What is the Fringe Benefits Tax?
A Fringe Benefits Tax (FBT) rate of 47% applies across the 31 March 2022 to 31 March 2026. However, your business might face hidden costs if you don’t manage it well.
FBT applies to non-cash benefits you give your employees, such as company cars, meals, entertainment, gym memberships, etc. Different organisation types have varying FBT rates. Not-for-profits have special capping thresholds: public benevolent institutions get $30,000 while public and not-for-profit hospitals receive $17,000.
Many businesses think they don’t need to lodge returns when they haven’t provided taxable fringe benefits. This isn’t true. You must lodge a nil return to avoid potential ATO audits. Returns are due by 21 May or 25 June for electronic lodgments.
Types of Fringe Benefits
The Australian Taxation Office (ATO) groups employee perks into different types of fringe benefits. Each benefit type has its own valuation rules and tax implications for employers. Businesses need to understand these categories to manage their FBT compliance properly.
Car fringe benefits happen when employers provide vehicles that employees can use privately. This benefit type has cars owned by the company, leased vehicles, and employee car reimbursements. Employers can calculate FBT on cars using the statutory formula method or the operating cost method. Electric vehicles below the luxury car threshold are exempt from FBT until 31 March 2025.
Entertainment-related fringe benefits cover food, drink, recreation, and related travel or accommodation. Many businesses still debate whether business meals with wine automatically count as entertainment.
Expense payment fringe benefits exist when employers pay for their employees’ expenses directly or through reimbursement. These expenses can be school fees, professional memberships, or utility bills. Executive reward packages often have these benefits.
Loan and debt waiver fringe benefits apply to employer loans with below-market interest rates or forgiven employee debts. The FBT calculation looks at the difference between the official interest rate (8.62% for FBT year ending 31 March 2026) and the actual charged rate.
Accommodation and location-related benefits are a big part of fringe benefits. These benefits have housing, board, and living-away-from-home allowances. Remote areas get special concessions. Property fringe benefits include physical goods, real estate, or shares given to employees.
Other important categories include:
- Residual fringe benefits, covering all benefits that don’t fit other categories
- Car parking benefits with a $16.47 threshold for the 2025 FBT year
- Self-education expenses like course fees and textbooks
Employers should identify the right category for each benefit they provide. Different types need different valuation methods and might qualify for exemptions. Benefits worth less than $458.70 might qualify for the minor benefits exemption if they’re given occasionally.
How Fringe Benefits Are Taxed
Tax liability calculations for employee perks are different from regular income tax assessments. Employers pay the FBT instead of employees, and this applies even when benefits go to an employee’s family members or associates.
The FBT calculation process needs employers to work out their own tax liability. The basic calculation converts benefits into an equivalent pre-tax salary amount through “grossing-up” the taxable value. The final step multiplies this grossed-up value by the current FBT rate of 47%.
Benefits fall into two categories with different gross-up rates:
- Type 1 gross-up rate (2.0802) applies to benefits where the employer can claim GST credits
- Type 2 gross-up rate (1.8868) applies to benefits that are GST-free or input-taxed
Let’s look at a real example. A gym membership costs $1,700 (including GST). The FBT calculation would be:
Taxable value × Type 1 gross-up rate × FBT rate = $1,700 × 2.0802 × 47% = $1,650
Your FBT liability calculation needs these steps:
- Determine the taxable value of each benefit
- Separate benefits into those that included GST and those that didn’t
- Apply the appropriate gross-up rate to each category
- Add the grossed-up amounts together
- Multiply by the 47% FBT rate
Businesses can claim income tax deductions for both the benefit costs and FBT payments. Companies can claim GST credits and the GST-exclusive amount as an income tax deduction for GST-inclusive benefits.
Not-for-profit organisations have special rules with exempt or rebatable benefits up to specific capping thresholds. Standard FBT rules apply above these thresholds, which means organisations need to track benefit values carefully throughout the FBT year.
2025 FBT Rates and Thresholds
Tax professionals need to stay up-to-date with FBT rates and thresholds to ensure accurate compliance and tax planning in 2025. The ATO has managed to keep several key figures while adjusting others based on economic changes.
