ramco

    Fringe Benefits Tax (FBT)

    Key Takeaways
    • Employer Tax Compliance Management: Helps organisations calculate, track and report Fringe Benefits Tax obligations for non-cash employee benefits such as vehicles, reimbursements and salary-packaged items.
    • Accurate Benefit Tracking and Reporting: Supports correct FBT calculations, Reportable Fringe Benefits Amount (RFBA) reporting and Single Touch Payroll compliance.
    • Automated Payroll Governance: Provides visibility into benefit allocations, tax obligations and employee records through payroll automation and analytics.

    What is Fringe Benefits Tax

    The Fringe Benefits Tax is one of the most important employer tax obligations in Australia because it applies to benefits provided outside normal salary and wages. It covers many benefits employees receive through work, including cars, expense payments, entertainment, parking, loans, and salary-packaged items.

    For employers, FBT requires careful tracking because it uses its own tax year, from 1 April to 31 March. Payroll, finance and HR teams must record benefits correctly, apply exemptions where available and report employee-level amounts through Single Touch Payroll.

    Fringe Benefits Tax, or FBT, is paid by employers when they provide non-cash benefits to employees because of their work. These benefits can include company cars, expense reimbursements, entertainment, low-interest loans, housing, discounted goods and workplace parking. The employee receives the benefit, but the employer carries the FBT obligation.

    FBT also follows a separate tax year, running from 1 April to 31 March. This differs from Australia’s standard financial year, which runs from 1 July to 30 June. Many employers miss this timing difference and review FBT too late in the year. The current FBT rate is 47% and it is applicable through 31 March 2027.

    What Are the Most Common Types of Fringe Benefits?

    The way the ATO defines fringe benefits includes several types of non-cash rewards that firms give to employee. Many employers provide benefits that attract FBT without realising the obligation exists, which is why the ATO estimates it receives only about 65% of the total FBT it expects with full compliance from Australian employers.

    • Car fringe benefits: Providing a corporate car for the private use of an employee generates FBT. For calculating the taxable value, a flat statutory rate of 20% applies, regardless of the number of kilometres the employee drives during the FBT year.
    • Expense payment fringe benefits: Where an employer reimburses or pays for an employee’s personal expenses, for example private health insurance, school fees or personal phone bills, there is an FBT liability on the whole amount paid by the employer.
    • Entertainment fringe benefits: Providing meals, tickets to events, holidays and other amusement to employees are subject to FBT. The treatment will depend on whether the entertainment is provided on or off the employer’s premises.
    • Car parking fringe benefits: FBT liability exists if a car parking space is provided at or near the workplace and the lowest commercial parking fee within one kilometer of the workplace is above the threshold ($10.40 for FBT year ending 31 March 2026).
    • Loan fringe benefits: The difference between the benchmark interest rate and the interest rate paid by the employee on the loan is subject to FBT if an employer provides the employee with a loan at a rate lower than the ATO benchmark rate.

    How Is Fringe Benefits Tax Calculated?

    The FBT computation is undertaken by a gross-up method which translates the taxable value of the benefit into the equivalent pre-tax wage that an employee requires to be able to purchase that benefit themselves. The gross-up rate is based on whether the employer is entitled to claim the GST credit on the benefit offered to the employee.

    • Type 1 benefits (GST credit available): The employer uses a gross-up rate of 2.0802 to calculate the grossed-up taxable value. This rate applies when the employer is entitled to claim a GST credit on the cost of providing the benefit.
    • Type 2 benefits (no GST credit): The employer uses a lower gross-up rate of 1.8868. This rate applies when the employer cannot claim a GST credit on the benefit, such as residential rent payments or most financial benefits.
    • FBT liability formula: The employer multiplies the grossed-up taxable value by the 47% FBT rate to determine the FBT payable. For a Type 1 benefit with a taxable value of $10,000, the calculation produces $10,000 × 2.0802 × 47% = $9,777 in FBT payable.

    What Fringe Benefits Are Exempt From FBT?

    The ATO provides several exemptions that reduce or eliminate FBT liability on specific benefit categories. Understanding which exemptions apply is one of the most effective ways for employers to manage their total FBT cost.

