As an employer, providing additional employee benefits can be a great way to attract and retain talent. However, these benefits often come with tax implications in the form of fringe benefits tax (FBT). FBT can be complex, and there are plenty of common misconceptions. In this article, we explain the basics of what FBT is and which benefits do and don’t attract FBT.  

What is fringe benefits tax (FBT)?  

Fringe benefits tax (FBT) is a tax employers pay on certain non-cash benefits they provide to their employees outside their regular salary and wages. This includes benefits provided to employees’ family members and other associates. 

The concept behind FBT is straightforward: to ensure that any cash or non-cash benefits provided to employees that are not captured through payroll are still considered part of an employee’s income and are taxed accordingly. However, unlike income tax, which employees pay, FBT is paid by the employer. 

Is FBT just for big businesses? 

This is a common misconception. FBT isn’t exclusively a ‘big business tax’ — it applies to businesses of all sizes, including small businesses, not-for-profits, and even sole traders who employ staff. 

Small businesses often overlook FBT, assuming it doesn’t apply to them. However, if you provide any non-cash benefits to employees, you must consider your FBT obligations. 

What employee benefits are subject to FBT? 

Examples of benefits that may be subject to FBT include: 

  • Private use of company cars  
  • Car parking
  • Gift cards  
  • Travel points  
  • Housing  
  • Expense payments (where the employer pays the employee’s personal expenses) 
  • Product allowances and discounts  
  • Entertainment in the form of Christmas parties and functions  
  • Other forms of compensation that are not part of a salary or wage. 

While this list might seem straightforward, there’s significant complexity behind each category, and the rules may change from year to year.  As they say, the devil is in the details, and the details matter when determining your FBT liability, as the rules can vary based on your specific circumstances. 

Which employee benefits are exempt from FBT?  

Several exemptions and concessions can reduce or eliminate your FBT liability. These include: 

  • Certain electric cars and their associated expenses  
  • Minor benefits valued at less than $300 per employee, per benefit (subject to specific conditions) 
  • Some employee parties and functions, as long as they meet specific exemption criteria  
  • Certain work-related items like mobile phones, laptops, and protective clothing 
  • Benefits provided by certain not-for-profit organisations (subject to caps).  

It’s important to note that even if a benefit is exempt, you may still need to complete FBT returns and report the reportable fringe benefits amount on the employee’s income statement – we explain this in more detail below. 

What are reportable fringe benefits? 

Reportable fringe benefits must be included in an employee’s payment summary (income statement). If the total taxable value of fringe benefits provided to an employee exceeds $2,000 in an FBT year, the employer must report this amount on the employee’s payment summary. 

The amount reported is not the actual value of the benefits provided but rather a ‘grossed-up’ figure called the reportable fringe benefits amount (RFBA). This grossing-up ensures that the tax treatment is equivalent to what would apply if the employee had received the same amount as salary or wages, taxed at the highest marginal rate plus the Medicare levy. 

For example, if an employee in a charity receives $15,900 in fringe benefits: 

  • Benefit value: $15,900 
  • Gross-up rate: 1.8868 
  • Reportable fringe benefit amount: $30,000.  

What’s the impact of reportable fringe benefits? 

While reportable fringe benefits aren’t taxable income for the employee, they are included when calculating: 

  • Medicare levy surcharge 
  • Private health insurance rebate 
  • Higher Education Loan Program (HELP) repayments 
  • Child support payments 
  • Family Tax Benefit entitlements 
  • Child Care Subsidy.

Employees who receive significant fringe benefits should consider these impacts, especially if they have HELP debt or receive government benefits. 

What FBT-related records do employers need to keep?  

There are different rules and obligations around record keeping, depending on the benefits you provide. At a minimum, you’ll need to maintain:  

  • Detailed records of all benefits provided to employees 
  • Employee declarations and supporting documentation 
  • Evidence of employee contributions towards benefits 
  • Logbooks for car fringe benefits 
  • Receipts and invoices for expenses related to providing benefits 
  • Records of how benefits were valued.  

You must keep these records for five years from when the relevant FBT return is lodged or should have been lodged. 

When is the FBT year?  

The FBT year differs from the traditional financial year that ends on 30 June. The FBT year runs from 1 April to 31 March each year. 

For the 2025 FBT year (ending 31 March 2025), the due date for lodgement and payment is 21 May 2025 for self-lodgers, or 25 June 2025 for those who lodge through a registered tax agent. 

Request our free FBT questionnaire 

At Davidsons, we provide our business clients with an FBT questionnaire that asks straightforward questions about various benefits to help them assess their FBT obligations. 

If you’re an employer and would like to learn more about FBT or receive our questionnaire to help assess your obligations, please contact us. 

Need help navigating your FBT obligations?  

Given the complexity of the FBT regime and the ATO’s increasing use of data matching, it’s crucial for businesses to work with their accountant or financial advisor to assess their FBT status. 

Our experienced team can help you understand your obligations, identify potential exemptions and implement strategies to minimise your FBT liability while remaining compliant. 

You can reach out to us by: 

You may also want to check out our article ‘Employers: It’s time to check your FBT activity for 2025’ for more information on what’s new in FBT in 2025 and what’s on the ATO’s ‘watch list’ for this year.  

Stay informed with our monthly newsletter  

For the latest tax tips, financial news, and business advice from our industry experts, subscribe to our monthly newsletter, The General Account.   

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.