

The ATO uses the case study of a Melbourne restaurant to illustrate the severity of non-compliance. In that instance, the lack of valid logbooks and failure to lodge returns resulted in a total liability of $938,000, which included the base tax, a 75% penalty for reckless behaviour, and significant interest charges. This highlights that the ATO is prepared to impose heavy financial penalties on businesses that deliberately avoid or carelessly manage their FBT obligations.

 

FBT housekeeping

It can be difficult to ensure the required records are maintained in relation to fringe benefits, especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person. This can save time chasing records later.

 

The top FBT risk areas

Mismatched claims for entertainment – claimed as a deduction but no FBT

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses relating to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

Let’s say you take a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there often won’t be any FBT implications. This is because benefits provided to clients are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits.

Employee contributions by journal entry in the accounts

Many businesses use after-tax employee contributions to reduce the value of fringe benefits. It is also reasonably common for these contributions to be made by journal entry through the accounting system only (rather than being paid in cash).

While this can be acceptable if managed correctly, the ATO has flagged numerous concerns including whether journal entries made after the end of the FBT year are valid employee contributions.

For an employee contribution made by way of journal entry to be effective in reducing the taxable value of a benefit, all of the following conditions must be met:

• The employee must have an obligation to make a contribution to the employer towards a fringe benefit (i.e., under the employee’s remuneration agreement);
• The employer has an obligation to make a payment to the employee;
• The employee and employer agree to set-off the employee’s obligation to the employer against the employer’s obligation to the employee; and
• The journal entries are made no later than the time the financial accounts are prepared for the current year.

Failing to ensure that arrangements involving fringe benefits and employee contributions are clearly documented can lead to problems. If there is no evidence of the obligation, then significant FBT liabilities could arise.

Also remember that if the arrangement involves the business providing a loan to an employee this can trigger a separate loan fringe benefit issue that needs to be managed.

Not lodging FBT returns

The ATO is concerned that some employers are not lodging FBT returns when required to.

If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential to ensure that the position is reviewed to check whether the business could potentially have an FBT liability.

If the business provides cars, car spaces, reimburses private expenses, provides entertainment, employee discounts or similar benefits, then you are likely to be providing at least some fringe benefits.

There is a list of benefits that are considered exempt from FBT, such as portable electronic devices like laptops, protective clothing and tools of trade. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.

 

What financial consequences can arise from FBT mistakes?

Failure to correctly manage Fringe Benefits Tax obligations in Australia can lead to significant financial exposure for employers.

Potential consequences may include:

• Payment of the underlying FBT liability
• Administrative penalties, which may be up to 75% for reckless behaviour
• General interest charges applied to unpaid amounts
• Additional compliance activity from the ATO

Because FBT interacts with income tax deductions and GST claims, errors can also create secondary tax adjustments. For this reason, many businesses review their FBT position annually before the lodgement deadline.

 

What this means for employers and business owners

FBT compliance often becomes complex where businesses provide vehicles, entertainment, expense reimbursements or other non-cash benefits to employees.

A structured review of the benefits your business provides, the records supporting those benefits, and the classification of workers can significantly reduce risk. Many businesses choose to undertake an FBT compliance review with a tax adviser before the lodgement deadline to ensure their reporting obligations are correct.

In many cases, the key planning step is reviewing arrangements before the end of the FBT year on 31 March, rather than attempting to reconstruct records later.

 

Frequently Asked Questions

When does the FBT year end in Australia?
The Fringe Benefits Tax year runs from 1 April to 31 March. Employers should review benefits provided during this period before preparing their FBT return.

Are electric vehicles exempt from FBT?
Certain battery electric and hydrogen fuel cell vehicles may qualify for an FBT exemption if they meet eligibility conditions, including the luxury car tax threshold and acquisition date requirements.

Do contractors trigger FBT obligations?
Generally, FBT applies to employees and certain office holders, not genuine independent contractors. However, determining worker classification can be complex and depends on the terms of the contract and the nature of the working relationship.

What is one of the most common FBT mistakes?
A common compliance issue is incorrect reporting of private use of work vehicles, particularly where vehicles are garaged at an employee’s home but treated as business-only use.

 

Reviewing your FBT position before the lodgement deadline

With the FBT year ending on 31 March, reviewing employee benefits and record-keeping practices ahead of the lodgement deadline can help reduce risk and avoid unexpected tax liabilities.

Ensuring logbooks are valid, benefits are correctly classified, and employee contribution arrangements are documented can make a significant difference when preparing the FBT return.

If you would like assistance reviewing your Fringe Benefits Tax obligations before the FBT lodgement deadline, you can arrange an FBT review with the team at Paris Financial. A proactive review of employee benefits, vehicle usage and record-keeping practices can help ensure your business remains compliant and avoids unexpected FBT liabilities.

 

Disclaimer: This information is general in nature and does not constitute tax advice. Outcomes depend on individual circumstances and current ATO rules. Professional advice should be obtained before making decisions.