The fringe benefits tax year runs from 1 April to 31 March, not the standard income year. This catches many bookkeepers off guard when the March quarter arrives: FBT returns and payments are due 21 May (or 25 June for tax agent lodgement), and the records need to be in order from the start of the FBT year, not gathered in a panic in April.
The FBT rate and gross-up
FBT is charged at 47% on the grossed-up value of benefits. The gross-up factor accounts for the fact that benefits are delivered without the employee paying tax on them.
There are two gross-up rates:
- Type 1 (GST-creditable benefits): 2.0802 — applies where the employer can claim a GST input tax credit
- Type 2 (non-GST-creditable benefits): 1.8868 — applies where no ITC is available
Example: a $1,000 car expense benefit (Type 1) has a grossed-up value of $2,080.20. FBT at 47% = $977.69. This is why FBT is often expensive relative to simply paying the employee a salary.
The most common benefit categories
Car fringe benefits A car fringe benefit arises when an employer provides a car (not a work vehicle exempt under the otherwise deductible rule) for private use by an employee.
Two valuation methods:
- Statutory formula: 20% of the car base value per year, reducing over time as the car ages. Simple but can overstate the benefit for cars driven mainly for work.
- Operating cost method: Actual costs × private use percentage from a logbook. Requires a 12-week logbook kept during the FBT year.
Meal entertainment The 50/50 split method (50% of all meal entertainment costs deemed a taxable benefit) is widely used. The actual method (record each meal and classify as entertainment or not) is more accurate but requires more documentation.
Cars parked overnight at employees homes: Car parking fringe benefits arise if the employer provides parking in a commercial parking station area. Detailed rules apply.
Living away from home allowances (LAFHA) LAFHA paid to employees who genuinely work away from their usual place of residence can be exempt (within limits) if certain conditions are met, including a declaration from the employee.
The minor benefit exemption
Benefits with a notional taxable value of less than $300 are exempt as minor benefits if they are provided infrequently and irregularly. This is the exemption that covers:
- Christmas gifts under $300 per employee
- Occasional staff entertainment under $300 per head per event
If you are over $300 or the benefit is provided regularly (weekly fitness classes, for example), the minor benefit exemption does not apply.
Otherwise deductible rule
A benefit is exempt if the employee would have been entitled to a deduction had they incurred the expense personally. This rule covers:
- Work-related laptop or phone provided by the employer (fully work use)
- Professional subscriptions paid by the employer
- Work travel expenses
The otherwise deductible rule is one of the most powerful tools for structuring employer expense payments in a way that avoids FBT, but it requires that the expense is genuinely work-related.
Reportable fringe benefits
Employers who provide taxable fringe benefits with a grossed-up value of more than $2,000 to an employee must report the grossed-up value on the employee payment summary (or STP finalisation). This is the reportable fringe benefits amount (RFBA).
RFBA does not affect the employee income tax assessment directly, but it is included in adjusted taxable income, which affects:
- Medicare levy surcharge thresholds
- Child support assessments
- HECS/HELP repayment thresholds
- Private health insurance rebate
Employees should understand that a high RFBA can unexpectedly affect these calculations even if it does not appear in their taxable income.
Year-end checklist for bookkeepers
March quarter tasks:
- Review vehicle fleet for cars provided for private use
- Confirm logbook currency (logbooks must be kept at least every 5 years, or when a new vehicle is acquired)
- Compile meal entertainment records for the full FBT year
- Review any employee loans outstanding (loans below the ATO benchmark interest rate generate a benefit)
- Check any relocation benefits, housing assistance, or school fees paid for employees
April tasks:
- Calculate the grossed-up value of all taxable benefits
- Apply the minor benefit exemption where applicable
- Determine Type 1 vs Type 2 classification for each benefit
- Calculate FBT payable
May tasks:
- Lodge FBT return (21 May for self-lodgers; 25 June for tax agent lodgement)
- Process FBT payment
Record-keeping
All FBT documentation must be retained for 5 years from the lodgement date of the return. Employee declarations (for LAFHA, otherwise deductible rule applications, etc.) must be obtained before the FBT return is lodged.