What is fringe benefits tax
Fringe benefits tax is a tax employers pay on certain benefits provided to employees or their associates because of their employment. It is governed primarily by the Fringe Benefits Tax Assessment Act 1986 and is separate from employee income tax. The current FBT rate is 47%.
Suppose your business provides an employee benefit with a taxable value of $1,000. You don’t simply pay $470 in FBT. The taxable value is first grossed up using either the Type 1 or Type 2 gross-up rate, depending on the GST treatment, before the 47% rate is applied.
Unlike salary or wages, fringe benefits are taxed at the employer level. The final FBT amount depends on the type of benefit, its taxable value, the applicable gross-up rate, and whether any exemption, concession, or reduction applies.
Who actually pays fringe benefits tax
The employer generally pays fringe benefits tax, even though the employee or their associate receives the benefit. Some benefits may also need to be reported as a reportable fringe benefits amount for the employee, but this doesn’t transfer the employer’s FBT liability to them.
FBT also follows a different tax year from Australia’s standard financial year. The FBT year runs from 1 April to 31 March, while the financial year runs from 1 July to 30 June. This means employers need to review fringe benefits separately from their usual 30 June year-end process.
Which employee benefits should you look at
You don't need to treat every purchase made by an employee as a possible fringe benefit. Start with expenses where the employee or their associate receives some form of private benefit because of their employment.
Common examples include:
- Private use of an employer-provided car
- Car parking where the relevant FBT conditions apply
- Employer-paid gym memberships
- Entertainment, including certain tickets and events
- Expenses paid or reimbursed on an employee's behalf
Expense-payment fringe benefits are particularly relevant if employees frequently pay for things themselves and claim the money back later. The Australian Taxation Office (ATO) says this type of benefit can arise when an employer reimburses an employee for an expense or pays a third party for an expense incurred by the employee. Exemptions can still apply depending on what the expense was.
This means the transaction itself isn't always enough to work out the answer. A restaurant charge could relate to employee entertainment, a customer meeting, or a work-related trip, and each situation gives your finance team different information to consider. Knowing who incurred the cost, why it was incurred, and what evidence sits behind it becomes more useful than simply seeing the merchant and amount.
If employees regularly pay first and claim later, having a consistent expense reimbursement process also makes it easier to collect supporting documents while the expense is still fresh.
How much can fringe benefits tax cost your business
The current fringe benefits tax rate is 47%, but the calculation doesn't stop there. Employers first work out the taxable value of their fringe benefits, apply the relevant gross-up rate, and then apply the 47% FBT rate.
There are 2 gross-up rates:
Type 1: 2.0802
This rate applies where the benefit provider is entitled to a GST credit. A company car provided for private use can fall into this category where the underlying supply includes GST and the employer can claim the relevant GST credit.
Type 2: 1.8868
This rate applies where there is no GST-credit entitlement. ATO examples include GST-free school fees paid on behalf of an employee
The distinction is based on the GST-credit entitlement, not simply whether GST appears on an invoice.
A simple fringe benefits tax calculation
Assume your business provides an employee benefit with a taxable value of $2,200 including GST. Your business is entitled to the relevant GST credit, so the Type 1 gross-up rate applies, and there are no exemptions or reductions.
First, gross up the taxable value:
$2,200 × 2.0802 = $4,576.44
Then calculate FBT:
$4,576.44 × 47% = $2,150.93
Under those assumptions, a benefit with a taxable value of $2,200 results in $2,150.93 of FBT.
This is why looking at the 47% rate by itself can be misleading. A fringe benefits tax calculator can help with the arithmetic, but you still need the correct taxable value, GST treatment, gross-up category, and any applicable exemption before the result tells you what your business actually owes.
Are benefits under $300 exempt from FBT
A benefit worth less than $300 may qualify for the minor benefits exemption under Section 58P of the Fringe Benefits Tax Assessment Act 1986. The $300 amount is only the first condition. The benefit must also be one that it would be unreasonable to treat as a fringe benefit after considering the circumstances in which it was provided.
The Australian Taxation Office (ATO) looks at factors including:
- How frequently and regularly the benefit, or similar benefits, is provided
- The total value of the benefit and any associated benefits
- How difficult it is to calculate the taxable value
- The circumstances in which the benefit was provided
- Whether the benefit was connected with an unexpected event
- Whether it was provided mainly as a reward for services
This means a $250 one-off gift may be treated differently from a $250 benefit provided repeatedly throughout the year. The threshold applies to the individual benefit, but repeated or associated benefits can affect whether it is reasonable to apply the exemption.
Is fringe benefits tax deductible
Employers can claim an income-tax deduction for FBT they are required to pay. The cost of providing a fringe benefit may also be deductible under the normal income-tax rules, and eligible GST credits may be available where the GST requirements are met.
