If your business owns a car and you sometimes use it for personal trips, you’ve probably heard the words “Fringe Benefits Tax” thrown around – usually in a way that makes it sound expensive and confusing.
The good news? It doesn’t have to be either.
This article walks through the basics of how company car FBT works in plain English, shows you the two methods accountants use to calculate it, and explains the simple “add-back” most small business owners use to legitimately reduce their FBT bill to nil.
First, the rule that surprises everyone
If your company owns a car and you garage it at home, the ATO automatically assumes it’s available for your private use – every single day of the year.
It doesn’t matter if you only drive it for business. It doesn’t matter if you didn’t drive it at all on weekends. The fact that it’s parked in your driveway means the FBT clock is ticking.
This is called the deemed availability rule, and it’s the single most common thing small business owners get wrong about company cars.
The flipside: there is no flat per-kilometre FBT rate for a company car. You can’t just multiply your private kms by some magic number. FBT on a car is calculated using one of two prescribed methods – and which one you pick makes an enormous difference.
The two methods, side by side
| Statutory Formula Method | Operating Cost Method (Logbook) | |
|---|---|---|
| How it works | Flat 20% of the car’s purchase price | Actual running costs × private use % |
| Logbook needed? | No | Yes – valid 12-week logbook |
| Best when | Private use is high, or no logbook kept | Business use is high (over ~50%) |
| Worst when | Business use is genuinely high | Sloppy or invalid logbook |
| The trap | Ignores how little you drive privately | Logbook gets thrown out by the ATO |
Here’s the key insight: if your car is mostly used for business, the Statutory Formula will overcharge you, badly. The 20% flat rate doesn’t care that you only drive 2,000km privately a year – it taxes you as if you were a heavy private user. The logbook method is the one that rewards genuine business use.
What this looks like in dollars – three small business scenarios
Let’s use a $40,000 company car for the full FBT year and see what the FBT actually comes out to under each method.
Scenario 1 – The tradie / sales rep (heavy business use)
20,000 km a year, 2,000 km private. Genuine business use: 90%.
| Method | Taxable value | FBT bill |
|---|---|---|
| Statutory Formula | $8,000 | ~$7,820 |
| Operating Cost (logbook) | ~$1,920 | ~$1,880 |
The logbook method saves around $5,940.
Scenario 2 – The mixed-use small biz owner
15,000 km a year, 5,000 km private. Genuine business use: 67%.
| Method | Taxable value | FBT bill |
|---|---|---|
| Statutory Formula | $8,000 | ~$7,820 |
| Operating Cost (logbook) | ~$5,650 | ~$5,520 |
Logbook method still wins, but the gap is narrower.
Scenario 3 – The “100% business use” claim
20,000 km a year, claimed 100% business. No private use recorded.
| Method | Taxable value | FBT bill |
|---|---|---|
| Statutory Formula (if logbook invalidated) | $8,000 | ~$7,820 |
| Operating Cost (if logbook accepted) | $0 | $0 |
This is the one that gets people into trouble. If you genuinely have zero private use – the car never leaves the work yard, you never drive it to the shops, you never use it on weekends, and it’s not garaged at your home – then 100% business is fine.
But if the car lives at your house, the ATO will challenge a 100% claim, and if your logbook is found to be unrepresentative of actual use, the whole thing gets thrown out and you fall back to the Statutory Formula. A 100% claim that fails is the worst possible outcome – a near-$8,000 FBT bill on a $40,000 car.
The ATO has publicly listed “claiming 100% business use without sufficient evidence” as one of its top FBT audit targets for 2025-26.
The “add-back” – how most small business owners get to nil FBT
Here’s the trick most accountants use for owner-operators: the employee contribution.
The taxable value of a car fringe benefit can be reduced dollar-for-dollar by an after-tax contribution from the employee (you). If the contribution equals the taxable value, the FBT bill is zero.
The mechanism in its simplest form:
| Step | Amount |
|---|---|
| Taxable value of the car fringe benefit | $1,920 |
| Less: employee after-tax contribution | ($1,920) |
| Resulting FBT taxable value | $0 |
| FBT payable | $0 |
You have two practical ways to make the contribution:
| Option | How it works | When it suits you |
|---|---|---|
| Cash contribution | You transfer the dollar amount of the personal-use portion from your personal account to the company before the FBT return is lodged. | Clean, simple, works for everyone. |
| Journal “add-back” | Your accountant books the contribution against your loan account or unpaid director’s fees. No cash actually moves. | Common for owner-operators where the company already owes you money. |
For Scenario 1 above (90% business use, ~$1,920 taxable value), an employee contribution of $1,920 reduces the taxable value to $0 and FBT to $0. The company recognises the $1,920 as income (and remits 1/11th GST on it), but that’s still vastly better than paying $1,880 of FBT – and miles better than the Statutory Formula’s $7,820.
A few things to know about the journal route:
- It needs to be backed by a pre-existing employee-contribution arrangement (a simple signed document is fine, but it has to predate the FBT year).
- The journal must be entered before the FBT return is lodged.
- The company has to remit GST of 1/11th of the contribution on its next BAS.
- If the journal goes against a director’s loan account, your accountant needs to check the loan balance – Division 7A can sting if the loan goes into debit.
What a good outcome looks like
For a typical small business owner with a company car used heavily for business:
- Honest 12-week logbook showing real business and private use (a phone app makes this painless).
