Fringe Benefits Tax (FBT) is a tax paid by employers on non-cash perks provided to employees — think company cars, gym memberships, or entertainment expenses. It runs on its own tax year from 1 April to 31 March, separate from the income tax year. The current FBT rate is 47% on the grossed-up value of benefits, with returns for the year ending 31 March 2026 due by 21 May 2026 (or 25 June 2026 if lodging through a registered tax agent). Now is the right time to make sure your arrangements are set up correctly from the start of the year.
1 | Use the ‘otherwise deductible’ rule
If you reimburse an employee for an expense they could have claimed as a tax deduction themselves, you don’t have to pay FBT on that portion. This is called the otherwise deductible rule, and it’s one of the most powerful — and underused — tools available to employers.
Where only part of the expense would be deductible, you reduce the taxable value of the benefit proportionally. You’ll need either a signed declaration from your employee or you can use the ATO’s alternative record keeping method.
Meghan is a real estate agent whose employer reimburses her home internet in full. She estimates 40% is work-related. Her employer uses the otherwise deductible rule to reduce the taxable value by 40%, paying FBT only on the remaining 60%.
Get signed employee declarations early in the FBT year and keep them with your business records. You won’t need to send them to the ATO, but you will need them if audited.
2 | Take advantage of exempt benefits
A wide range of benefits are entirely FBT-exempt — meaning you can provide them to staff with no tax liability at all. These include:
- Work-related items — laptops, phones, tools of trade, if primarily for work use
- Minor benefits — any benefit under $300 given infrequently or irregularly
- Electric vehicles — zero-emission EVs under the Luxury Car Tax threshold ($91,387)
- Relocation costs — removalist fees, temporary accommodation, family travel
Small gifts, meal vouchers, or team activities under $300 are generally FBT-free when given on an infrequent or irregular basis — an easy way to reward staff without triggering a tax bill.
From 1 April 2025 (the start of this FBT year), the EV exemption no longer applies to plug-in hybrid vehicles. Only battery electric vehicles now qualify. Also note: even if an EV is FBT-exempt, its taxable value must still be reported on the employee’s income statement at 30 June.
Covering university fees can trigger unexpected FBT. For an exemption to apply, the course must directly relate to the employee’s current role and must not be a Commonwealth-supported place — which rules out most undergraduate degrees.
3 | Encourage employee contributions
For most fringe benefit categories, having your employee contribute toward the cost directly reduces the taxable value — and therefore your FBT liability. This can be as straightforward as having employees pay a portion of the running costs of a company car.
A company golf team plays monthly at $45/month. Employees reimburse the employer 75% of the cost. The employer pays FBT only on the remaining 25% — and includes the employee contributions in its assessable income.
For company cars, encouraging employees to keep a detailed logbook of business versus private use can significantly reduce the FBT-liable portion of the benefit — simple records, meaningful savings.
4 | Set up salary packaging arrangements
Salary packaging (also called salary sacrificing) allows employees to receive benefits — like car leases or additional superannuation contributions — in place of salary. Done correctly, this can reduce both your FBT liability and your employee’s taxable income, making it a genuine win-win.
The beginning of a new FBT year is the ideal time to set up or review salary packaging arrangements. Poorly structured packages can increase FBT exposure rather than reduce it — seek advice before committing.
5 | Pay a cash bonus instead
Sometimes the simplest solution is to skip the benefit altogether and pay a cash bonus instead. You’ll have no FBT liability whatsoever — the employee simply pays income tax on the amount received.
An employee asks for an $800 gym membership. Rather than paying FBT on the benefit, the employer instead pays a $1,221 cash bonus — which at the employee’s marginal tax rate is the equivalent of $800 in after-tax income. No FBT owed.
6 | Navigate entertainment expenses carefully
Entertainment expenses — meals, events, client dinners — sit in a grey area. Whether FBT applies often depends on how well you’ve documented the occasion and which ATO calculation method you’re using.
Keep records of staff versus client attendees at any entertainment event from the outset. This makes it far easier to assess your FBT obligations accurately at year end.
Don’t confuse entertainment with sustenance. Light meals and food consumed on your business premises can be FBT-free. But if FBT isn’t paid on entertainment, you can’t claim a tax deduction or GST credits — so getting the classification right matters for your overall tax position too.
7 | Keep good records throughout the year
The biggest FBT pitfalls for small businesses aren’t complex tax traps — they’re poor record-keeping and misunderstood exemptions. These lead to miscalculations, missed savings, and ATO penalties.
Starting strong at the beginning of the FBT year — with logbooks, declarations, and clear documentation of each benefit — makes compliance far easier when March rolls around.
Don’t leave FBT compliance to the last minute. Review your benefits regularly throughout the year and seek advice if you’re unsure whether something is taxable — it’s much easier to fix before the return is due.