These are separate from the otherwise deductible rule, which can reduce the taxable value of certain fringe benefits where the employee would have been entitled to claim an income-tax deduction if they had paid the expense themselves.
How does the otherwise deductible rule reduce FBT
The otherwise deductible rule under section 24 of the Fringe Benefits Tax Assessment Act 1986 can reduce the taxable value of an expense payment fringe benefit where the employee would have been entitled to claim an income-tax deduction if they had paid the expense themselves. The reduction generally applies to the deductible portion of that expense.
Suppose your business reimburses an employee $1,000 for an expense and, had the employee paid it themselves, 60% would have been deductible for work purposes. Subject to the requirements of the rule, the otherwise deductible amount may reduce the taxable value by $600, leaving $400 to be considered for FBT.
You also need evidence to support the reduction. Depending on the expense, the ATO may require an employee declaration or other documents showing how much of the expense would have been deductible. The ATO provides a specific section 24 expense payment fringe benefit declaration for this purpose.
The otherwise deductible rule is only one way an FBT liability may be reduced. Separate exemptions and concessions apply to particular benefit types, so the relevant rule depends on what your business has provided.
Does salary sacrifice attract fringe benefits tax
Salary sacrifice can create an FBT liability, but the arrangement itself isn't what decides the treatment. Under salary sacrifice, an employee agrees to receive part of their remuneration in another form instead of taking the full amount as salary or wages.
Whether fringe benefits tax applies depends on what benefit they receive. Some salary-packaged benefits may be subject to FBT, while others can receive exempt or concessional treatment under the relevant rules.
For employers, it makes more sense to look at the underlying benefit than to assume every salary sacrifice arrangement is treated in the same way. This also means the supporting documents for the arrangement need to be clear enough for your payroll, finance, or tax adviser to identify what has actually been provided.
What are reportable fringe benefits
A reportable fringe benefits amount (RFBA) is not a separate type of benefit. It is a fringe benefit that, once certain conditions are met, has to be reported against the individual employee who received it.
Basically, the amount of FBT your business pays and the amount reported for an employee, are 2 different things.
If certain reportable fringe benefits provided to an employee have a total taxable value of more than $2,000 in an FBT year, the employer generally reports a grossed-up amount for that employee. For RFBA reporting, the ATO uses the Type 2 gross-up rate of 1.8868, regardless of whether the benefit was treated as Type 1 or Type 2 when calculating the employer’s FBT liability.
An RFBA isn't taxable income for the employee, so they don't simply pay income tax on the amount being reported. It can still be taken into account for some income tests and government benefits or obligations, which is why the reporting requirement matters even though the employer is responsible for paying FBT.
For your finance team, this also creates an employee-level recordkeeping requirement. Knowing that the company spent $20,000 across one benefit category doesn't tell you enough if the benefits later need to be attributed to individual employees.
What is exempt from FBT?
Certain employers and benefits can receive specific FBT exemptions or concessions under Australian tax law.
Public benevolent institutions (PBIs) and health promotion charities (HPCs) that are registered with the ACNC and endorsed by the ATO can provide eligible fringe benefits up to a $30,000 grossed-up cap per employee per FBT year without paying FBT on those benefits. Public and not-for-profit hospitals, and public ambulance services, have a lower cap of $17,000 per employee. If the grossed-up value of the relevant benefits exceeds the applicable cap, FBT is payable on the excess.
Other eligible not-for-profit organisations may qualify as rebatable employers instead of being FBT-exempt. These employers receive a rebate on the FBT they would otherwise pay, subject to the applicable $30,000 capping threshold per employee. The concession reduces the FBT liability rather than removing it entirely.
Separate exemptions also apply to particular benefit types, including eligible minor benefits and certain work-related items. The treatment therefore depends on both the type of employer and the benefit being provided. Not-for-profit status on its own does not make every employee benefit FBT-free.
What FBT records do employers need to keep
Employers need records that explain the transactions and decisions used to work out their FBT liability. Depending on the benefit, this can include receipts, invoices, employee declarations, travel diaries, vehicle logbooks, odometer records, and calculations used to determine taxable value.
FBT records generally need to be kept for 5 years. From 1 April 2024, the ATO also allows employers to use existing business records instead of certain employee declarations or travel diaries where those records contain the required information. This can include records already created through payroll, expense management, accounting, or other business systems.
For example, a $650 employee reimbursement recorded only as “staff expense” may leave your finance team chasing the employee months later for the receipt, business purpose, or private-use details. If that information is captured when the claim is submitted, the expense is much easier to review when your FBT position is prepared.
This is where a structured employee expense management process becomes useful. It doesn't determine the FBT treatment, but it gives your finance team a clearer transaction and supporting-record trail to work from.
