Fringe Benefits Tax is the tax that nobody wants to think about — and that is exactly why it catches so many employers and employees off guard. At its core, FBT is a tax paid by employers on certain non-cash benefits provided to employees (or their associates) in connection with employment. The tax rate is a hefty 47%, and it is calculated on the grossed-up value of the benefit, making it one of the most expensive taxes in the Australian system. But with careful planning and an understanding of the numerous exemptions, FBT can be managed — and sometimes avoided entirely.
How FBT Works
Unlike income tax, FBT is paid by the employer, not the employee. The FBT year runs from 1 April to 31 March (not the financial year), and employers must lodge an FBT return and pay the tax by 21 May each year. The current FBT rate for FY2025-26 is 47%, which aligns with the top marginal income tax rate of 45% plus the 2% Medicare Levy.
The critical concept in FBT is "grossing up." Because FBT is designed to put fringe benefits on an equal footing with salary (which is taxed in the employee's hands), the ATO calculates the pre-tax equivalent of the benefit. For a benefit worth $10,000, the grossed-up value using the Type 1 rate (where GST was claimed) is approximately $18,868, and the FBT payable is $8,868. That means providing a $10,000 benefit costs the employer almost $19,000 in total — a powerful reason to understand the exemptions.
Use our fringe benefits tax calculator to model the FBT cost of specific benefits before offering them to staff.
Common Fringe Benefits
The FBT net is wide. Almost any non-cash benefit provided in connection with employment can attract FBT. The most common types include:
- Car fringe benefits: When an employer provides a car for an employee's private use (including commuting), it triggers a car fringe benefit. This is the single largest category of FBT in Australia, valued at billions of dollars per year. The taxable value can be calculated using the statutory formula method (20% of the car's base value) or the operating cost method (actual private-use percentage of total costs).
- Expense payment benefits: When an employer pays for or reimburses an employee's personal expenses — private health insurance, school fees, gym memberships, personal phone bills — it is a fringe benefit.
- Property benefits: Providing goods to employees at a discount or free of charge. This includes everything from staff discounts on company products to corporate gift hampers.
- Living-away-from-home allowances: Payments to employees who temporarily relocate for work. These have specific exemption rules around the first 12 months and maintaining a home elsewhere.
- Entertainment: Meals, drinks, events, and recreational activities provided to employees. The meal entertainment rules are particularly complex and depend on whether the entertainment is provided on or off business premises.
Key Exemptions That Save Thousands
The FBT legislation contains numerous exemptions that, when properly utilised, can eliminate or dramatically reduce FBT liability. The most valuable exemptions include:
- Minor benefits exemption: Benefits with a notional taxable value of less than $300 (per benefit, per employee) are exempt from FBT. This covers things like occasional team lunches, small gifts, and minor entertainment. Note that this is per individual benefit — you cannot split a $600 gift into two $300 amounts.
- Work-related items exemption: Certain items provided primarily for work use are FBT-exempt, including portable electronic devices (one per FBT year), computer software, protective clothing, and briefcases. A laptop provided to an employee for work purposes attracts zero FBT, even if the employee also uses it personally.
- Electric vehicle exemption: Since 1 July 2022, electric vehicles (EVs) with a value below the luxury car tax threshold ($91,387 for fuel-efficient vehicles in FY2025-26) are completely FBT-exempt when provided through a novated lease or employer fleet. This has made salary-packaged EVs one of the most powerful tax benefits available to Australian employees.
- Not-for-profit exemptions: Public hospitals and registered charities can provide up to $17,000 per employee in FBT-exempt salary packaging benefits. Public ambulance services and some other NFPs have a cap of $9,010. These exemptions make NFP salary packaging extraordinarily valuable.
Our fringe benefits tax calculator factors in the major exemptions to give you a clear picture of your actual FBT exposure.
The Electric Vehicle Opportunity
The EV FBT exemption deserves special attention because it has fundamentally changed the economics of salary packaging a car. Under a traditional novated lease, the private use of a petrol or diesel car attracts FBT at 47% on the grossed-up value — which often makes the arrangement marginally beneficial at best.
With an eligible EV, the FBT exemption means the employee packages the full lease cost, running expenses, and charging costs using pre-tax dollars with zero FBT. The tax saving can be substantial. For a $60,000 EV on a four-year novated lease, the employee might save $12,000 to $18,000 in total tax compared to buying the same car with after-tax dollars. Combined with lower running costs (electricity vs petrol), an EV novated lease is arguably the best salary packaging deal in Australia right now.
Use our salary calculator to see how a novated lease arrangement affects your take-home pay, and our employer cost calculator to model the total employment cost from the employer's perspective.
FBT Reporting and Employee Impacts
Even though the employer pays FBT, fringe benefits above $2,000 in grossed-up value must be reported on the employee's income statement (formerly payment summary). This reportable fringe benefits amount does not affect the employee's income tax directly, but it does count towards income tests for several purposes:
- Medicare Levy Surcharge thresholds
- HECS-HELP repayment income
- Private health insurance rebate tiers
- Child support assessments
- Centrelink income tests
This means that generous salary packaging could push you over the Medicare Levy Surcharge threshold or increase your HECS-HELP repayments, even though you do not pay tax on the benefit itself. Understanding these interactions is important when evaluating packaging arrangements.
Employer Obligations and Compliance
Employers must keep detailed records of all fringe benefits provided during the FBT year, lodge an FBT return by 21 May (or the following business day), and pay the FBT assessed. Small businesses with an annual FBT liability of less than $3,000 may be eligible to lodge and pay quarterly through their BAS instead.
The ATO actively audits FBT compliance, with a particular focus on car fringe benefits (where logbook records are often inadequate), entertainment expenses (where the boundary between business and private entertainment is blurred), and salary packaging arrangements (where the underlying benefits may not qualify for claimed exemptions).
The Bottom Line
FBT is complex, but understanding the rules unlocks genuine opportunities. Employees can benefit from salary packaging arrangements — particularly EV novated leases and NFP packaging — that deliver significant tax savings. Employers can attract and retain talent by offering tax-effective benefits while managing their FBT exposure through proper use of exemptions.
Start by modelling specific benefits through our fringe benefits tax calculator, review your total package with our salary calculator, and speak to your employer's HR or payroll team about what packaging options are available to you. In a competitive job market, fringe benefits are an increasingly important part of total remuneration.