The standard FBT rate stays at 47% for the FBT year ending 31 March 2025, which matches previous years. This rate applies to benefits of all types, and professionals use two important gross-up rates to calculate:
- Type 1 gross-up rate: 2.0802 (for benefits where GST credits can be claimed)
- Type 2 gross-up rate: 1.8868 (for benefits where no GST credits apply)
The daily car parking threshold now stands at $10.77. This threshold determines FBT liability for car parking benefits when commercial parking facilities exist nearby.
The benchmark interest rate for loan fringe benefits is 4.52% for the 2025 FBT year. The reportable fringe benefits threshold is more than $2,000. Employers must report the grossed-up amount on employee income statements when the total taxable value exceeds this figure. This results in a minimum reportable amount of $5,768.88.
Different capping thresholds apply to specific employers:
- Public benevolent institutions (PBIs) and health promotion charities: FBT exemption capped at $30,000 grossed-up value (equals $17,000 of actual benefits)
- Public hospitals and ambulance services: FBT exemption capped at $17,000 grossed-up value (equals $9,000 of actual benefits)
- Rebatable employers (e.g. non-profits not eligible for full exemption): 47% FBT rebate, capped at $30,000 grossed-up value (equals $14,000 of actual benefits)
These employers also have a separate $2,650 cap for salary-packaged meal entertainment and entertainment facility leasing expenses.
The record keeping exemption threshold sits at $10,334 for the 2025 FBT year. The electric vehicle home charging rate remains steady at 4.20 cents per kilometre.
Calculation Methods for FBT
Your FBT liability calculation depends on whether you can claim GST credits for the benefits. The calculation method varies between Type 1 and Type 2 benefits, each with its own gross-up rates.
Type 1 benefits let the employer claim GST credits, so the higher gross-up rate of 2.0802 applies. A television costing $1,000 (including GST) is a good example of a Type 1 benefit.
Type 2 benefits don’t qualify for GST credits and use the lower gross-up rate of 1.8868. A school fee reimbursement of $1,000 falls into this category.
The steps make the calculation straightforward:
- Work out the taxable value of each benefit provided
- Group benefits into Type 1 (GST-creditable) and Type 2 (non-GST-creditable)
- Multiply Type 1 benefits by 2.0802
- Multiply Type 2 benefits by 1.8868
- Add both grossed-up amounts together
- Multiply the total by 47% to determine your FBT liability
To cite an instance, let’s calculate FBT for a company providing these benefits:
- Type 1 benefits (gross-up rate: 2.0802):
- Car benefit: $15,000
- Meal expenses: $1,500
- Total Type 1: $16,500
- Grossed-up value: $16,500 × 2.0802 = $34,323
- FBT payable: $34,323 × 47% = $16,132
- Type 2 benefits (gross-up rate: 1.8868):
- School fees: $9,000
- Grossed-up value: $9,000 × 1.8868 = $16,981
- FBT payable: $16,981 × 47% = $7,971
The math works out like this:
- Type 1: ($15,000 + $1,500) × 2.0802 = $34,323
- Type 2: $9,000 × 1.8868 = $16,981
- Total FBT payable: ($34,323 + $16,981) × 47% = $24,103
Record-keeping plays a crucial role in this process. The ATO needs specific details about cars, loans, or houses used as fringe benefits in your annual return. You must also report gross taxable values and employee contributions that reduce the taxable amount.
Mastering these calculation methods helps your business stay compliant with ATO requirements and prevents unexpected tax bills.
Employer Obligations and Compliance
Your FBT responsibilities as an employer go beyond calculations and include detailed compliance requirements. You need to assess your own FBT liability for each FBT year.
You should register for FBT when you give fringe benefits to employees. This isn’t strictly required until you know you have an actual liability. After registration, you must keep detailed records of all benefits, their taxable values and reduction calculations. Keep these records for five years from the lodgment date or the FBT year’s end if you don’t lodge a return.
