FBT on company vehicles: Calculate your liability & reduce it legally
Cut your company car FBT legally, learn when it applies, how to calculate it, and how to reduce it.
Written by Chelsea Heywood—Small business growth and marketing writer. Read Chelsea's full bio
Published Thursday 9 July 2026
Table of contents
Key takeaways
- FBT applies when a car you provide is available to employees for private use, including commuting; exempt vehicles and limited private use can remove or reduce liability.
- You can calculate company car FBT using the statutory formula or operating cost method; choose the method that may result in lower FBT for your business.
- Eligible EVs may be exempt, while most plug-in hybrids don’t qualify for exemptions except in limited cases; vehicle choice and clear use policies can significantly cut FBT.
- Keeping organised records of expenses, receipts and mileage makes FBT easier to calculate, and simpler to lodge accurately at year-end.
What is FBT on company cars?
Fringe Benefits Tax (FBT) is a tax employers pay when they provide certain non-cash benefits to employees. FBT is separate from income tax and GST because it applies to non-cash benefits, not wages or salaries. One of the most common benefits is a company car.
A car fringe benefit applies when you own or lease a vehicle and let an employee or a member of their family use it for private use. This includes everyday activities like driving to and from work, not just personal trips on weekends.
As an employer, you’re responsible for paying FBT on company cars, even if you only have one car. You’ll calculate it each FBT year (1 April – 31 March) and report it to the Australian Taxation Office (ATO).
When does a company car trigger FBT?
FBT applies when a car you own or lease is available for an employee’s private use, including commuting. You may owe FBT if all of the below are true:
- Your company vehicle meets the ATO definition of a car: designed to carry less than one tonne, and fewer than nine passengers.
- You provide the car to one or more employees, or their associates.
- The car is available for private use (including commuting) at any time during the FBT year, whether staff use it or not
Common situations that trigger FBT include:
- employees taking the car home overnight.
- storing the car in a garage at or near an employee’s home.
- employees using the car on weekends or holidays.
FBT-exempt vehicles in Australia
Some vehicles are either fully exempt or treated more favourably under FBT rules, such as electric vehicles (EVs).
Some FBT car exemptions apply only when a car is assigned to a specific employee, such as through a novated lease or salary packaging arrangement. Exemptions for business-use or eligible electric vehicles can apply regardless of which employee uses the car.
Business-use vehicles
Certain vehicles are exempt from FBT if you limit private use to minor, infrequent occasions. This includes:
- single-cab utilities and vans
- some dual-cab utes
- vehicles that are permanently modified for a specific operational use and can’t be easily changed back, such as emergency vehicles, mobile workshops or tool vans
For a work-related vehicle to be exempt from FBT, private use must be incidental, such as stopping for groceries on the way home.
Electric vehicles (EVs)
As part of a government incentive to promote the use of low-emission vehicles, eligible zero- or low-emission EVs may be exempt from car FBT if:
- you bought and first used the car on or after 1 July 2022
- it meets the ATO’s value threshold for fuel-efficient vehicles, which is the fuel-efficient luxury car tax threshold of $91,387 including GST for 2024–25
These exemptions can reduce your FBT bill, but you must keep evidence that the car qualifies as an EV.
Plug-in hybrid vehicles (PHEVs)
From 1 April 2025, plug-in hybrid vehicles (PHEVs) won’t automatically qualify for the electric vehicle FBT exemption. This means many (PHEVs) are not exempt from car FBT.
Your PHEV may only be exempt from FBT if:
- you had an existing FBT exemption on an already-owned PHEV before 1 April 2025, and
- you have committed to continue providing the vehicle for private use to a specific employee after 1 April 2025 - this is usually done through arrangements like novated leases or salary packaging.
To keep your FBT savings, consider fully electric or other zero-emission vehicles rather than PHEVs. Ensure any lease or novated lease is financially binding and assigned to a specific employee. Planning these details carefully helps protect existing exemptions with PHEVs and avoids unexpected FBT costs.
