If your business gives an employee a work car for private use, covers an entertainment expense, or offers a low-interest loan, you may be providing a fringe benefit, and fringe benefits tax (FBT) is the employer’s responsibility to identify, calculate and pay. It catches out small businesses more often than it should, usually because the benefit didn’t look like “pay” at the time it was provided.
This guide covers what counts as a fringe benefit, what’s exempt, and how to work out what you owe, using the rates and thresholds current for the 2026-27 FBT year.
Who has to pay FBT (and who doesn’t)
FBT is paid by the employer, not the employee. It sits completely separate from income tax: your business can have straightforward income tax affairs and still have an FBT obligation if you provide the right kind of benefit to a director, employee, or their associate (such as a spouse or family member).
A few things that follow from this:
- Sole traders with no employees generally don’t pay FBT on benefits to themselves. FBT applies to benefits provided to employees, not to benefits an owner draws for their own use as a non-employee.
- Paying only cash salary and superannuation, with nothing else, usually means no FBT obligation. FBT is triggered by the non-cash extras, not by wages themselves.
- Directors and family members counted as employees can trigger FBT in the same way any other staff member can, which catches out family businesses that don’t think of themselves as having “employees” in the usual sense.
The FBT year and key dates
FBT runs on its own annual cycle, separate from the standard financial year and from your business’s income tax return.
| Item | Detail |
|---|---|
| FBT year | 1 April to 31 March |
| Current FBT year | 2026-27 (1 April 2026 to 31 March 2027) |
| Lodgment deadline (self-lodging) | 21 May |
| Lodgment deadline (via registered tax agent) | Typically extended, agent-dependent |
| FBT rate | 47% of the grossed-up taxable value |
Even if your calculations show nothing payable, you generally still need to notify the ATO via a notice of non-lodgment for any FBT year in which you provided a fringe benefit, so the assessment is on record rather than skipped.
What counts as a fringe benefit
Fringe benefits cover a broad range of non-cash perks. The most common ones small businesses run into:
Car benefits
A car owned or leased by the business and available for an employee’s private use, not just their work use, even if it mostly sits in the driveway unused on weekends. Availability for private use is what matters, not how often it’s actually driven privately.
Entertainment
Client lunches are generally not tax deductible under the entertainment rules, regardless of whether the discussion was business related. Entertainment provided specifically to employees (a work Christmas party beyond the venue and food, tickets to a game, a weekend away) can also fall under FBT depending on the value and how it’s structured.
Loans and debt waivers
A loan to an employee at an interest rate below the ATO’s benchmark rate, or forgiving a debt an employee owes the business, both create a fringe benefit based on the value of the interest or debt foregone.
Car parking
Providing parking at or near the workplace can be a fringe benefit if your business meets certain thresholds (turnover, and parking facilities nearby that charge above a daily rate the ATO sets each year). Many small businesses fall under these thresholds and are exempt, but it’s worth checking rather than assuming.
Living-away-from-home allowances
Paying an employee an allowance to cover accommodation and living costs because their job requires them to live away from their usual home is a fringe benefit, calculated differently from a standard allowance.
Expense payments
Reimbursing or directly paying a private expense on an employee’s behalf, such as their home internet bill or a gym membership, generally creates a fringe benefit unless a specific exemption applies.
What’s exempt from FBT
Not every non-cash extra is caught by FBT. The exemptions that come up most often for small businesses:
- Minor benefits. A benefit under $300 in taxable value can be exempt, but only if it’s also provided infrequently and irregularly. A $250 gift given once at Christmas is likely exempt; the same $250 gift given to the same employee every month is not, because the “infrequent” test fails even though the dollar value stays under the threshold. This is the exemption small businesses most often get wrong, by checking the dollar figure and stopping there.
- Work-related items. Tools of trade and items primarily used for work, such as a laptop or phone, are generally exempt. Larger businesses are limited to one portable electronic device per employee per FBT year for items with substantially similar functions, but small businesses (aggregated turnover under $50 million) can provide more than one without losing the exemption.
- In-house or emergency assistance. Certain benefits tied to employee health, safety or emergency situations carry their own exemptions.
If you’re not sure whether something you provide falls under an exemption, that uncertainty is exactly what FBT accounting from a registered tax agent is for: working out what’s actually taxable rather than guessing in either direction.
How FBT is calculated
FBT isn’t charged on the plain dollar value of the benefit. It’s calculated on a “grossed-up” value, designed to reflect the pre-tax salary an employee would have needed to earn to buy the same benefit themselves.
