What is fringe benefits tax?

Published Monday 13th May 2025

Fringe benefits tax (FBT) is a tax on the non-cash benefits you give your employees. It’s completely separate from income tax, and it’s paid only by employers – not employees.

Fringe benefits are things like company cars for personal use, entertainment expenses (like team dinners), low-interest employee loans, and private health insurance. The ATO considers all of these taxable under FBT rules.

Why is fringe benefits tax important for small businesses?

Understanding fringe benefits tax in Australia essential for small business owners located there.

Fringe benefits can trigger an additional tax liability, increasing your overall employment costs. Don’t overlook FBT – you might get an unexpected tax bill or be fined by the ATO.

If you’re unaware of what counts as a fringe benefit — or don’t fully understand the rules — the ATO may apply penalties and fines, further increasing the financial impact.

One of the most important things you can do is educate yourself on what qualifies as a fringe benefit. For example, covering employee entertainment expenses like team dinners may seem like standard business costs, but they often trigger FBT obligations that can catch you by surprise.

How to calculate and file your fringe benefits tax in Australia

There are several key steps involved in calculating FBT. Staying organised – with detailed logs, receipts, and records – helps keep everything accurate.

1. Identify your taxable fringe benefits

The first step is to determine which benefits are taxable as fringe benefits. The ATO recognises several categories, such as:

• Vehicles – a business gives an employee a vehicle for business and personal use (parking costs included)
• Entertainment – meals, accommodation, holidays, and parties that you’ve provided to your staff (not clients), for example
• Loans – an employee borrows from you (the employer) at reduced or zero interest
• Housing – an employee receives rent-free or subsidised housing
• Expense payments – an employer reimburses an employee’s private expenses, like medical insurance, school fees, or laptops
• Goods and property fringe benefits – an employer provide goods employees, such as televisions, physical property, or shares

Here’s the ATO’s list of fringe benefit categories

Here’s a fringe benefits tax example: a company provides an employee with a Toyota Hilux (worth $50,000 + GST) for work during the week and personal use on weekends. Because the employee can use the vehicle privately, it’s a car fringe benefit and triggers FBT.

2. Work out the taxable value of the benefit

The method you use to work out each benefit’s taxable value depends on the type of benefit.

Vehicles – There are two main methods for valuing this:

• Statutory formula method – applies the statutory rate (currently 20% for cars registered since 2014)) to the car’s base value, then adjusts for the number of days it’s available for private use. Taxable value = Base value × statutory rate × (days available for private use ÷ 365). Learn more from the ATO about the statutory formula method
• Operating cost method – uses actual expenses to calculate the portion of costs specifically relating to the car’s private use

Loans – calculate the taxable value by comparing the interest charged with the ATO’s current benchmark interest rate .

Expense payments – the full amount paid or reimbursed is the taxable value

Entertainment – can be valued one of two ways:

• Actual cost method – the total amount spent on the employee is taxable
• 50/50 split method – half the total entertainment costs – including employees and client costs – is the taxable value

In our example, an employee is provided with a Toyota Hilux valued at $50,000 (+ GST.)

If the vehicle is solely for personal use, the FBT is calculated as:

Base value × statutory rate = taxable value

$50,000 × 20% = $10,000 taxable value

But if the car is for business during the week and only available for personal use on weekends – 104 out of 365 days – the calculation reflects that period of availability:

Base value × statutory rate × (days available ÷ 365) = $2,849 taxable value $50,000 × 20% × (104 ÷ 365) = $2,849 taxable value

If you need more help, the ATO provides a free tool to calculate car fringe benefits. You can also view the ATO’s comprehensive guide to FBT rates and thresholds.

3. ‘Gross up’ the taxable value to account for income tax

Now, ‘gross up’ the taxable value to account for income tax. This step calculates the pre-tax salary an employee would need to earn to receive the same benefits in cash. The ATO taxes the value of the benefit as if it were part of the employee’s cash salary.

The formula to calculate the grossed-up value is:

Taxable value × gross-up rate = grossed up value

There are two types of gross-up rates. The one you use depends on whether your business can claim a GST credit for the benefit:

• Type 1 gross-up rate (× 2.0802) – use this when your business can claim a GST credit (on company cars, entertainment expenses, and so on)
• Type 2 gross-up rate (× 1.8868) – use this when you can’t claim a GST credit (such as for employee loans)

The taxable value of the Toyota Hilux provided for personal use was $10,000. Because cars include GST and the employer can claim a credit, the Type 1 gross-up rate applies:

$10,000 × 2.0802 = $20,802 grossed-up value

4. Calculate the payable FBT

Now apply the FBT rate to calculate the amount of fringe benefits tax you owe. For the 2024–25 financial year, the FBT rate is 47%. The FBT rate changes over time, so check the ATO’s current rates.

The formula is:

Grossed-up value × FBT rate = FBT payable

In our earlier example, the grossed-up value of the Toyota Hilux car benefit was $20,802. Apply the FBT rate:

$20,802 × 47% = $9,777

The employer must pay $9,777 in FBT for providing the vehicle to the employee for personal use.

5. Report your FBT and pay it to the ATO

If your business provides taxable fringe benefits, you must lodge an FBT return with the ATO.

• The FBT year runs from 1 April to 31 March – different from the financial year.
• Your FBT return is due by 21 May each year – extensions are available if you lodge through a registered tax agent.

If an employee receives fringe benefits over $2,000 in an FBT year, you must include a reportable fringe benefits amount (RFBA) on their income statement or payment summary. Here’s more from the ATO about RFBAs.

FBT exemptions for small businesses

The ATO offers FBT exemptions to help reduce your tax bill without taking away valuable employee perks. Here are three key FBT exemptions:

• Minor benefits exemption – applies to infrequent, irregular benefits that cost under $300, like staff lunches and occasional gifts.
• Work-related items exemption – covers items given to employees and mainly used for work, like laptops, phones, safety clothing, and software.
• Electric vehicle exemption– a newer initiative to support the shift to electric vehicles. To qualify, you must hold and use your vehicle on or after 1 July 2022, and fall below the luxury car tax threshold for fuel-efficient vehicles.

Here’s more ATO information on exemptions

Ways to comply with ATO FBT rules

The ATO uses compliance audits, data-matching methods and reviews of FBT exemptions to flag potential errors and give you the chance to correct them before they penalise you. Here’s what can trigger an FBT audit from the ATO.

Here are some practical ways to stay on track:

• Keep your records up to date – keep detailed logbooks and hang on to receipts and loan agreements for all benefits you’ve provided. Xero can help you to track employee expenses.
• Use FBT calculators – the ATO has FBT calculators and tools to simplify your FBT valuations.
• Lodge FBT returns on time – avoid penalties by meeting deadlines or lodging returns through a registered tax agent
• Check the rules regularly – rates and rules can change, so check fringe benefits tax on the ATO website often for updates.

The ATO suggests other ways to reduce your FBT liability.

Speak with a tax professional if you need help meeting the FBT rules – find one in Xero’s advisor directory.

Simplify fringe benefits tax and save time with Xero

Get your fringe benefits tax right the first time.

Xero helps you streamline your FBT calculations and reporting by tracking payroll, expenses, and employee benefits in one place — no spreadsheets required. Stay compliant and uncover ways to manage your costs more effectively.

How Xero simplifies payroll and FBT reporting