Fringe Benefits Tax (FBT) is a tax that employers pay on certain non-cash benefits provided to employees (or their associates, such as family members) instead of salary or wages. It is separate from income tax and is based on the taxable value of these benefits.
Key Dates for 2024-2025
- FBT year: 1 April 2024 – 31 March 2025
- ATO registration deadline: 21 May 2025
- FBT return due date: 25 June 2025
How FBT Works
FBT is designed to prevent tax avoidance by ensuring that non-cash benefits provided to employees are taxed appropriately.
Example Scenario
A company wants to reward an employee with a $50,000 bonus. If paid as salary, the employee would be taxed on this amount, reducing their take-home pay. Instead, the company provides exclusive use of a $50,000 car, which would not be considered taxable income for the employee. To close this tax loophole, FBT applies, requiring the employer to declare and pay tax on the benefit’s “grossed-up” value.
Employers must lodge an annual FBT return for the period from 1 April to 31 March, declaring all taxable benefits provided. If an employee reimburses part of the cost, the taxable value of the benefit is reduced accordingly.
Who Needs to Pay FBT?
FBT applies to all employers who provide fringe benefits to employees, regardless of the business size or structure. Directors of companies are also considered employees for FBT purposes.
Types of Fringe Benefits
1. Motor Vehicle Benefits
Providing a company vehicle for employee use is a common fringe benefit. These are classified as:
- Car Benefits (passenger vehicles with fewer than 9 seats, including SUVs)
- Statutory Formula Method – FBT is calculated on a fixed percentage of the car’s value, over the period in which it was available for use by the employee. This method requires minimal record-keeping but often results in higher FBT.
- Operating Cost Method – FBT is calculated on a proportion of the total running costs of the vehicle. The proportion is based on a percentage of private use of the vehicle and requires evidence from a logbook. The logbook is valid for up to 5 years, however often results in lower FBT.
- Non-Car Benefits (vehicles over 1 tonne or seating 9+ passengers)
- These vehicles may be exempt from FBT if used primarily for work purposes, with any private use considered “minor and infrequent.” However, the ATO monitors this closely, so detailed records are essential.
- Exemptions
- Some electric vehicles may qualify for FBT exemptions.
- Vehicles used exclusively for business purposes may also be exempt.
2. Entertainment Benefits
Providing food, drink, or recreational activities (e.g., event tickets, gym memberships) can be considered a fringe benefit.
- FBT applies if the benefit is classified as “entertainment.”
- The ATO assesses entertainment benefits based on:
- Purpose – If food and drink are provided for work purposes (e.g., overtime meals), it is less likely to be taxed. Social gatherings (e.g., Christmas parties) are more likely taxable.
- Type – Light meals (e.g., coffee, sandwiches) are less likely taxable, while alcohol and elaborate meals are more likely.
- Timing & Location – Meals provided during work hours/on business premises are generally exempt, while those provided off-site or outside work hours are more likely taxable.
3. Residual & Other Benefits
Residual benefits cover anything not classified under other FBT categories, such as:
- Employer provided services (e.g., legal advice while working for a solicitor)
- Use of employer-owned property (e.g goods sold by the business provided to an employee for a less than 75% of the taxable value sold to general public).
- Payment for personal expenses (e.g. childcare or private health insurance)
These benefits are generally taxable unless specific exemptions apply.
Employer Responsibilities
- Maintain detailed records of all fringe benefits provided, including type, recipients, cost, and purpose.
- Identify potential exemptions and deductions to minimise FBT liability.
- Ensure compliance, as the ATO closely monitors FBT claims and exemptions.
We will be sending a questionnaire to all our business clients prior to 31 March to assist them in gathering the required information and meeting their FBT obligations.
If you require any additional information, please do not hesitate to contact the team at [email protected] or call (02) 4365 6789. We are always happy to help.
Note: This article is for informational purposes only and does not constitute financial, legal, or tax advice. For tailored guidance, please reach out to our team at Kennedy Cross.
