2025 Fringe Benefits Tax year

Fringe Benefits Tax (FBT) is an essential concept every business owner should understand. It pertains to the benefits employers provide to their employees that are not part of the employee’s salary or wages. The Australian Taxation Office (ATO) has specific guidelines and regulations concerning FBT, making it crucial for businesses to navigate this area carefully to ensure compliance and avoid any potential penalties.

Complete our 2025 FBT year employer checklist, using this link: https://forms.office.com/r/1xDtvkASNV

What is Fringe Benefits Tax (FBT)?

FBT is a tax employers pay on certain benefits they provide to their employees or their employees' associates (typically family members but also includes non-employee directors and beneficiaries that work in the business). These benefits can include anything from providing a company car, paying for a gym membership, or even offering low-interest loans. The idea behind FBT is to tax the value of these non-cash benefits similarly to how regular income is taxed.

How is FBT Calculated?

The calculation of FBT is complex, involving various methods and rates depending on the type of benefit provided. The FBT year runs from April 1st to March 31st of the following year. Employers are required to self-assess their FBT liability annually and lodge an FBT return with the ATO where necessary.

The Importance of Understanding FBT on Cars

When it comes to FBT, one of the most common and significant benefits provided by employers is the use of a company car. Given the prevalence and value of this perk, it's crucial to understand how FBT on cars operates.

What Qualifies as a Car Benefit?

A car benefit arises if a car owned or leased by an employer is made available for the private use of an employee. This includes situations where the car is garaged at or near the employee's home, even if it is not driven.

There are two primary methods for calculating FBT on cars: the Statutory Formula Method and the Operating Cost Method.

Statutory Formula Method:

This method calculates the FBT liability based on a percentage (currently 20%) of the car's GST inclusive value less some adjusted purchase costs.

Operating Cost Method:

This method is based on the actual costs of operating the car, including expenses such as fuel, maintenance, registration, insurance, and deemed interest and depreciation.

Employers must maintain detailed records, including a logbook and actual expenses to use this method.

Reducing Your FBT Liability on Cars

There are several strategies employers can employ to minimize their FBT liability on cars:

• Employee Contributions: If employees contribute to the cost of running the car (e.g., fuel or maintenance), these contributions can reduce the FBT liability.

• Logbooks: Maintaining accurate logbooks to substantiate the car's private and business use can help in using the Operating Cost Method effectively.

• Choosing Efficient Vehicles: Opting for vehicles with lower operating costs can reduce the overall FBT liability.

• Choosing electrical and plugin hybrid vehicles that are exempt from FBT.

Ute’s and commercial vehicles

Commercial vehicles (such as dual cab ute’s) with a carrying capacity of 1 tonne and over or are designed to carry a load and not passengers may be exempt from Fringe Benefits Tax (FBT) if they meet certain criteria. The ATO provides exemptions for vehicles that are considered primarily for business use. Here are the key points to consider:

Criteria for Exemption

To qualify for FBT exemption, the dual cab ute must:

• Have a carrying capacity of 1 tonne or more or are designed to carry a load and not passengers, using a formula specified by the ATO.

• Be used primarily for business purposes.

• Adhere to the guidelines set by the ATO for minimal private use.

  • Travel between home and work.

  • Incidental travel that is minor and infrequent.

• Employers must ensure that the private use is kept to a minimum and is properly documented

Record Keeping

Maintaining accurate records is crucial to substantiate the business use of the vehicle. This includes:

• Detailed logbooks of business and private trips, or

• Through the alternative substantiation rules introduced for the 2025 FBT year,

  • That allow for the use of other business records to calculation the number of business kilometres travelled for the FBT year,

  • A record of the opening and closing odometer reading for the FBT year, and

• Receipts and invoices for fuel, maintenance, and other operating expenses.

Conclusion

Understanding Fringe Benefits Tax, particularly when it comes to cars, is vital for employers. By maintaining good records regarding fringe benefits provided to your employees and implementing strategies to minimize your liability, you can ensure compliance with the ATO while maximising the benefits provided to your employees. If you have any concerns regarding your Fringe Benefit Tax obligation or liability, please contact us to discuss how they can be addressed.

The ATO are aggressively applying compliance resources to Fringe Benefit Tax non-compliance. The regularly use federal, state and private company data, such as vehicle registrations, to identify possible targets for FBT audits.

We hope this article has provided you with valuable insights into Fringe Benefits Tax and how it may affect your business.