FBT for small business: cars, utes and the 31 March year

Fringe benefits tax is the tax most small employers never think about until a ute, a Christmas party or a salary-packaged car brings it into view. It runs on its own year, its own rate and its own return. Here is how it works for a typical owner-operated business, with the figures the ATO publishes for the current year.

The year, the rate and the gross-up

FBT applies when an employer provides a benefit to an employee (or their family) in connection with their employment, other than salary. Because the employer pays the tax, the law grosses up the benefit's taxable value to the pre-tax salary the employee would have needed to buy it themselves at the top marginal rate. Two gross-up rates apply: 2.0802 (type 1) where the employer can claim GST credits on the benefit, and 1.8868 (type 2) where it cannot. The grossed-up amount is then taxed at 47%.

Small employers who paid FBT of $3,000 or more in the previous year move onto quarterly instalments through their activity statements, with the balance settled in the annual return.

Car fringe benefits

A car fringe benefit arises when a car the business owns or leases is used privately by an employee, or is simply available for private use — a car garaged at home overnight is available. There are two ways to value it, and you can choose per car, each year, whichever gives the lower result.

• Statutory formula method. Taxable value = base value × 20% × (days available for private use ÷ days in the FBT year) − employee contributions. The base value is the cost price excluding registration and stamp duty but including fitted non-business accessories, dealer delivery, GST and any luxury car tax. No logbook is needed, which is why most small businesses default to it.
• Operating cost method. Taxable value = total operating costs (fuel, repairs, insurance, registration plus deemed depreciation and interest) × private-use percentage − employee contributions. This requires a valid logbook and odometer records to establish the business percentage. Without them the ATO requires the statutory method.

You do not tell the ATO which method you used; your records show it. But the choice must be made by the return due date, or by 21 May if no return is required.

Utes, vans and the limited private-use exemption

Some work vehicles are exempt from FBT when private use is limited. Eligible vehicles include a single cab ute, a panel or goods van, a taxi, and a dual cab ute or four-wheel drive designed to carry a load of one tonne or more, more than eight passengers, or less than one tonne where it is not principally designed to carry passengers. Private use must be confined to travel between home and work, travel incidental to work duties, and other private use that is minor, infrequent and irregular — the occasional tip run, not the weekend away.

The ATO's practical compliance guideline PCG 2018/3 sets out when it will not apply compliance resources to check this. In summary, the employer provides an eligible vehicle to a current employee for business use; the vehicle's GST-inclusive value was under the luxury car tax threshold when acquired; it is not salary packaged and the employee cannot cash it out; the employer has a policy limiting private use and obtains the employee's assurance that it is followed; home-to-work diversions add no more than 2 km; and wholly private trips total no more than 1,000 km for the year with no single return journey over 200 km. Inside those limits the employer does not need records proving private use was minor. Outside them, the vehicle is valued like any other car. The ATO has published a plain warning that a dual cab ute used as the family taxi or for weekend trips is not exempt.

Electric cars and the plug-in hybrid change

Private use of an eligible electric car is exempt from FBT. The car must be a battery electric or hydrogen fuel cell vehicle designed to carry under one tonne and fewer than nine passengers; it must first have been both held and used on or after 01-07-2022; it must be used by a current employee or their associates; and luxury car tax must never have been payable on it, which in practice means its value was under the LCT threshold for fuel-efficient vehicles at every sale. Salary-packaged cars qualify. The exemption covers the car and the electricity to charge it, but the benefit is still reportable on the employee's income statement.

From 01-04-2025, a plug-in hybrid is no longer a zero or low emissions vehicle for FBT purposes. The exemption continues only where the PHEV was used or available for private use, and exempt, before 1 April 2025 and there was a financially binding commitment to keep providing it. The ATO has no discretion for late deliveries, an optional lease extension is not binding, and any change to the arrangement on or after 1 April 2025 ends the exemption from that date. The government has said it will review the electric car exemption by mid-2027.

Minor benefits and entertainment

A benefit is exempt as a minor benefit if its notional taxable value is less than $300 and it would be unreasonable to treat it as a fringe benefit, having regard to how often similar benefits are provided and their combined value. The threshold applies to each benefit separately, so a meal, accommodation and taxi fare on the same night are tested individually. A one-off gift under $300 generally qualifies; a weekly $250 voucher does not.

Entertainment — food, drink and recreation, and associated travel — is one of the most common FBT exposures for small business. A staff lunch at a restaurant, a Christmas party off-site, tickets to the football: each is a potential fringe benefit unless an exemption applies. Light meals on your own premises on a working day are generally exempt, and the minor benefits rule covers many one-off events. Where entertainment is subject to FBT, the cost is deductible and GST credits are available; where it is exempt from FBT, it is usually neither. Keep the guest list: the same event can be partly employees, partly clients, with different treatment for each.

Reportable fringe benefits

Where an employee's benefits have a total taxable value over $2,000 in the FBT year, the employer reports a grossed-up amount — always at the lower 1.8868 rate — on the employee's income statement through Single Touch Payroll. The smallest reportable amount for 2025–26 is $3,773. The employee is not taxed on it, but it feeds into income tests for the Medicare levy surcharge, study loan repayments and some government payments. If you run payroll with us, this flows through our payroll and STP service at year end.

Due dates

• 21 May — lodge and pay if you lodge yourself or on paper.
• 25 June — generally the due date where a tax agent lodges electronically. You must be on the agent's FBT client list by 21 May, so if you are using an agent for the first time, contact them before then.
• All activity statements for the FBT year, including the March quarter, must be lodged before the FBT return will be processed.
• Registered but nothing to pay? Send the ATO a notice of non-lodgment (NAT 3094) by the due date.

Record-keeping

The ATO expects records showing how every taxable value was calculated and supporting every exemption claimed: logbooks and odometer readings, employee declarations, private-use policies and assurances for utes, invoices, lease documents, purchase contracts for vehicles, and worksheets. Keep them for five years from the date the return is lodged, or from 21 May if no return was required. A ute exemption with no policy and no odometer check is the first thing a reviewer will test.

What SMT does

Each April we work through the vehicles, the social calendar and anything salary-packaged, value each benefit both ways where a choice exists, confirm which utes meet the PCG 2018/3 conditions, and lodge electronically so the June date applies. If the result is nil, we lodge the non-lodgment notice so the ATO does not come looking.

Sources

• ATO — Fringe benefits tax: rates and thresholds
• ATO — Lodging your FBT return and paying
• ATO — Taxable value of a car fringe benefit
• ATO — Exempt use of eligible vehicles
• ATO — PCG 2018/3 Exempt car benefits and exempt residual benefits
• ATO — Electric cars exemption
• ATO — FBT on plug-in hybrid electric vehicles
• ATO — Minor benefits exemption
• ATO — Reportable fringe benefits for employees
• ATO — Fringe benefits tax return records