FBT 2025–26: What Employers Need to Know
The Fringe Benefits Tax (FBT) year ends on 31 March, and it’s the perfect time to review your obligations and make sure your business is compliant. Below are the key updates and areas that often cause problems for employers and employees.
Key FBT Updates and Hotspots
- FBT exemption for electric vehicles (EVs)
- Applying FBT to contractors
- Reporting private use of work vehicles
- Reducing the FBT record-keeping burden
- Top FBT risk areas
FBT Exemption for Electric Cars
Employers providing eligible electric vehicles (EVs) to employees may qualify for an FBT exemption if the following conditions are met:
- The employer owns or leases the car and allows a current employee to use it.
- The vehicle is zero or low emissions (battery electric, hydrogen fuel cell, or plug-in hybrid).
- The car is first held and used on or after 1 July 2022.
- The value of the car is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2025–26).
Important update: From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the exemption unless the use was already exempt and there is a binding commitment to continue providing private use. Any break or change to this commitment may mean the exemption no longer applies.
Private Use of Work Vehicles
The ATO is actively targeting businesses that fail to report or incorrectly report fringe benefits on vehicles. Common issues include:
- Not lodging FBT returns for vehicles provided for private use.
- Misunderstanding exemptions, e.g., assuming dual-cab utes are automatically exempt.
- Failing to maintain valid logbooks or odometer readings.
- Incorrectly apportioning usage, e.g., treating private travel as business use.
A vehicle is considered “available for private use” if it’s garaged at or near an employee’s home, even if the employee doesn’t use it.
Tips for compliance:
- Identify the correct vehicle type (affects whether it’s a car benefit or residual benefit).
- Maintain clear documentation—invalid logbooks can force use of the “statutory formula method,” often increasing tax.
The ATO’s Melbourne restaurant case highlights the risks: failure to lodge returns and missing logbooks led to a $938,000 liability, including penalties and interest.
FBT and Contractors
FBT generally applies to employees and certain office holders, not to genuine independent contractors. Determining the status can be complex.
The ATO’s TR 2023/4 ruling guides whether a worker is an employee or contractor. Key points:
- The written contract is crucial; it often overrides labels like “independent contractor.”
- The classification should reflect the actual arrangement.
The ATO’s PCG 2023/2 sets out risk categories. Positive indicators include:
- Clear agreement on the worker’s classification.
- Comprehensive written contracts.
- Understanding of obligations and consequences.
- Adherence to the contract terms and obligations.
- Tax, superannuation, and reporting obligations are met.
Even if a worker is a genuine contractor, your business may still have obligations, such as superannuation guarantee or payroll tax.
Reducing FBT Record-Keeping Burden
FBT record keeping can be onerous, but recent updates give businesses more flexibility:
- Existing FBT methods or business records that meet legislative requirements can be used.
- Options include travel diaries, FIFO/DIDO declarations, relocation declarations, and car-use declarations.
Practical tip: For vehicles, take a photo of odometer readings on 31 March and 1 April and email it to a central contact to simplify record keeping.
Top FBT Risk Areas
1. Entertainment claims
- Mismatched claims between deductions and FBT can trigger ATO attention.
- Meals for clients under $300 per head usually don’t attract FBT or GST credits.
- Using the 50/50 method may mean 50% of expenses are subject to FBT and deductible accordingly.
2. Employee contributions via journal entry
- Contributions made through accounting entries can reduce taxable benefits if:
- There’s a clear obligation for the employee to contribute.
- The employer also has an obligation to the employee.
- Both parties agree on set-off arrangements.
- Entries are made before financial accounts are finalised.
3. Not lodging FBT returns
- Businesses providing cars, car spaces, entertainment, or reimbursements likely have FBT obligations.
- Exempt items include laptops, protective clothing, tools of trade, or infrequent items under $300.
If unsure, check the FBT client questionnaire to ensure nothing is overlooked.
Bottom line: FBT compliance is critical to avoid heavy penalties. Keeping up-to-date with exemptions, properly classifying contractors, and maintaining thorough records will reduce risk and make year-end reporting much easier.
If you want, I can also make a more concise “FBT 2025–26 checklist” version suitable for sending to clients or internal teams—it would highlight only the practical actions and deadlines.