Calculating car FBT
There are two main ways to calculate FBT on company cars: the statutory formula method and operating cost method.
You can use the method that produces the lowest FBT payable amount, provided you have the correct records.
What you’ll need
Before you calculate your car’s FBT payable amount, you’ll need to know:
- The base value of the car for FBT: Usually the car’s original cost, including GST and delivery charges, but excluding registration and stamp duty.
- The days the car was available to employees: This includes days the car was garaged at home, and the days the employee had access to the car, even if they don't use it (for example, if the car was garaged at or near the employee's home)
- The current FBT rate: 47% for the current FBT year (until 31 March 2026)
- Your business’s gross-up rate: This calculation reflects the pre-tax salary an employee would need to buy the same benefit themselves. This rate is higher if your business is registered for GST and you can claim GST credits on car-related expenses like fuel, servicing, or lease payments.
Statutory formula method
This is the most common way to calculate FBT. The steps to calculate FBT using statutory formula are:
1. Calculate the taxable value
- Car’s base value
- Multiply by the flat statutory rate (20%)
- Multiply by the fraction of the FBT year the car was available for private use (number of days ÷ 365)
- 2.0802 if your business can claim GST credits
- 1.8868 if you cannot claim GST credits
3. Multiply by the FBT rate (47%) to calculate FBT payable.
Example:
If a car costing $50,000 was available to an employee for the full year, the FBT taxable value would be:
- Car base value: $50,000
- Statutory rate: 20%
- Full-year availability: 365/365 = 1
- Taxable value: $50,000 × 20% × 1 = $10,000
- Gross-up (GST-eligible): $10,000 × 2.0802 = $20,802
- FBT payable: $20,802 × 47% = $9,776.94
This method works best when private use is high or when detailed records are limited. Unlike the operating cost method, you don’t need to record the trips employees make or track the car’s running costs.
Operating cost method
This method uses the actual cost of running the car to calculate your FBT payable. These operating costs can include:
- fuel and electricity
- repairs and servicing
- insurance and registration
- depreciation or lease costs
The steps to calculate FBT using operating cost method are:
1. Calculate the taxable value:
- identify running costs
- multiply by percentage of private use
2. Apply gross-up factor (same rates as above)
3. Multiply by FBT rate (47%) to calculate FBT payable
To use this method, you must keep a valid 12-week logbook to establish business versus private use.
This method often results in lower FBT payable amounts when business use of the car is high.
Example
If your car’s total running costs for the year are $12,000, and your logbook shows 30% of use is private, the taxable value is:
- Total running costs: $12,000
- Private use: 30%
- Taxable value: $12,000 × 30% = $3,600
- Gross-up (GST-eligible): $3,600 × 2.0802 = $7,488.72
- FBT payable: $7,488.72 × 47% = $3,519.70
When business use of a car is high, the operating cost method may produce a lower FBT payable amount than the statutory formula method.
Use an FBT car calculator
Use an ATO-aligned FBT car calculator to help estimate your liability quickly. They are especially useful for:
- comparing calculation methods
- testing different levels of private use
- budgeting before year-end
To get precise calculations, make sure your data is up to date and accurate.
How FBT applies to novated leases, car parking and tolls
Novated leases, car parking, and tolls each carry their own FBT treatment, so it's worth understanding how they interact with your overall car fringe benefits calculation.
Fringe benefit tax in novated lease arrangements
If a car under a novated lease is available for private use, FBT usually applies. The calculation methods are the same as for company-owned vehicles, and you must keep the usual records such as logbooks, receipts, or lease agreements to support your calculation.
Novated leases are common in salary packaging arrangements, so it’s important to check the lease terms carefully.
Car parking
Employer-provided parking near the workplace may qualify as a separate fringe benefit from car FBT, and may attract car parking FBT. This depends on location, parking value, and employee eligibility.
