Fringe Benefits Tax (FBT) Explained Simply for Australian Employers
- Future Accounting
- Sep 15
- 4 min read
Written by: Melissa Cunliffe (CA)
Your complete guide to Fringe Benefits Tax (FBT) in Australia
What is fringe benefits tax (FBT)?
Fringe Benefits Tax (FBT) is a tax that employers pay on certain non-cash benefits provided to employees (or their associates) in respect of employment. These benefits, often called “fringe benefits,” are separate from salary or wages.
FBT is governed by the Fringe Benefits Tax Assessment Act 1986 and is administered by the Australian Taxation Office (ATO).
When does FBT apply?
FBT applies when an employer provides a benefit to an employee (or associate) that is not salary or wages. Common examples include:
• Use of a company car for private purposes
• Payment or reimbursement of private expenses
• Low-interest or interest-free loans
• Entertainment (such as tickets to events, meals or holidays)
• Housing or accommodation
• Expense payments (for example, school fees)
Even if the benefit is provided by a third party on behalf of the employer, FBT may still apply.
Common types of fringe benefits
Some of the most common types of fringe benefits are:
• Car fringe benefits – employer-owned car made available for private use
• Loan fringe benefits – low or interest-free loans to employees
• Expense payment benefits – reimbursement or payment of private expenses
• Housing and living-away-from-home allowances
• Entertainment benefits – meals, tickets, recreational travel
• Salary sacrifice arrangements – such as novated car leases
Who pays fringe benefits tax?
It’s important to remember that the employer pays the FBT, not the employee.
Even if a fringe benefit is provided under a salary packaging arrangement, such as a novated lease, the employer remains responsible for the tax.
Is FBT tax-deductible?
Yes. FBT paid by an employer is generally tax-deductible, and GST credits may also be claimable on the benefits provided (if applicable).
Examples of FBT in action
Example 1: Employer-provided vehicle for private use
Scenario: An employer provides a company-owned vehicle to an employee. The employee is allowed to use it privately, such as on weekends.
Step 1 – Calculate taxable value (statutory formula):
• Vehicle cost: $40,000 (GST-inclusive)
• Statutory rate: 20%
• Taxable value = $40,000 × 20% = $8,000
Step 2 – Gross-up taxable value:
FBT is calculated on the grossed-up taxable value, which reflects the pre-tax equivalent.
• Type 1 gross-up rate (where GST credits can be claimed) = 2.0802
• Grossed-up taxable value = $8,000 × 2.0802 = $16,642
Step 3 – Apply FBT rate:
• FBT = $16,642 × 47% = $7,823
Employer’s position:
• FBT payable: $7,823
• Running costs (insurance, rego, maintenance, fuel) remain deductible
• GST credits claimable on eligible expenses
Example 2: Salary-sacrificed vehicle (novated lease)
Scenario: An employee enters a novated lease through salary sacrifice. The employer makes the lease payments from pre-tax salary.
Step 1 – Taxable value (statutory formula):
• Car cost: $45,000
• Statutory rate: 20%
• Taxable value = $9,000
Step 2 – Gross-up taxable value:
• Type 1 gross-up rate = 2.0802
• Grossed-up taxable value = $9,000 × 2.0802 = $18,722
Step 3 – Apply FBT rate:
• FBT = $18,722 × 47% = $8,800
Employee contribution method:
If the employee makes post-tax contributions equal to $9,000, the taxable value reduces to $0.
• Grossed-up taxable value = $0
• FBT payable = $0
Employer still claims GST credits and tax deductions on lease and running costs.
Example 3: Owner as a deemed employee
Scenario: A company director uses a company-owned car for private purposes.
Step 1 – Taxable value (statutory formula):
• Vehicle cost: $50,000
• Statutory rate: 20%
• Taxable value = $10,000
Step 2 – Gross-up taxable value:
• Type 1 gross-up rate = 2.0802
• Grossed-up taxable value = $10,000 × 2.0802 = $20,802
Step 3 – Apply FBT rate:
• FBT = $20,802 × 47% = $9,777
The company must lodge an FBT return and pay the tax.
• FBT is deductible
• Vehicle running costs are deductible
• GST credits are claimable
Key takeaways for employers
• FBT arises when employers provide personal benefits to employees.
• Employers, not employees, pay the FBT.
• Common benefits include cars, loans, meals, entertainment and reimbursements.
• FBT is a deductible expense and GST credits may apply.
• Novated leases and employee contributions can reduce or eliminate FBT.
• Business owners using company cars are not exempt.
Take control of your FBT today
Understanding Fringe Benefits Tax (FBT) - including gross-up rules - is essential to avoid costly surprises. At Future Accounting, we help employers structure benefits in the most tax-effective way and simplify FBT reporting.
Book an appointment with our team today and get expert guidance on managing your FBT obligations with confidence.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.