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rewrite in a form suitable for posting as a blog on the L Jack & Associates website using appropriate branding and easy to read
Here’s a polished blog-style rewrite suitable for the L Jack & Associates website. It’s reader-friendly, professional, and aligns with your branding—easy to scan, with headings and tips for business owners:
FBT 2025–26: Key Updates and What Your Business Needs to Know
The Fringe Benefits Tax (FBT) year ends on 31 March, which makes this the perfect time to check your obligations. From electric cars to contractor arrangements, here’s a clear guide to the key FBT issues every business should know.
1. FBT Exemption for Electric Cars
If your business provides employees with electric vehicles (EVs), you may qualify for an FBT exemption, as long as:
- The employer owns or leases the car and allows a current employee to use it.
- The car is zero or low emissions (battery electric, hydrogen fuel cell, or plug-in hybrid).
- The vehicle is first held and used on or after 1 July 2022.
- The car is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2025–26).
Important change: From 1 April 2025, plug-in hybrid vehicles will no longer automatically qualify for the exemption unless:
- The exemption applied before 1 April 2025, and
- There is a binding commitment to continue providing private use from that date.
Any break or change to this commitment may remove the exemption.
2. Private Use of Work Vehicles
The ATO is increasingly using data analytics to target businesses that overlook or misreport FBT on vehicles. Common mistakes include:
- Failing to lodge FBT returns for vehicles provided for private use.
- Assuming certain vehicles (like dual-cab utes) are automatically exempt.
- Poor record keeping, such as missing logbooks or odometer readings.
- Incorrectly apportioning private and business use.
Tip: A vehicle is considered available for private use if it’s garaged at or near an employee’s home, even if they don’t drive it.
Pro tip for compliance:
- Identify the vehicle type correctly—this affects the type of benefit and tax.
- Keep clear logbooks or records—invalid records can lead to higher tax under the “statutory formula method.”
The ATO’s recent case of a Melbourne restaurant shows the stakes: missing logbooks and unfiled returns resulted in a $938,000 liability, including penalties and interest.
3. Does FBT Apply to Contractors?
FBT generally applies to employees and certain office holders, not independent contractors. But distinguishing between the two isn’t always simple.
Key points from the ATO:
- Look at the written contract—not just the label “contractor.”
- Ensure the contract reflects the actual working relationship.
- Positive indicators of correct classification include clear agreements, adherence to contract terms, and meeting all tax, superannuation, and reporting obligations.
Even genuine contractors may trigger some employment-like obligations, such as superannuation guarantee or payroll tax.
4. Reducing Your FBT Record-Keeping Burden
Keeping FBT records can be time-consuming, but new options give businesses flexibility:
- Use existing FBT methods or business records that meet legislative requirements.
- Options include travel diaries, FIFO/DIDO declarations, relocation records, and car-use declarations.
Quick tip: For cars, take photos of odometer readings on 31 March and 1 April and email them to a central contact. This avoids chasing employees and missing records.
5. Top FBT Risk Areas
a. Entertainment claims
- Mismatched claims between deductions and FBT can attract ATO attention.
- Meals for clients under $300 per head usually don’t attract FBT, and minor benefits to employees are often exempt.
- Using the 50/50 method? 50% of expenses may be subject to FBT and deductible accordingly.
b. Employee contributions via journal entry
- Contributions recorded in accounting systems can reduce taxable benefits if:
- There’s an actual employee obligation to contribute.
- The employer has a matching obligation.
- Both parties agree on a set-off arrangement.
- Entries are made before accounts are finalised.
c. Not lodging FBT returns
- If your business provides cars, car spaces, entertainment, reimbursements, or employee discounts, you likely have FBT obligations.
- Exempt items include laptops, tools of trade, protective clothing, or infrequent items under $300.
Not sure? Make sure you ask for our FBT questionnaire to avoid surprises.
Bottom Line
FBT compliance is essential to avoid heavy penalties. Keeping up-to-date on exemptions, properly classifying contractors, and maintaining thorough records will reduce risk and make year-end reporting much smoother.
At L Jack & Associates, we help businesses navigate FBT obligations efficiently, ensuring you meet your compliance requirements while minimising the administrative burden.