Fringe Benefits Tax 2025-26: The Complete Employer's Guide to FBT in Australia

What Is Fringe Benefits Tax and Why Does It Matter in 2026?

The 2025-26 FBT year ended on 31 March 2026, which means Australian employers now face the task of calculating their FBT liability, preparing their FBT return, and lodging by 21 May 2026 (or 26 June if using a tax agent).

Fringe Benefits Tax is one of the most misunderstood taxes in Australia. Unlike income tax, which is paid by the employee, FBT is paid by the employer on the taxable value of non-cash benefits provided to employees and their associates. These benefits include everything from company cars and gym memberships to car parking spaces and low-interest loans.

The ATO has flagged employer compliance with FBT as a priority area in 2026, particularly around:

• Car and vehicle benefits (especially amid the EV exemption changes)
• Car parking (the definition of “commercial car parking” continues to generate disputes)
• Employee contributions and their impact on taxable value
• Working from home arrangements and any associated benefits

For 2025-26, the FBT rate remains 47%, which is deliberately set at the top marginal income tax rate plus the 2% Medicare levy. The ATO collected over $4.9 billion in FBT revenue in 2023-24 (ATO annual report), and enforcement activity has increased significantly in recent years.

Understanding the FBT Year and Rate

Unlike income tax, which runs 1 July to 30 June, the FBT year runs 1 April to 31 March. This timing difference regularly catches employers off guard, particularly those who think of their year-end as June.

Key FBT Rates and Figures for 2025-26

How FBT Is Calculated

The FBT formula is straightforward in principle:

FBT payable = (Taxable value × Gross-up rate) × 47%

For example, if an employer provides a car benefit with a taxable value of $10,000 and can claim a GST credit on the vehicle costs:

• Grossed-up value = $10,000 × 2.0802 = $20,802
• FBT payable = $20,802 × 47% = $9,777

This makes FBT genuinely expensive. An employer paying $10,000 of car benefit could owe nearly $9,800 in additional FBT liability.

Car Benefits: The Biggest Category of FBT

Car benefits remain the largest single category of fringe benefits in Australia. The ATO allows two methods for valuing a car benefit: the Statutory Formula Method and the Operating Cost Method.

Statutory Formula Method

Under the statutory formula, the taxable value is calculated as:

Taxable value = (Base value × Statutory fraction × Days available) ÷ 365 − Employee contributions

The statutory fraction is 20% regardless of kilometres driven (this simplified rate was introduced in 2014, replacing the old sliding scale).

For example, on a car with a base value of $55,000:

• Taxable value = $55,000 × 20% × (365/365) = $11,000
• FBT payable (Type 1) = $11,000 × 2.0802 × 47% = $5,385

Operating Cost Method

The Operating Cost Method (also called the logbook method) calculates taxable value based on actual running costs multiplied by the private use percentage. This method tends to produce lower taxable values for employees who use their vehicles predominantly for business purposes, but it requires a current logbook (maintained for a minimum 12-week representative period).

Taxable value = Total operating costs × Private use % − Employee contributions

If total operating costs are $18,000 and business use is 75% (private use 25%):

• Taxable value = $18,000 × 25% = $4,500
• FBT payable (Type 1) = $4,500 × 2.0802 × 47% = $2,202

The logbook must be current and endorsed. If it was prepared more than five years ago, a new one is required.

Electric Vehicles and the FBT Exemption: What’s Changed

The electric vehicle FBT exemption introduced from 1 July 2022 continues to make battery electric vehicles (BEVs) an attractive salary packaging option in 2025-26. However, plug-in hybrid vehicles (PHEVs) lost the exemption from 1 April 2025, making this FBT year the first in which PHEV benefits are fully taxable.

Current EV Exemption Rules (2025-26)

For a BEV to qualify for the exemption:

1. It must be a car (designed to carry fewer than 9 passengers, not a motorbike)
2. Its value at first sale must be below the luxury car tax threshold for fuel-efficient vehicles ($91,387 in 2025-26)
3. It must be provided under a valid employer or novated lease arrangement
4. The first use or availability of the car must have been on or after 1 July 2022

Because BEV novated leases are FBT-exempt, they also do not generate a reportable fringe benefit amount, meaning employees can use pre-tax salary to pay for the car without any impact on their Medicare levy, HECS-HELP repayments, or government benefit thresholds.

Salary Sacrifice Savings Example: BEV Novated Lease

For an employee earning $120,000 per year:

• Pre-tax salary sacrificed for BEV lease, running costs: $18,000/year
• Tax saving at 32% effective marginal rate: approx. $5,760/year
• No FBT liability, no RFBA impact
• Net cost of a $65,000 EV effectively reduced by close to a third

This is why the ATO has seen a surge in novated lease arrangements for electric vehicles and is actively reviewing compliance with the eligibility criteria.

Car Parking Benefits: An Often-Overlooked FBT Category

Car parking is a frequently missed FBT category. If an employer provides car parking that meets certain conditions, a taxable benefit arises even if the employer owns the car park.

