Fringe Benefits Tax (FBT) in Australia: When It Arises and What Owners Need to Know

FBT — the tax many business owners do not realise they are triggering

Fringe Benefits Tax (FBT) is a tax that the employer (not the employee) pays when providing non-cash benefits (fringe benefits) to employees or associates of employees. FBT is administered by the ATO and has its own reporting cycle, separate from the usual financial year.

What surprises many business owners: FBT applies even when benefits are provided to a company director — not just ordinary employees. If you are a director and the company provides you with a car or a laptop for personal use, FBT may arise.

What usually triggers FBT

Car fringe benefits: This is the most common type. If the company provides a car and the employee (or director) uses it for personal purposes — including travel from home to work — a car fringe benefit arises. The FBT amount depends on the value of the car and the proportion of personal use.

Entertainment — meals and functions: When you pay for meals, events, or entertainment for employees (or their families), FBT arises in many cases. There are some complex exceptions — for example, a meal at the business premises below a certain value — but the rules are not simple.

Laptops and electronic devices: If the company buys a laptop or phone and the employee can use it for personal purposes, the personal-use portion may be a fringe benefit. There is an exception for devices used primarily for work — but “primarily” has to be something you can demonstrate.

Loans at below-market interest rates: If the company lends an employee (or director) money at an interest rate below the ATO benchmark rate, the difference is a fringe benefit.

Paying an employee’s personal expenses: If the company pays for an employee’s children’s school fees, their personal rent, or other costs unrelated to work — this is an expense payment fringe benefit.

The FBT year differs from the financial year

The FBT year runs from 1 April to 31 March — not 1 July to 30 June like the usual financial year. This is easy to confuse.

An employer with fringe benefits must:

1. Calculate the total taxable value of fringe benefits for the year
2. Lodge an FBT return before the deadline the ATO sets
3. Pay FBT calculated on that taxable value

The FBT rate and the way taxable value is calculated change periodically — check ato.gov.au/business/fringe-benefits-tax for the current year.

Not every benefit is subject to FBT

Some benefits are exempt from FBT or have their taxable value reduced:

• Minor benefits: Benefits small in value and infrequent — these may be exempt under the “minor, infrequent and irregular” rule
• Work-related items: Laptops, phones, software — if used primarily for work, these may be exempt or reduced
• Salary sacrifice arrangements: Some types of salary sacrifice (such as superannuation) are not subject to FBT or receive tax concessions

The line between exempt and not exempt is often complex and depends on the specific details.

FBT affects an employee’s income statement

When an employee’s total taxable fringe benefits exceed a certain threshold in an FBT year, the employer must report a “reportable fringe benefits amount” on that employee’s income statement. This amount is not assessable income for the employee — but it affects other calculations such as the Medicare levy surcharge and certain benefit tests.

What should you do?

FBT is an area where many small business owners should have an accountant review it each year, especially if you:

• Provide a company car (including for personal travel)
• Regularly pay for meals or functions for employees
• Have salary sacrifice arrangements
• Are a director receiving non-cash benefits from the company

The ATO has a full FBT guide at ato.gov.au/business/fringe-benefits-tax — this is the document to read before you start providing any kind of benefit to employees.