The Fringe Benefits Tax (FBT) year ends on 31 March 2025, and there are key updates for employers and employees. Here’s what you need to know.
FBT Exemption for Electric Cars
If your business provides an electric vehicle (EV) to an employee, you may qualify for an FBT exemption if:
- The car is a zero or low-emission vehicle (battery electric, hydrogen fuel cell, or plug-in hybrid electric).
- The car was first purchased and used on or after 1 July 2022.
- The car’s value is below the luxury car tax threshold for fuel-efficient vehicles ($89,332 for 2024-25).
Changes for Plug-In Hybrid Vehicles
From 1 April 2025, plug-in hybrid electric vehicles will no longer be FBT-exempt, unless:
- The vehicle was already exempt before 1 April 2025.
- There is a financially binding commitment to continue providing private use after this date.
If there is a break or change in this commitment, the exemption will no longer apply.
How the Exemption Works
Even if the FBT exemption applies, businesses must still calculate the taxable value of the benefit. This is because it affects the reportable fringe benefits amount for employees, which can impact:
- Medicare levy surcharge
- Private health insurance rebate
- Employee share scheme reductions
- Social security payments
Employees who charge their EV at home may need to calculate their electricity costs. The ATO provides a shortcut rate of 4.20 cents per km to help with this. This does not apply to plug-in hybrid vehicles.
Also, the FBT exemption does not cover home charging stations if your business provides one.
Providing Equipment for Remote Work
With flexible work arrangements becoming the norm, businesses often provide employees with work-related equipment. In most cases, FBT does not apply if the items are mainly used for work.
For example:
- Laptops, mobile phones, or tablets provided to employees are FBT-exempt if used primarily for work.
- Businesses with an annual turnover below $50 million can provide multiple similar items in a year (e.g., two laptops) without FBT. Previously, this threshold was $10 million.
If employees use these items for personal use, FBT may apply.
Does FBT Apply to Your Contractors?
FBT usually applies to benefits provided to employees and directors. It does not apply to genuine independent contractors. However, businesses must be certain their contractors are classified correctly.
Contractor or Employee?
The ATO now focuses on the written contract rather than the nature of the working relationship. If a contract suggests an employment arrangement, the contractor may be treated as an employee for tax purposes.
The ATO’s risk framework for contractor classification considers:
✅ A clear written agreement between the business and the contractor
✅ Evidence that both parties understand the classification
✅ No major deviation from the contract
✅ Seeking professional advice to confirm the classification
Even if a contractor is genuinely independent, businesses may still have superannuation and payroll tax obligations.
Reducing FBT Record-Keeping Burden
From 1 July 2024, businesses can simplify FBT record-keeping by:
- Continuing to use traditional FBT records, or
- Using existing business records that meet ATO standards
This includes records for:
- Travel diaries
- Living-away-from-home allowances
- Relocation transport
- Work-related vehicle expenses
FBT Housekeeping
- If your business provides cars to employees, record the odometer readings on 31 March and 1 April.
- To avoid lost records, have employees take a photo of their odometer reading and email it to a central contact.
FBT Risk Areas
1. Entertainment Expenses – Claiming a Deduction Without Paying FBT
The ATO checks for mismatches between claimed entertainment expenses and FBT reporting.
For example:
- If you take a client to lunch and use the actual method, no FBT applies, but the cost is not deductible.
- If your business uses the 50/50 method, then 50% of entertainment expenses are subject to FBT and are deductible.
2. Employee Contributions via Journal Entries
Some businesses offset fringe benefits with after-tax employee contributions recorded via journal entries.
For this to be valid:
✅ The employee must legally owe the employer a contribution.
✅ The employer must have a corresponding financial obligation to the employee.
✅ The journal entry must be made before financial accounts are prepared.
If not properly documented, the ATO may reject the contributions, leading to an FBT liability.
3. Not Lodging FBT Returns
The ATO is concerned about businesses failing to lodge FBT returns when required.
If your business:
- Provides cars, car spaces, entertainment, or employee discounts, FBT may apply.
- Only provides exempt items (e.g., laptops, tools of the trade) or benefits under $300, FBT may not be necessary.
Make sure you review your FBT client questionnaire!
Need Help?
If you need assistance with FBT compliance, contact us