- Operating Cost Method elected on the FBT return.
- Small calculated FBT liability based on the real private-use percentage.
- Employee contribution (cash or journal) wiping the liability to zero.
- FBT return lodged even though it’s a nil – this caps the ATO’s audit window at 3 years instead of unlimited.
Total FBT paid: $0. Total ATO risk: minimal. Total time: a few hours of logbook entries.
What a bad outcome looks like
- Logbook says 100% business use because “I only drive it for work, mostly.”
- Car is garaged at home.
- ATO reviews the file, finds private use the logbook didn’t capture, throws the logbook out.
- Statutory Formula imposed retrospectively, sometimes for multiple years.
- No FBT return ever lodged, so the ATO can go back to day one – there is no time limit on amending an unlodged year.
- Penalties of 25-75% of the shortfall plus interest.
The difference between these two outcomes isn’t the car, the kilometres, or the business. It’s whether you’ve kept honest records and lodged the return.
A quick word on EVs and utes
Two common questions worth a quick mention:
Electric vehicles (EVs): Eligible battery-electric and hydrogen fuel-cell cars under the luxury car tax fuel-efficient threshold ($91,387 for 2025-26) are currently fully exempt from FBT. Plug-in hybrids lost eligibility for new arrangements from 1 April 2025.
But – and this is important – the EV exemption is being wound back in three phases. In late November 2025 the federal government confirmed the following timeline:
| Phase | Period | What applies |
|---|---|---|
| Phase 1 | Until 31 March 2027 | Full FBT exemption continues – current rules unchanged |
| Phase 2 | 1 April 2027 – 31 March 2029 | Full exemption only for EVs under $75,000. EVs between $75,000 and the LCT threshold get a 25% FBT discount |
| Phase 3 | From 1 April 2029 | No more full exemption. All eligible EVs under the LCT threshold get only a 25% FBT discount |
Two practical takeaways for small business owners:
- If you’re considering an EV for the business, the next 18 months is the window to lock in a full exemption. Existing arrangements entered into before each phase change are expected to be grandfathered – same approach as when PHEVs were phased out in April 2025.
- Don’t make an EV decision purely on the FBT saving. The economics will narrow significantly from April 2027, and a 25% discount is very different from a full exemption. Get the numbers run on the whole-of-life cost before you commit.
Full details at the Minister’s joint media release on the EV phase-down.
Dual-cab utes: A lot of business owners assume their dual-cab ute is automatically FBT-exempt. It’s not. Only utes designed to carry more than one tonne qualify, and even then private use must be limited to home-to-work travel and minor, infrequent trips. Many popular dual-cabs fall just under the one-tonne threshold and are treated as ordinary cars for FBT – same rules as a sedan.
Common mistakes we see (and how to avoid them)
These are the FBT mistakes that come up repeatedly when we review new clients’ files:
- “It’s a ute, so no FBT applies.” As above – this is wrong more often than it’s right. The payload, principal purpose, and private use restriction tests all need to be met. PCG 2018/3 sets a tight ATO safe harbour, and exceeding the limits voids the exemption for the whole year.
- Running a 100% business use logbook when the car lives at home. The deemed availability rule alone makes 100% claims hard to defend, and the ATO has flagged this as a 2025-26 audit target. Be honest, claim the small private percentage, and use the employee contribution to clean it up.
- No logbook at all. Without a valid 12-week logbook, the Operating Cost Method isn’t available and the Statutory Formula gets imposed by default. On a $40,000 car that’s around $7,800 of avoidable FBT.
- Treating PHEVs as still EV-exempt. Plug-in hybrid eligibility ended 1 April 2025 for new arrangements. Only pre-existing binding arrangements are grandfathered. Many salary-packaging providers and finance brokers haven’t updated their marketing.
- Forgetting that director vehicles are caught. A car provided to a working director is “in respect of employment” and triggers FBT the same as any employee vehicle. Sole-trader rules don’t apply once the business is in a company structure.
- Confusing income tax cents-per-km with FBT. The 88c/km rate is for personal income tax deductions when an individual uses their own car for work. It has no application to a company-held car under FBT.
- Applying an employee contribution without the underlying paperwork. A journal entry “add-back” only works if a written employee-contribution arrangement was in place before the FBT year started, and the GST treatment is correctly applied. Retrofitting the paperwork after the fact is a common audit trigger.
- Not lodging a return because the result is nil. Lodging caps the ATO review window at 3 years. Not lodging leaves it open indefinitely. Always lodge.
The bottom line
FBT on a company car isn’t something to fear, but it is something to get right. Most small business owners with genuine business use can get to a nil FBT outcome through a combination of an honest logbook, the Operating Cost Method, and a small employee contribution – without paying a cent of FBT.
What you can’t do is ignore it, claim 100% business when the car lives at your house, or rely on a logbook that doesn’t reflect reality. Those are the moves that turn a $0 FBT bill into a $7,800 one – sometimes across multiple years.
If you’ve got a company-owned car and you’re not 100% sure your FBT position is solid, get in touch. We’ll review your logbook, run the numbers both ways, and put the right structure in place before the next FBT year ends.
This article is general information only and doesn’t constitute personal tax advice. FBT rules are complex and the right answer depends on your specific facts. Talk to us before relying on anything here.