The compliance burden has decreased with new record-keeping methods starting from 1 April 2025. You can now use existing company records for certain benefits instead of collecting employee declarations for every benefit. These benefits include:
- Temporary accommodation for relocation
- Private use of non-car vehicles
- Fly-in fly-out arrangements
- Otherwise deductible benefits
- Living-away-from-home benefits
You must lodge FBT returns by 21 May after the FBT year ends. This deadline extends to 25 June if you lodge electronically through a registered tax agent. Lodging a return makes sense even with nil taxable benefits. This limits the ATO’s review period to 3-6 years, while not lodging means unlimited review periods.
Note that you must report reportable fringe benefits on employee payment summaries or STP income statements when the total taxable value exceeds $2,000. This affects your employee’s eligibility for various government benefits and obligations.
You remain responsible for FBT compliance even if third parties provide benefits or information. Make sure to check all data from external providers carefully. This includes information from novated lease arrangements and salary packaging schemes to get a full picture of your FBT assessment.
Employee Implications
Employers pay FBT, but employees should know about several substantial implications of receiving fringe benefits. This knowledge helps them make informed decisions about their compensation packages.
The taxable value of fringe benefits that exceeds $2,000 in an FBT year requires employers to report it as a Reportable Fringe Benefits Amount (RFBA) on the employee’s income statement. Employers “gross-up” this amount to show the pre-tax income equivalent needed to purchase these benefits.
The RFBA does not count as taxable income directly. However, it affects many government benefits and obligations:
- Family Tax Benefits
- Medicare levy surcharge
- Private health insurance rebate
- Child support payments
- Superannuation co-contributions
- Higher Education Loan Programme (HELP) repayments
- Tax offsets and Financial Supplement repayments
Employees can use several strategies to reduce their RFBA. Making “employee contributions” from after-tax income toward benefit costs helps lower the taxable value. Another option involves working with your employer to replace fringe benefits with cash salary (“cashing out”) or switching to benefits exempt from FBT.
Some benefits do not appear in your reportable amount. These include meals, entertainment, and employer-provided car parking. Benefits given to volunteers and contractors are not fringe benefits.
Employees who leave their job between 1 April and 30 June and receive fringe benefits during this time will see their RFBA reported in the following year’s income tax statement ending 30 June.
FBT payments come from employers, but its reporting system can substantially affect your financial situation beyond direct taxation. This makes FBT implications a crucial factor to evaluate job offers with non-cash benefits or salary sacrifice arrangements.
Case Study: The Bechtel Appeal
The Bechtel Australia Pty Ltd v FC of T case offers significant insights into hidden FBT costs that many businesses might overlook. In March 2024, the Full Federal Court dismissed Bechtel’s appeal against a substantial $19.88 million FBT liability related to travel expenses for their fly-in-fly-out (FIFO) workers.
The dispute focused on whether travel expenses qualified under the “otherwise deductible rule.” This rule applies only if employees could have claimed a deduction for those expenses if they had paid them personally. Bechtel had paid for flights transporting FIFO workers from their nearest airport to Curtis Island via Gladstone.
The Court found that employees were contractually assigned to work at Curtis Island, where their employment duties officially began and ended. Therefore, travel to and from Curtis Island was considered a precondition for earning income, not an expense incurred during income production.
The key takeaway is that FBT liability depends heavily on the exact point at which employment duties begin and end, as defined by contract terms. Justice Logan noted that Bechtel could have satisfied the “otherwise deductible” condition by altering the location where employees officially start their shifts.
This ruling serves as a warning to businesses with FIFO arrangements to carefully review their employment contracts and travel policies. The official start location of an employee’s duties might seem like a minor detail, but it can have major financial consequences.
Maximise Your Benefits, Minimise Your FBT Liability with FP Accountants
Managing Fringe Benefits Tax can be complicated and costly if you get it wrong. At FP Accountants, we specialise in helping Brisbane businesses understand their FBT obligations, identify hidden tax risks, and optimise salary packaging arrangements. Our hands-on approach means you get tailored strategies designed to reduce your tax liability while ensuring full compliance with the latest ATO regulations.
Don’t let FBT surprises impact your bottom line. Contact FP Accountants now for a detailed review of your fringe benefits and expert guidance to keep your business financially healthy and audit-ready.