Fringe benefits tax for small business
Fringe benefits tax (FBT) is a tax the employer pays on certain non-cash benefits provided to employees, including directors of your own company. It catches more small businesses than you’d expect, usually through the work car.
How it works
- The FBT year runs from 1 April to 31 March.
- The rate is 47%, applied to the “grossed-up” value of the benefit. In practice, FBT often costs about as much as paying the employee the equivalent in cash salary, and sometimes more.
- The employer pays it, but the cost is generally deductible, and the business can claim GST credits on many benefits.
- Returns are due 21 May if you have a liability, or later if lodged electronically by a tax agent.
- Reportable fringe benefits over $2,000 appear on the employee’s income statement. They aren’t taxed again, but count for things like the Medicare levy surcharge and child support.
Common benefits that trigger FBT
Cars
The most common. A business-owned or leased car that’s available for an employee’s private use, including garaging it at home, is a car fringe benefit, even if it’s not actually driven privately that day. The taxable value is usually worked out by either:
- the statutory formula: 20% of the car’s cost each year, regardless of kilometres, or
- the operating cost method: actual running costs multiplied by the private use percentage, which needs a valid logbook.
Utes and vans are generally exempt if private use is limited to home-to-work travel and minor, infrequent private trips.
Entertainment
Food, drink and recreation provided to staff can be a fringe benefit, depending on where and when. Christmas parties held on your business premises on a working day, for employees only, are generally exempt. Off-site, the minor benefits exemption may cover each employee if the cost per head is under $300.
Paying private expenses
Paying an employee’s (or your own, as a company director) private bills, school fees, gym membership or personal loan from the business account is an expense payment fringe benefit. This is one of the most common FBT problems in owner-run companies, and often also raises Division 7A issues.
Loans and low-interest loans
A loan from the employer at less than the ATO benchmark interest rate is a loan fringe benefit.
Exemptions worth knowing
- Electric cars: zero or low emissions cars first used after 1 July 2022, priced below the luxury car tax threshold for fuel-efficient vehicles, are exempt. Plug-in hybrids were removed from the exemption from 1 April 2025, except for existing commitments. You still calculate the notional value because it’s reportable on the employee’s income statement.
- Minor benefits under $300 that are infrequent and irregular.
- Portable electronic devices such as a phone, laptop or tablet used primarily for work. Small businesses can provide more than one of the same type each year.
- Work-related items such as tools, protective clothing and briefcases.
- Car parking in many small business situations.
- Taxi and rideshare travel starting or ending at the workplace.
Reducing FBT
- Employee contributions: if the employee pays some of the running costs from after-tax money, the taxable value falls, potentially to zero.
- Keep a logbook so the operating cost method can be used where business use is high.
- Choose exempt vehicles where they suit the business.
- Salary package benefits that are exempt or concessional.
- Stop paying private expenses from the business account, or record them properly as salary or a loan.
Getting it right
FBT is easy to overlook until the ATO asks, and the penalties for not lodging can be significant. If you provide cars or pay private expenses through your company, we review it as part of your year-end and tax planning. See business tax and accounting.