Fringe benefits tax (FBT) is the tax employers pay on certain non-cash benefits provided to employees (and their associates) in their capacity as employees. It sits outside the income tax system, operates on a different year-end, and, according to the ATO under the Fringe Benefits Tax Act 1986 for the FBT year ending 31 March 2026, uses a grossed-up calculation that effectively imposes tax at the top marginal rate of 47% — even if the employee themselves pays far less income tax. Understanding how FBT works, and booking for it correctly, is an essential part of compliance for any employer who provides benefits beyond salary.
The FBT Year and Return Lodgement
The FBT year runs from 1 April to 31 March — not the standard 1 July to 30 June income year. This creates a separate compliance cycle that must be managed alongside the income tax return.
Key FBT dates:
- 31 March: End of FBT year.
- 21 May: FBT return lodgement and payment deadline (for employers lodging their own return). Tax agent lodgement programs may extend this deadline.
- Quarterly PAYG instalments can be used to pre-pay estimated FBT liability if the employer's FBT is significant.
The bookkeeping task at 31 March includes: collating all benefit records for the year (car logs, expense payment records, living-away-from-home allowance declarations), calculating the grossed-up taxable value, and preparing the FBT return workpapers.
The Five Major Benefit Categories
1. Car fringe benefits Where an employer provides a car (not a van, ute, or panel van used primarily for business) and an employee has private use, an FBT liability arises. Calculate using either the statutory formula method (20% × base value of car) or the operating cost method (actual costs × private use percentage from a logbook).
The statutory formula method is simpler but can overstate the benefit for employees who drive primarily for work. The operating cost method requires a 12-week logbook maintained by the employee.
2. Expense payment fringe benefits Where the employer pays or reimburses an employee's private expense — school fees, gym membership, home broadband — the expense is a fringe benefit. The taxable value is the amount paid.
3. Living-away-from-home allowances (LAFHA) Where an employee is required to live away from their usual home for work purposes and receives an allowance, the allowance may be a LAFHA fringe benefit. From 1 October 2012, the exemptions are significantly restricted — employees must maintain a home in Australia and be absent for no more than 12 months per location.
4. Housing fringe benefits Where the employer provides residential accommodation to an employee (e.g., a remote mining site house), the market rental value of the accommodation is the taxable value.
5. Residual fringe benefits Any benefit that doesn't fall into a specific category falls here — e.g., an employer paying an employee's parking, providing tickets to sporting events, or allowing personal use of company property. The taxable value is the lowest amount the employee could obtain the benefit for at arm's length.
The Grossed-Up Calculation
FBT is calculated on the grossed-up value of benefits provided, not the actual cost. The grossing-up mechanism reflects that benefits are provided from after-tax employer income, so the tax is set to equalise the cost with equivalent cash salary.
Type 1 benefits (where the employer can claim a GST credit on the benefit):
- Gross-up factor: 2.0802
- FBT rate: 47%
Type 2 benefits (where the employer cannot claim a GST credit):
- Gross-up factor: 1.8868
- FBT rate: 47%
Example calculation: An employer provides a car with a taxable value of $10,000 (statutory formula). The employer can claim the GST credit on car running costs (Type 1 benefit):
- Grossed-up value: $10,000 × 2.0802 = $20,802
- FBT payable: $20,802 × 47% = $9,777
The FBT liability is deductible to the employer as a business expense in the income year in which it is paid (i.e., the income year ending 30 June that corresponds to the FBT year ending 31 March).
Exempt Benefits
Not all non-cash benefits are subject to FBT. Key exemptions under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986):
- Portable electronic devices: One smartphone, one laptop, and one tablet per employee per FBT year, provided primarily for business use, are exempt. Additional devices of the same type are not exempt.
- Work-related items: Software, protective clothing, and tools of trade primarily for business use are exempt.
- Minor benefits: Benefits with a notional taxable value of less than $300 that are provided infrequently and irregularly are exempt under s.58P of the FBTAA 1986. This exemption is per benefit per employee — it is not an aggregate.
- Salary-sacrificed benefits for not-for-profit employers: Certain not-for-profit employers (public hospitals, charities) receive a capped FBT exemption that allows employees to salary-sacrifice up to $17,000 per year ($30,000 for certain charities) free of FBT.
Reportable Fringe Benefits on Payment Summaries
Where the total taxable value of benefits provided to an individual employee exceeds $2,000 in an FBT year, the grossed-up taxable value must be reported on the employee's income statement (previously payment summary) as a reportable fringe benefit amount (RFBA).
The RFBA is not included in the employee's assessable income for income tax purposes. However, it is included in the income test used to calculate:
- Medicare levy surcharge
- Private health insurance rebate
- Higher Education Loan Programme (HELP) repayments
- Family tax benefit eligibility
Employees with significant RFBA may be surprised to find their income-tested obligations increase even though their take-home income has not changed. Bookkeepers should flag this to clients when setting up salary packaging arrangements.
Bookkeeping Entries for FBT
At 31 March (year end) — estimate accrual:
DR FBT Expense $9,777
CR FBT Payable (Liability) $9,777
At 21 May (payment):
DR FBT Payable (Liability) $9,777
CR Bank $9,777
The FBT expense is deductible in the income year in which the FBT year ends — so FBT for the year ended 31 March 2026 is deductible in the 2025-26 income tax return (year ending 30 June 2026).
Legislation and Further Reading
- Fringe Benefits Tax Assessment Act 1986 — primary FBT legislation
- Fringe Benefits Tax Act 1986 — rates
- ATO FBT guide for employers (NAT 1054) — updated annually
- ATO website — FBT return lodgement and payment dates
- ATO — reportable fringe benefits and income tests
- ITAA 1997, s.26-5 — FBT deductibility