The calculation runs in three steps:
- Identify the taxable value of each benefit provided.
- Gross up that value using the applicable rate.
- Apply the FBT rate of 47% to the grossed-up total.
Which gross-up rate applies depends on whether your business could claim GST credits on the benefit:
| Benefit type | When it applies | Gross-up rate (2026-27) |
|---|---|---|
| Type 1 | Business can claim GST credits on the benefit | 2.0802 |
| Type 2 | Business can’t claim GST credits on the benefit | 1.8868 |
Worked example: A small business provides one employee with a car benefit valued at $8,000 for the FBT year, and the business can claim GST credits on it (Type 1).
- $8,000 x 2.0802 = $16,641.60 grossed-up value
- $16,641.60 x 47% = $7,821.55 FBT payable
Valuing a car benefit: two methods
Where the benefit is a car, its taxable value itself can be worked out two different ways, and the choice affects the final FBT bill:
| Method | How it works | Best suited to |
|---|---|---|
| Statutory formula | A flat percentage of the car’s base value, regardless of actual running costs | Simpler record-keeping, less business use |
| Operating cost method | Based on actual running costs (fuel, servicing, registration, depreciation) apportioned by a logbook-verified business-use percentage | Higher business-use vehicles, where it usually produces a lower taxable value |
The operating cost method generally needs a valid logbook, so the record-keeping requirement is the trade-off for the (often lower) result.
Is FBT tax deductible?
Generally, yes. FBT paid by the business is deductible as a business expense, and GST credits can usually be claimed on Type 1 benefits where GST was charged on the original purchase. This doesn’t reduce the FBT liability itself, but it does mean the cost isn’t sitting entirely outside your normal deductions.
Registering and lodging your FBT return
If your review shows you’re providing fringe benefits, the practical steps are:
- Register for FBT with the ATO if you haven’t already, once you’ve confirmed you’re providing a benefit that falls within scope.
- Keep records matched to each benefit type: logbooks or odometer records for cars, receipts and attendance details for entertainment, loan agreements for low-interest loans, and any required employee declarations.
- Calculate and lodge your FBT return by 21 May if lodging yourself, or by the later date available through a registered tax agent.
- Pay any FBT owing by the relevant due date, which can be paid in instalments through the year depending on your prior year’s liability.
Common FBT mistakes small businesses make
- Treating the $300 minor benefits exemption as a simple dollar cut-off, without checking the benefit is also infrequent and irregular.
- Assuming a car sitting idle on weekends isn’t a fringe benefit, when availability for private use is what counts, not actual use.
- Missing family members and directors who count as employees for FBT purposes in a family-run business.
- Not keeping a logbook, then finding the operating cost method (often the cheaper option) isn’t available without one.
- Lodging nothing at all in a year benefits were provided, rather than lodging a return or submitting a notice of non-lodgment.
Frequently asked questions
Do I need to worry about FBT if I’m a sole trader with no employees?
Generally no. FBT is triggered by benefits provided to employees or their associates. A sole trader with no staff, drawing only their own income from the business, doesn’t create an FBT obligation through their own use of business assets.
What if I don’t lodge an FBT return, even though I don’t think I owe anything?
If your business provided a fringe benefit during the year, a return is generally still expected, showing the assessment was made. Not lodging at all, rather than lodging a nil or low return, is more likely to draw ATO attention than a return that clearly shows your working.
Can salary packaging reduce my FBT bill?
It can shift how a benefit is valued and reported, and certain packaged items carry their own exemptions or concessions, but it needs to be structured correctly from the outset. It’s not a way to make an existing benefit disappear after the fact.
What if I’ve been providing benefits for years but never lodged FBT?
This is worth addressing directly rather than leaving it, since the exposure grows every year it continues. A registered tax agent can review your actual position, work out what’s owed for the years still open for review, and manage the disclosure to the ATO.
Is FBT the same as income tax?
No. FBT is a separate tax, paid by the employer, assessed on its own annual cycle from 1 April to 31 March, entirely distinct from your business’s income tax return.
Do I need to register for FBT before I’ve actually provided a benefit?
No. Registration follows from providing a benefit that falls within FBT, not the other way around. If you’re planning to introduce something like a work vehicle or entertainment allowance, it’s worth checking the FBT impact before you commit to it, not after.
FBT rules reward business owners who ask before they assume. If you’re not sure whether something your business provides counts as a fringe benefit, Manraj and his team can review your specific situation as part of your ongoing FBT accounting, and tell you plainly if nothing applies. Book a consultation to go through what your business actually provides.