What should you capture when an employee expense happens
For employee expenses that may need an FBT review, capture enough information to identify who received the benefit, what was purchased, why it was incurred, and whether any private use was involved.
- Employee: Who incurred the expense or received the benefit
- Transaction details: Merchant, amount, date, receipt, or invoice
- Business purpose: Why the expense was incurred and what activity it related to
- Private use: Whether any part of the expense benefited the employee personally
- Approval: Who reviewed and approved the expense
- Supporting evidence: Any declaration, travel diary, logbook, or other record required for the benefit
This gives your finance team the transaction context needed to review the expense later, instead of trying to reconstruct it from a card statement or reimbursement entry at the end of the FBT year.
How can Aspire help with employee expense records
FBT treatment still needs to be determined by your accountant or tax adviser, but that process becomes easier when the transaction and supporting records are already organised.
Aspire's expense management platform helps centralise employee claims, card spending, receipts, approvals, and supporting documents, while integrations such as Xero can keep those records connected to your accounting workflow. For company-funded spending, corporate cards can also give finance teams more visibility over employee expenses before reconciliation starts.
Aspire doesn't calculate or determine FBT. Its role is to help keep the expense trail organised enough for your finance team to review.
What types of employee benefits can attract FBT
For founders, FBT usually shows up in everyday employee benefits rather than unusual tax arrangements. Common expenses and benefits to review include:
- Company cars and private use: Letting an employee use a company car privately can attract FBT. For plug-in hybrid electric vehicles, the exemption rules changed from 1 April 2025, and newly provided PHEVs generally no longer qualify, subject to transitional rules
- Employee reimbursements: Paying or reimbursing private expenses, including certain insurance, home, travel, or personal costs, can create an expense-payment fringe benefit
- Staff meals and entertainment: Restaurant meals, events, tickets, and staff functions can attract FBT depending on who attends and the circumstances
- Car parking: Parking provided to employees can attract FBT where the relevant conditions are met
- Employee loans: Interest-free or low-interest loans from the business can create a loan fringe benefit
- Gifts and other perks: Vouchers, goods, memberships, and other employee benefits may attract FBT unless an exemption applies
The important question is not simply what your business paid for, but whether an employee received a private benefit because of their employment.
What should you do before the FBT year ends
FBT becomes easier to manage when employee benefits are reviewed throughout the year rather than after 31 March. Start by identifying the benefits provided to employees and their associates, then separate normal work expenses from spending that may carry a private benefit.
From there, check whether an exemption or reduction applies, make sure the required records exist, and calculate the taxable value using the rules for the relevant benefit. If reportable benefits are involved, you also need enough employee-level information to attribute those amounts correctly.
FBT returns are generally due by 21 May following the end of the FBT year. If a registered tax agent lodges the return electronically, the due date is generally 25 June, provided the employer was added to the agent’s FBT client list by 21 May. Extensions may also apply in some circumstances.
For most founders, the aim isn't to become an FBT specialist. It is to know which employee benefits require attention, keep enough information to support the eventual treatment, and give your accountant something better than a year-old transaction description when the return needs to be prepared.
FAQs
What is fringe benefits tax in Australia?
Fringe benefits tax is generally a tax employers pay on certain benefits provided to employees or their associates because of their employment. It is separate from income tax and is calculated using the taxable value of the benefits provided.
Who pays fringe benefits tax?
The employer generally pays fringe benefits tax, not the employee. An employee may have a reportable fringe benefits amount recorded for certain benefits, but that doesn't make them responsible for paying the employer's FBT liability.
What is the current FBT rate?
The current fringe benefits tax rate is 47%. The rate applies to the grossed-up taxable value of the relevant benefits rather than simply being applied to their original purchase cost.
Are benefits under $300 exempt from fringe benefits tax?
Not automatically. Some benefits with a notional taxable value below $300 may qualify for the minor-benefits exemption, but the amount is only one part of the test. The frequency, regularity, associated benefits, and surrounding circumstances can also matter.
Is fringe benefits tax deductible?
Employers can generally claim an income-tax deduction for FBT they are required to pay. Deductions for the underlying cost and eligible GST credits may also be available depending on the expense and applicable tax rules.
Does salary sacrifice attract FBT?
It can. Whether FBT applies depends on the particular benefit provided through the salary-sacrifice arrangement and whether an exemption or concession applies.
What is the difference between the FBT year and financial year?
The FBT year runs from 1 April to 31 March, while Australia's standard financial year runs from 1 July to 30 June. That means employers need to review their FBT position on a different timetable from their normal financial-year accounts.
What is a reportable fringe benefits amount?
If certain reportable fringe benefits provided to an employee have a total taxable value above $2,000 during the FBT year, the employer generally reports a grossed-up amount for that employee. The amount isn't taxable income, although it can affect certain income tests and obligations.
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