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Fringe Benefits Tax (FBT) is one of those tax obligations that can easily fly under the radar, until it hits your business hard. It’s a tax employers pay on certain non-cash perks provided to employees, their families, or associates.
So, what exactly qualifies as a fringe benefit? How is FBT calculated? And more importantly, how can your business stay compliant without overpaying? This guide unpacks it all so you take all the steps to reduce your liability.
What is the Fringe Benefits Tax?
Fringe Benefits Tax (FBT) is a separate tax that employers pay when they provide certain non-cash benefits to employees or their associates like their family members. It’s not part of income tax, and it applies to perks like company cars, entertainment, or expense reimbursements.
FBT is calculated on the taxable value of the benefit provided, and it runs on a different calendar: the FBT year spans from 1 April to 31 March. If your business provides fringe benefits, you’ll need to self-assess your liability, lodge an FBT return, and pay the fringe benefits tax that you owe.
FBT is governed under the Fringe Benefits Tax Assessment Act 1986, which outlines how benefits are valued, taxed, and reported for compliance with Australian tax law.
What counts as fringe benefits
Fringe benefits are perks or non-cash benefits you provide to your employees (or their associates) in addition to their salary. Common examples include:
- Private use of a company car
- Car parking at or near work
- Gym membership paid by the business
- Free tickets to concerts or events
- Reimbursing personal expenses (like school fees)
- Providing discounted loans
- Salary sacrifice arrangements involving non-cash benefits
Fringe Benefits Tax exemptions you should know
Not everything you provide triggers FBT. The ATO outlines several fringe benefit tax exemptions, including minor benefits under $300, such as:
- Salary and wages
- Employer super contributions to complying funds
- Shares or rights under approved employee share schemes
- Employment termination payments (e.g. gifting a car upon exit)
- Payments treated as dividends under Division 7A
- Benefits to volunteers or contractors
- Exempt benefits such as those provided to religious practitioners by religious institutions
Under the current exemption rules, eligible electric vehicles provided from 1 July 2022 and first held before 1 July 2025 may be exempt from fringe benefits tax electric vehicles liability, provided they meet all criteria set by the ATO.
Who pays fringe benefits tax
Fringe benefits tax (FBT) applies when you provide benefits to:
- Current, former, or future employees
- Directors of a company
- Beneficiaries of a trust who work in the business
- Employee associates, such as family members
Who doesn’t need to pay FBT
- Sole traders and partners in a partnership aren’t classed as employees, so benefits you give yourself aren’t subject to FBT.
- Clients and customers don’t fall under FBT either. Even if you treat them to dinner or entertainment, those benefits aren’t covered under FBT rules.
How to calculate fringe benefits tax
To calculate FBT, it is first split into two types of benefits:
- Type 1 benefits, where you can claim GST credits
- Type 2 benefits, where you can’t claim GST credits
Here’s a stepwise guide to calculating your fringe benefits tax:
Step 1: Work out the type 1 benefits by identifying the taxable value of each benefit you gave to employees during an FBT year, whose GST credits you can claim.
Step 2: Determine the grossed-up taxable value of these type 1 benefits by multiplying the total taxable value by the type 1 gross up rate (currently 2.0802).
Step 3: Work out on type 2 benefits by identifying how much of the total taxable value of the benefits you gave to employees, whose GST credits you can’t claim.
Step 4: Determine the grossed-up taxable value of these type 2 benefits by multiplying the total taxable by the type 2 gross up rate (currently 1.8868).
Step 5: Add the grossed-up amounts from steps 2 and 4. This is your total fringe benefits taxable amount.
Multiply the total fringe benefits taxable amount (from step 5) by the FBT rate (currently 47%).
