Written byFringe benefits tax (FBT) is a tax employers pay on non-cash benefits given to employees, such as a work car available for private use.
Also known as: FBT, fringe benefits, fringe benefit tax
Key points
- The employer pays FBT, not the employee, and it is separate from income tax with its own return and its own year.
- Common benefits are a work car available for private use, entertainment, expense payments, benefits provided under a salary sacrifice arrangement and staff loans.
- Taxable values are grossed up before the FBT rate is applied, using a type 1 or type 2 rate depending on GST credits.
- Registration, employee declarations, annual lodgment and record keeping are all employer obligations.
- Not-for-profit and government employers have their own concessions, and the ATO publishes the rules for each benefit type.
How FBT works
FBT applies to benefits an employer provides to employees or their associates, either on top of salary or instead of it. The employer works out the taxable value of each benefit under the rules for that benefit type, grosses the value up, then applies the FBT rate. Type 1 covers benefits where the employer can claim GST credits, and type 2 covers the rest.
The FBT year runs on its own calendar rather than matching the income tax year, so employers providing benefits need to register, lodge a return and pay by the FBT due dates. How the underlying asset was funded makes no difference: a vehicle bought outright or on a chattel mortgage can still create a benefit if it is available privately.
Cars, leases and vehicle benefits
Vehicles are where most businesses meet FBT. If a work car is available for an employee's private use, including being garaged at their home, a car fringe benefit generally arises even on days it is not driven. There are two methods for working out the taxable value, and the records you keep, particularly logbooks and declarations, decide which one you can use.
A novated lease moves the vehicle into an employee's package, with payments made from salary under an agreement between employee, employer and financier. FBT usually applies to that benefit, and employee contributions can reduce the amount payable. Some vehicles and some patterns of use are exempt, so the answer depends on the vehicle and how it is actually used.
Reducing FBT and staying compliant
There are legitimate ways to bring an FBT bill down: paying a cash bonus rather than providing a benefit, having the employee contribute towards the cost, choosing benefits that are exempt or concessionally treated, and keeping the records that support a lower taxable value. Declarations and logbooks are only useful if they exist at lodgment time.
For a business running a fleet, FBT is part of the true cost of each vehicle alongside the finance and the running costs. Whether a vehicle is bought on a car loan, financed through the business or packaged to an employee changes both the tax outcome and the cashflow, so work the numbers through with your accountant before you commit.
Example
A building company gives its site supervisor a dual cab ute that goes home every night. Its accountant first checks whether the ute is an eligible commercial vehicle and whether private use is limited to home to work travel plus minor, infrequent use. If it is, no car fringe benefit arises, and the company keeps a written policy, logbook and signed declaration to support that. If the supervisor also uses the ute for weekend trips beyond that limit, the exemption is lost, so the company works out the taxable value, grosses it up and includes it in its annual FBT return.
Not to be confused with
- Salary sacrifice
- the arrangement that swaps salary for a benefit, where FBT is the tax that can follow it
- Goods and services tax (GST)
- a transaction tax on sales and purchases, not a tax on what employees receive
Frequently asked questions
Who pays fringe benefits tax?
The employer pays it, including not-for-profit and government employers. It is calculated on the value of benefits provided to employees or their associates, and it is separate from the income tax the employee pays on wages. Employees may still see reportable benefits noted against their income.
What counts as a fringe benefit?
A non-cash benefit provided because of employment. Common examples are a work car available privately, entertainment, discounted or free goods, expense payments made on an employee's behalf, and low-interest staff loans. Salary, wages and superannuation contributions are taxed under different rules.
How is FBT calculated?
Work out the taxable value of each benefit using the method set for that benefit type, apply the type 1 or type 2 gross-up rate depending on whether GST credits were available, then apply the FBT rate to the grossed-up total. Employee contributions reduce the taxable value.
Is a work ute exempt from FBT?
Not automatically. Certain eligible commercial vehicles are exempt where private use is limited to travel between home and work plus minor and infrequent use. The exemption depends on the vehicle type and actual use, so check the current ATO conditions and keep records that support the position.
Do I need to register for FBT?
If you provide fringe benefits to employees you generally need to register, lodge an annual FBT return and pay any amount owing. If you provide no benefits in a year there may be nothing to lodge. Your accountant or the ATO can confirm what applies to your business.
Related terms
Novated lease
A novated lease is a three-way car lease where your employer takes over the lease payments and deducts them from your salary, mostly before tax, while you work there.
Read definitionSalary sacrifice
Salary sacrifice is an agreement with your employer to receive less salary in return for benefits paid from pre-tax pay, such as extra super or a novated lease.
Read definitionATO
The ATO is the Australian Taxation Office, the national tax authority that collects income tax, GST and PAYG, administers superannuation rules, issues rulings and enforces compliance.
Read definitionGoods and services tax (GST)
Goods and services tax (GST) is a broad-based 10% tax on most goods and services sold in Australia, which registered businesses collect on sales and pay to the ATO.
Read definitionFleet
A fleet is a group of vehicles owned, leased or managed by one organisation for business use, from a few utes and vans to hundreds of trucks and plant.
Read definitionCar loan
A car loan is a credit contract used to buy a vehicle: the lender provides the funds and you repay them over time with interest.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.