    • Minor benefits under $300: Benefits with a notional taxable value under $300 per instance are exempt from FBT if they are provided infrequently and irregularly. This exemption does not apply to benefits that are identical and provided on a regular basis throughout the year.
    • Work-related items: Laptops, tablets, protective clothing, briefcases and tools of trade provided primarily for work purposes are exempt. The exemption applies to one item per category per FBT year per employee.
    • Electric vehicle exemption: Zero and low-emission vehicles that are valued less than the luxury car tax threshold ($91,387 for 2024-25) remain exempt from FBT. Plug-in hybrid electric vehicles lost this exemption for new arrangements entered after 1 April 2025, meaning new PHEV salary packaging arrangements now attract full FBT.
    • Remote area concessions: Benefits provided to employees in designated remote areas, including housing, residential fuel and holiday transport, receive FBT concessions that reduce or eliminate the employer's liability.

    How Does FBT Interact with Payroll and STP Reporting?

    FBT intersects with payroll through the Reportable Fringe Benefits Amount (RFBA) that employers must include in each employee's income statement. Where the total pre-grossed-up value of certain fringe benefits offered to an employee is higher than $2,000, the employer must report the grossed-up amount through Single Touch Payroll as an RFBA on that employee's income statement.

    The RFBA affects the employee's adjusted taxable income, which determines their eligibility for government benefits such as the family tax benefit and the Medicare levy surcharge. An employee who receives reportable fringe benefits above the threshold may lose access to income-tested benefits or face additional surcharges that reduce their net financial position.

    Payroll systems must calculate and allocate reportable fringe benefits to individual employees accurately at year-end. Excluded benefits, which include meal entertainment and car parking not under salary packaging, do not need individual allocation. All other reportable benefits must be allocated to the specific employee who received them and reported through STP before the employee's annual income statement is finalised.

    What FBT Mistakes Does the ATO Target Most Often?

    The ATO cross-references data from state motor vehicle registries, payroll records and FBT lodgements to identify employers providing vehicles without lodging an FBT return. This data matching programme represents the ATO's most active FBT compliance tool and catches employers who assume a company vehicle used privately does not require FBT registration and reporting.

    • Unregistered FBT obligations: Employers providing company cars, entertainment or expense reimbursements without registering for FBT create a compliance gap the ATO's data matching programme is designed to detect.
    • Incorrect PHEV treatment: The EV exemption for plug-in hybrid vehicles ended for new arrangements from 1 April 2025. Employers who continue to treat new PHEV salary packaging arrangements as FBT-exempt incur full FBT liability and face potential penalties.
    • Underreported entertainment: Employers who provide regular meals, event tickets or travel to employees without tracking the taxable value create an FBT underreporting gap that the ATO is actively pursuing through its compliance programmes.
    • Missing RFBA allocations: Failing to allocate reportable fringe benefits to individual employees through STP produces incorrect income statements that affect employee tax returns, and government benefits eligibility calculations.

    How Does Ramco Payce Support FBT Payroll Compliance?

    Ramco Payce tracks fringe benefits allocations and RFBA amounts across every employee record and reports them through STP at the correct grossed-up value during income statement finalisation. Payroll Workspace gives payroll operators visibility into all benefit allocations, salary packaging arrangements, and employee income statement status before each reporting deadline.

    BInGO delivers FBT analytics and benefit allocation reporting that finance teams can use to model total FBT exposure before the return lodgement deadline. Daily HR gives employees self-service access to their income statements, including reportable fringe benefits amounts, reducing the query volume HR teams handle around EOFY each year.

    Book a free demo to get started.

    FAQs

    Does FBT Apply To Benefits Provided To Contractors As Well As Employees?

    FBT can apply to contractors when the arrangement is treated like employment for FBT purposes. Benefits provided to those contractors may attract the same employer obligations as benefits provided to employees. Employers should review each contractor relationship, benefit type and FBT year record before deciding treatment.

    How Does Salary Packaging Interact With FBT Obligations?

    Salary packaging lets employees receive selected non-cash benefits instead of part of their salary. The employer’s FBT position depends on whether each packaged benefit is exempt, concessional or fully taxable. Public hospitals and not-for-profit organisations may access exemption caps or rebates that change packaging value.

    What Records Must Employers Keep To Support Their FBT Return?

    Employers should keep records showing who received each benefit, its value, employee contributions and the calculation method used. For the FBT year ending 31 March 2026, simplified record-keeping may apply below the $10,664 threshold. Records should be kept for five years after the return lodgement date.

    How Does The FBT Minor Benefits Exemption Work In Practice?

    The minor benefits exemption applies when an individual benefit is under $300 and provided infrequently or irregularly. A one-off $250 gift voucher may qualify, while a monthly $250 meal allowance would not. Employers should assess value, frequency, similarity and regularity before applying the exemption to that benefit.