For example, FBT may apply when parking at a busy city location, but not while parking at a regional office. Keeping clear records of parking arrangements and eligibility helps avoid surprises.
Tolls and running costs
Tolls paid for private travel are included in car operating costs. Business-only tolls generally form part of deductible expenses, but you still need to track them accurately to distinguish private versus business use.
This ensures your FBT calculation is correct and your tax reporting is compliant.
How to avoid FBT on company cars
You can reduce or eliminate FBT by choosing company cars carefully, setting rules for using them, utilising employee contributions, and using a booking system to track usage.
1. Limit private use and garaging
Clear vehicle use policies help lower the availability and private use of company cars. You can do this by:
- Banning private use entirely
- Requiring cars to be left at business premises
- Tracking odometer readings regularly
2. Use exempt vehicles or EVs
Choosing vehicles that qualify for exemptions can significantly reduce FBT liability.
Check the eligibility of any EVs for FBT exemptions before you buy them to make sure they qualify for an exemption and lower your FBT payable amount.
3. Make employee contributions
Employees can contribute after-tax money toward car costs, reducing the FBT payable on the car dollar for dollar.
This can save the employee money by lowering the taxable value of the benefit, or make it cheaper for the employer to provide the car.
4. Keep a 12-week logbook and records
An up-to-date logbook is vital to keeping your FBT bill low when using the operating cost method. It must:
- cover a continuous 12-week period
- record business and private kilometres
- be reviewed and updated if usage changes
Keep supporting documents such as receipts, invoices, and mileage data so you can verify your logbook entries and FBT calculations to the ATO if required.
5. Review plug-in hybrid use
If you provide a plug-in hybrid vehicle to employees for use, check whether it still qualifies for FBT exemption. From 1 April 2025, most PHEVs are no longer exempt.
To keep any existing exemption, you must have owned the car before 1 April 2025 and continue providing it to a specific employee under a financially binding arrangement, such as a novated lease or salary packaging.
Consider switching to fully electric or zero-emission vehicles to avoid additional FBT costs.
Make FBT simple with Xero
FBT becomes much easier to calculate and track when your records are already organised.
Xero centralises:
- vehicle expenses and running costs
- receipts and invoices
- mileage data via the connected Xero Me app
With everything in one place, you can calculate FBT faster, compare calculation methods, and produce accurate records if the ATO asks questions.
For payroll admins and bookkeepers, this means fewer spreadsheets and less chasing staff for documentation at year-end.
FAQs on FBT for company cars
Find answers to common questions business owners and payroll teams ask about car Fringe Benefit Tax (FBT) in Australia.
Who pays FBT, the employer or the employee?
The employer is legally responsible for paying FBT to the ATO, even if the employee uses the car.
Depending on your business’s policies, employees may make after-tax contributions toward the car costs, which reduces the taxable value of the benefit, but the ultimate obligation to lodge and pay the tax sits with the employer.
What is the FBT year and the key ATO due dates?
The FBT year runs from 1 April to 31 March. Returns and payments are generally due in May, although if you lodge through a registered tax agent, you may be eligible for later due dates.
Keeping track of these deadlines helps you avoid penalties and interest.
Do I need to lodge an FBT return if no FBT is payable?
Yes, in many cases you still need to lodge a return even if the FBT payable is zero.
If your business is registered for FBT, submitting it ensures you remain compliant and keeps your records up to date.
Can I switch between calculation methods each FBT year?
Yes. You can choose either the statutory formula or operating cost method for FBT calculations each year, provided you maintain the correct records.
Choosing the method that gives the lowest FBT payable and keeping accurate documentation helps you save money on FBT payable amounts.
Does private use by an associate count toward FBT?
Yes. If an employee’s spouse, child, or other family member (known by the ATO as an ‘associate’), uses the car privately, it counts toward FBT just like private use by the employee.
This means you need to include all private use when calculating the car’s taxable value.
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