Here’s a basic formula for calculating FBT:
FBT payable = Taxable value of fringe benefits x FBT rate
Example:
You provide an employee a car benefit valued at $6,000:
Taxable value = $6,000
Gross-up: $6,000 × 2.0802 = $12,481
FBT rate: 47%
FBT payable = $5,866
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FBT reporting and payment deadlines
Employers who provide fringe benefits must register for FBT with the ATO. They need to lodge an FBT return each year and pay the tax by 21 May (or the next business day if 21 May falls on a weekend). The FBT return should include the total taxable value of fringe benefits provided and the amount of FBT payable. Employers also need to keep records of fringe benefits for at least five years. Employers must lodge a fringe benefit tax return annually, even if no tax is payable, unless a non-lodgement notice is submitted.Can you claim deductions on fringe benefits?
Yes, if you’re providing fringe benefits to your employees, here’s what you can claim back:- Income tax deduction on the cost of providing fringe benefits
- GST credits on fringe benefits expenses (if you’re eligible)
- If GST credits apply, you claim the GST-exclusive amount as a deduction
- If GST credits don’t apply, you claim the full cost instead
- Income tax deduction on the FBT amount you pay
How to register for fringe benefits tax?
If you’ve provided fringe benefits to employees during the FBT year (1 April to 31 March), you’ll need to register for FBT and lodge a return with the ATO. You can register:- Online, if you have an Australian Business Number (ABN)
- By phone on 13 72 26
- By mail using a paper form
- Through a registered tax agent like Sleek
What is a Reportable Fringe Benefits Amount (RFBA)?
If the total taxable value of fringe benefits provided to you or your family exceeds $2,000 in an FBT year, this amount will appear on your income statement (formerly known as a payment summary) as a Reportable Fringe Benefits Amount (RFBA). Some fringe benefits like meal entertainment or employer-provided car parking are excluded from this reported figure. While an RFBA isn’t counted as taxable income, but it can affect your eligibility or liability for several government entitlements and financial obligations, including:- Family tax benefit
- Medicare levy surcharge
- Private health insurance rebate
- Child support assessments
- Superannuation co-contributions
- Certain income-tested tax offsets
Need help managing FBT? Sleek has you covered
Not sure which benefits trigger FBT or how to stay compliant? Sleek’s accountants help you structure employee perks the smart way, minimising FBT liability while maximising retention value. Schedule a free consultation today and take the guesswork out of fringe benefits tax.
Conclusion
Fringe benefits tax (FBT) can be tricky, but managing it well is key to staying compliant and supporting your team. Offering benefits is a smart way to attract and retain talent, but without the right FBT strategy, those perks can come with unexpected tax costs.
By understanding what counts as a fringe benefit, how FBT is calculated, and how to minimise liability, you’ll be in a better position to make informed, financially sound choices. And when the rules get complex, a registered tax agent or the ATO should be your first stop for tailored guidance.
At the end of the day, FBT isn’t just a compliance exercise, it’s a chance to align your employee benefits with your business goals, without letting tax slip through the cracks.
FAQs on fringe benefits tax
Employee contributions, either in cash or through in-kind payments, can reduce the taxable value of a fringe benefit. However, the ATO requires that these contributions be real, properly documented, and made by the due date for FBT returns. If contributions are misclassified, underreported, or received late, the entire amount may remain subject to FBT, leading to tax penalties or audits.
Yes. If you reimburse or provide benefits like home internet, furniture, or non-exempt equipment, FBT may apply unless the expense qualifies for a specific exemption (e.g. work-related items under $300 that are portable and primarily used for work). Blanket reimbursements or allowances without substantiation can trigger FBT, so documentation and intent of use are critical.
Gifts to employees can trigger FBT depending on their type and value. Non-entertainment gifts under $300 (GST inclusive) per employee are generally FBT-exempt and fully deductible. However, entertainment-related gifts, like concert tickets or holiday packages, may be non-deductible unless FBT is paid, and if they exceed $300, they trigger FBT at 47% of the grossed-up value.
In contrast, gifts to clients or suppliers don’t fall under FBT since they aren’t employees. Non-entertainment gifts to clients are usually tax-deductible and claimable for GST, while entertainment gifts are neither deductible nor creditable. The key is classification, documentation, and ensuring business-related intent.
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