Guide

FBT compliance guide for service businesses in Australia

Navigating FBT season? Here’s how to manage your fringe benefits and comply with tax rules.

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Published Wednesday 1 October 2025

Table of Contents

Key Takeaways

  • Fringe Benefits Tax (FBT) applies to many non-cash employee perks, such as cars, entertainment, or housing, and is separate from income tax. Understanding these obligations helps you avoid surprises at tax time.
  • Service-based businesses must keep clear, detailed records of all benefits provided. This ensures accurate calculations, smoother reporting, and stronger compliance during audits.
  • Choosing the right FBT valuation method – whether statutory, operating cost, market value, or benchmark interest rate – can significantly affect your total liability.
  • Employers in Australia must lodge FBT returns annually, and reporting requirements include thresholds for disclosing reportable fringe benefits on employee payment summaries.
  • Salary packaging can be a valuable tool for staff but requires monitoring to make sure benefits don’t create unexpected FBT costs for your business.

Understanding Fringe Benefits Tax obligations

Fringe Benefits Tax (FBT) is a tax employers pay when they give perks to employees (or their family members) on top of regular salary or wages.

It’s the tax department’s way of making sure non-cash benefits – like a work car used for personal trips or covering an employee’s expenses – are taxed fairly, just like income.

A few things to know up front:

  • FBT is separate from income tax. It’s calculated on the value of the benefit provided, not what it costs you.
  • It applies even if the benefit comes from someone else on your behalf – if a supplier offers staff discounts, say.
  • Some benefits are exempt (like laptops mainly used for work) or come with concessions that reduce the tax.

Your service-based firm should:

  • List out any employee perks you provide (like cars, entertainment, travel, or allowances)
  • Check the ATO or IR guidance to see which benefits are taxable
  • Talk with your accountant about which valuation method best suits your business

The rules in Australia and New Zealand are slightly different, so always check what applies in your region.

Staying across your obligations means no nasty surprises at tax time, happier employees, and peace of mind knowing your business is compliant.

Common fringe benefits in services businesses

Service-based businesses often provide extra perks to attract and keep great people. While these are great for team culture, FBT compliance in Australia come with rules.

Here are the most common.

Car fringe benefits

Your business is providing a car fringe benefit if, for example, it provides a company car for staff personal use. To meet FBT fringe valuation requirements, you’ll need to calculate the taxable value of that personal use with a logbook or by using the statutory formula method (see below), for example.

Entertainment expenses

Many entertainment expenses – taking clients out for lunch, team celebrations, or event tickets as gifts, say – are taxable. Staying compliant means applying the right valuation method and knowing when exemptions apply.

Expense payment benefits

An expense payment benefit occurs when you cover or reimburse employees for personal expenses, like their private phone bill or insurance. You often need to include these in your fringe benefits tax records, unless they qualify as exempt work-related items.

Loan benefits

If your business lends money to an employee at a low interest rate – or with no interest at all – the difference between what you charge and the official FBT benchmarks set by the ATO can be considered a taxable benefit.

Keep a close eye on the benchmark rate each year so you report any lending accurately.

Housing and accommodation benefits

Benefits like housing for your staff, paying for rent, or covering temporary accommodation costs for employees are common in service firms with staff who relocate or travel.

The taxable value depends on the situation, and is important to track when preparing your reportable fringe benefits in Australia disclosures.

Keeping track of benefits

The first step in FBT compliance in Australia is to identify which perks are taxable. Once you know, document everything – what benefits you’ve provided, when you gave them, and to whom.

Clear records make it easier to calculate your liability, claim exemptions, and file your return on time. You’ll have smoother conversations with your accountant and avoid headaches when running reports or being audited.

FBT calculation and valuation methods

When calculating Fringe Benefits Tax,you need to use approved valuation methods, and choosing the right one can make a big difference to your final bill.

Here are some practical methods to use.

The statutory formula method

This method applies a set percentage (20% in 2025) of a car’s base value to calculate its taxable value. The statutory formula method is straightforward, but it may not reflect actual business use.Let’s say that you provide a company car worth $40,000. Using the statutory method, the taxable value is $8000 per year (20% of $40,000), regardless of whether the car is mostly used for work or personal trips.

The operating cost method

This method calculates the taxable value of a car benefit based on actual running costs (like fuel, servicing and depreciation), with adjustments for business use.

To work out the percentage of business versus personal use, you must keep a logbook for at least 12 weeks.

As an example, if annual running costs for a company car are $10,000 and the logbook shows 70% business use, only 30% ($3000) is subject to FBT. This often reduces liability compared with the statutory formula.

The market value method

The market value method works out the taxable value of a benefit based on what it would cost to buy that benefit on the open market. This often applies to things like entertainment, event tickets, or property you’ve provided to employees.

If you give an employee a ticket to a concert: the taxable value is what the ticket would cost if bought at retail, even if you got a discount through your business.

Using a benchmark interest rate for loans

If you make low- or no-interest loans to employees, you’ll need to compare it against the ATO’s annual benchmark interest rate to calculate the taxable value.

If the rate of interest you charge is less than this benchmark rate, the difference is treated as a fringe benefit. For example, if the benchmark rate is 6.5% and you lend an employee $20,000 at 2% interest, the taxable benefit is based on the 4.5% shortfall — around $900 for the year.

Reporting requirements and deadlines

In Australia, employers must lodge an FBT return with the ATO by 21 May each year (or later if lodging through a tax agent).

When reporting:

  • Use employee declarations to support exemptions or reductions
  • Keep records for at least 5 years
  • Understand the thresholds for reportable fringe benefits in Australia – you need to show these on employees’ PAYG payment summaries if the benefits exceed $2,000

Maintaining good systems, including by using accounting software, can make reporting FBT in Australia less stressful.

FBT salary packaging considerations

FBT salary packaging arrangements allow employees to swap part of their salary for benefits such as cars, laptops, or even additional leave.

You should:

  • Make sure your employees understand the effects of packaging on their take-home pay
  • Check whether packaged benefits are subject to FBT
  • Monitor the taxable value of benefits to avoid surprises

Staying compliant with confidence using Xero

Getting FBT right matters for both compliance and employee trust. By understanding the rules, documenting benefits properly, and staying on top of reporting deadlines, service-based businesses can reduce risks and focus on growth.

If you’re looking for ways to make FBT easier, tools Xero can help you stay organised, maintain accurate records, and collaborate with your accountant – so tax season feels less taxing.

FAQs on Fringe Benefits Tax compliance

Here are common questions small businesses might have about FBT compliance.

Do all employee perks attract FBT?

No. Some benefits are exempt, such as laptops mainly used for work, while others may qualify for concessions that reduce the taxable value.

When is the FBT return due in Australia?

The standard due date is 21 May each year, though you may get more time if lodging through a registered tax agent.

How do I know which valuation method to use?

It depends on the benefit. Cars, for example, can be valued using the statutory formula or operating cost method. Your accountant can help you choose the most cost-effective approach.

Do I need to report FBT on employee payment summaries?

Yes, if an employee’s reportable fringe benefits exceed $2,000, you must include the total on their PAYG payment summary.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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