Unlike the standard income tax year, the Australian Fringe Benefits Tax (FBT) year runs from 1 April to 31 March. As businesses manage compliance for the 2026 and 2027 FBT periods, understanding the current regulations helps avoid unexpected tax liabilities.
The ATO applies 47% tax on non-cash benefits for employees such as company cars, health insurance and meal entertainment. Accurate FBT reporting is a standard compliance requirement as the ATO increasingly uses data-matching across state motor vehicle registries and Single Touch Payroll (STP) data. Recent legislative changes, especially about electric vehicles, require business owners and financial controllers to review their salary packaging arrangements.
Here, we will discuss key FBT rules for small to medium enterprises (SMEs) and practical tips for managing year-end obligations.
1. Company Cars and Electric Vehicle Exemptions
Motor vehicles are the most common type of FBT liability for Australian businesses. For the current FBT period, the rules regarding electric vehicles have changed significantly, and it is necessary to review fleet and novated lease agreements.
The Plug-in Hybrid (PHEV) Exemption Cut-Off
Until now, Plug-in Hybrid electric vehicles (PHEVs) enjoyed the same FBT exemptions as full battery electric vehicles. This exemption ended on 1 April 2025.
All new PHEVs provided to employees from the 2026 FBT year onwards are treated as standard petrol or diesel vehicles and are subject to FBT. Only in PHEVs where a financially binding commitment such as a novated lease was made before 1 April 2025 is this exception allowed. Upon extension or refinancing of the lease after this date, the grandfathering provision is lost, and the vehicle is subject to FBT.
Ongoing Battery Electric Vehicle (BEV) Exemptions
Pure battery electric vehicles and hydrogen fuel cell electric vehicles remain exempt from FBT if their value is less than the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles. The threshold is $91,661 for the 2026-27 financial year.
The private use of an eligible BEV does not attract FBT, but the taxable value must be calculated nonetheless. This is a reportable fringe benefit that must be reflected on the employee’s end-of-year income statement.
Note: This full exemption is due to narrow from 1 April 2027, when a $75,000 value cap will apply, with a further reduction to a 25% FBT discount for all eligible vehicles from 1 April 2029. Existing arrangements are expected to be grandfathered, but new fleet or novated lease decisions should account for this upcoming phase-out.
Vehicle Logbooks and Odometer Readings
For businesses that compute car fringe benefits using the operating cost method, a 12-week logbook is an ATO requirement. The logbook establishes the vehicle’s business-use percentage and is usually valid for 5 years if the pattern of use does not change significantly. In any case, businesses must record the odometer reading for every company vehicle on 31 March of each year to complete their FBT calculations.
Businesses with larger vehicle fleets, particularly those involved in construction accounting, often review logbooks, vehicle usage, and odometer records throughout the year to support accurate FBT calculations and maintain compliant tax records.
2. Managing Meal Entertainment and Minor Benefits
Providing food, drink or recreation to employees is a common source of FBT liability. The ATO requires that businesses distinguish between deductible business expenses and taxable meal entertainment.
The $300 Minor Benefits Exemption
Many businesses use the minor benefits exemption to administer FBT for occasional staff perks like a team lunch or end-of-year party. The benefit must meet two requirements to be exempted:
- The notional taxable value must be less than $300 (including GST) per person.
- The benefit must be provided on an “infrequent and irregular” basis.
If an employer provides a $250 lunch to staff every single week, it will fail the “infrequent” test and attract FBT, despite being under the $300 threshold.
3. Reportable Fringe Benefits and STP Reporting
Fringe Benefits Tax is a liability of the employer and not of the employee. However, the benefits an employee gets can also affect their personal tax returns.
The $2,000 Reporting Threshold
The employer is liable to report to the ATO any gross-up taxable value over $2,000 of fringe benefits paid to a single employee in the FBT year.
This Reportable Fringe Benefits Amount (RFBA) is sent via Single Touch Payroll Phase 2. Although the employee pays no standard income tax on this RFBA, the ATO uses this figure to calculate income tests for the Medicare Levy Surcharge, HECS and HELP loan repayments and other government support payments are carried out on that figure.
The calculations must be accurate because this information is reported to the ATO and can affect an employee’s personal tax obligations and eligibility for certain government benefits. Accurate RFBA calculations are also an important part of broader payroll compliance, particularly as businesses adapt to Payday Super requirements.
4. The Strategy Behind Lodging a Nil Return
A common scenario for SMEs is to calculate their FBT position in April and find they owe no tax. This usually happens when an employee makes out-of-pocket “employee contributions” (paying for fuel or servicing from post-tax income) that reduce the taxable value of a car fringe benefit to zero.
Activating the Statutory Time Limit
If the FBT liability is zero, the employer need not lodge an FBT return. Yet standard accounting practice generally recommends lodging a “Nil” return anyway.
Lodging a return notifies the ATO of the business’s FBT position and, importantly, triggers a three-year statutory time limit on audits. If a Nil return is lodged, the ATO generally has three years to commence an audit for that FBT year. If no return is filed, the ATO may review that year indefinitely.
Preparing these returns requires a clear trail of employee contributions and reconciled accounts. Many practice partners and financial controllers enlist accounting outsourcing for ledger reviews and FBT workpapers to support a Nil return decision supported by financial data.
5. Key Dates and Record-Keeping Requirements
Accurate record-keeping is an essential part of complying with FBT regulations. The ATO requires employers to keep records relating to fringe benefits, including logbooks, employee declarations, invoices and other supporting documents, for five years from the date the FBT return is lodged.
Lodgement Deadlines
- 31 March: The FBT year ends. Odometer readings must be recorded.
- 21 May: The final date to lodge and pay the FBT return if the business is lodging independently.
- 25 June: The extended lodgement and payment date is available to businesses that use a registered tax agent, provided they are enrolled on the agent’s FBT client list by 21 May.
Maintaining FBT Compliance
To manage Fringe Benefits Tax, you need constant financial administration throughout the year. Waiting until April to look at vehicle use, separate meal entertainment receipts, and calculate employee contributions creates more risk of calculation errors and missed lodgement deadlines.
At Befree, we provide dedicated accounting professionals who handle complex ledgers to statutory standards. We ensure your expense accounts are accurately categorised, vehicle logs are maintained, and your financial data is prepared for year-end reporting.