When Does a Car Parking Benefit Arise?

A taxable car parking benefit arises when all of the following conditions are met:

1. The employer provides a car parking space to an employee
2. The car is parked within 1 km of a commercial car park that charges more than the threshold rate ($11.00 per day for 2025-26)
3. The car is parked for more than 4 hours between 7am and 7pm
4. The employee uses the car to travel to and from work at least once during the day

Small business exemption: Businesses with a turnover below $10 million in the previous year are exempt from the car parking FBT rules. This is a significant concession that many small employers don’t realise they’re entitled to claim.

The “commercial car parking facility” test has been the subject of significant litigation. The ATO’s position (Practical Compliance Guideline PCG 2021/3) clarified the definition, but employers should seek advice if they have car parks in central business areas.

Living Away From Home Allowances (LAFHA)

Living Away From Home Allowances are another significant FBT category. LAFHA is paid when an employee is required to live away from their usual place of residence for work.

Key rules for 2025-26:

• The employee must maintain a home in Australia that they are required to move away from
• The accommodation and food components must be reasonable and supported by receipts
• The standard food deduction for 2025-26 is $108 per week for adults ($54 for children under 12)
• LAFHA is only exempt for a maximum of 12 months at a single location (unless the employee is a fly-in fly-out or drive-in drive-out worker)

With the ongoing demand for workers in regional areas and infrastructure projects, LAFHA compliance has become a focus area for the ATO in 2026.

Exempt Benefits and Minor Benefits

Not all non-cash benefits trigger FBT liability. The Australian FBT rules contain several important exemptions.

Minor Benefits Exemption

A benefit is exempt if it is:

• Infrequent or irregular (not provided under a salary sacrifice arrangement)
• Has a taxable value of less than $300 per benefit

This exemption is per benefit, not per year. An employer could provide a $200 gift voucher for a birthday and a $250 gift basket at Christmas without FBT applying to either, provided they are genuinely irregular. However, regular benefits of the same type that happen to be under $300 each can still attract FBT.

Work-Related Items (Portable Electronic Devices)

Employers can provide the following items FBT-free, subject to conditions:

The “primarily for employment use” test requires that the item is used more than 50% for work purposes. Where both an employer-provided phone and a laptop are given, the exemption applies to each separately.

Expense Payment Benefits: Work-Related Expenses

Where an employer pays or reimburses an employee’s work-related expenses, no FBT applies if:

• The employee would have been entitled to claim the expense as an income tax deduction
• The expense relates solely to the employee’s employment

This exemption commonly applies to home internet reimbursements, professional subscriptions, work-related study costs, and professional indemnity insurance premiums.

Reducing FBT: Employer Strategies

There are several legitimate strategies available to reduce FBT liability.

Employee Contributions

When an employee contributes toward the cost of a benefit from their after-tax income, this directly reduces the taxable value of the benefit. For car benefits, the employee contribution reduces dollar-for-dollar. For a $11,000 taxable car benefit, an employee contribution of $5,000 would reduce the taxable value to $6,000.

While this doesn’t eliminate FBT entirely, it reduces it and can improve the net salary package for the employee.

Restructuring Benefits as Salary

Where a benefit doesn’t clearly justify its cost given the FBT liability, it may be better to remove it and provide equivalent salary. This is particularly relevant for small employers who don’t qualify for certain exemptions.

Using Exempt Benefits Instead of Taxable Benefits

Where possible, structuring benefits as exempt items (EV novated leases, work-related devices, portable tools) avoids FBT entirely and maximises the after-tax value of the salary package.

Logbook Maintenance

For employees who drive their employer-provided car predominantly for business, encouraging logbook maintenance can significantly reduce the taxable value under the Operating Cost Method compared to the Statutory Formula.

FBT Lodgement: Dates and Process

Employers who have not previously been required to lodge an FBT return but now have a liability should contact the ATO or engage a tax agent. Late lodgement penalties apply ($313 per 28-day period for small entities).

Why FBT Is a Job for a Tax Professional

FBT is genuinely complex. Determining whether a benefit is taxable, which gross-up rate applies, whether an exemption is available, and whether car parking rules are triggered requires specific knowledge of the FBT legislation and ATO guidance.

The consequences of getting it wrong can include:

• Understated FBT liability leading to back taxes, penalties (up to 75% of the shortfall for intentional disregard), and interest
• Overstated FBT liability meaning the business is paying tax it didn’t need to
• Employee impacts from incorrectly reported (or omitted) reportable fringe benefit amounts

The cost of engaging a qualified tax accountant or tax agent to review your FBT obligations typically pays for itself many times over, particularly for businesses with significant salary packaging arrangements.

Find a Tax Accountant for FBT Help

WealthWorks connects you with verified tax professionals across Australia who specialise in employer taxation, FBT compliance, and salary packaging strategy. Whether you’re lodging your first FBT return or want a second opinion on a complex car benefit arrangement, find an accountant who knows this area.

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