Fringe Benefits Tax (FBT) is a tax levied on employers in Australia when they provide non-cash benefits to their employees. While it can seem like a complicated process, understanding how it works is essential for businesses aiming to stay compliant with ATO regulations while optimising employee benefits.
In this guide, we’ll break down everything small business owners need to know about FBT, from how it’s calculated to exemptions, reporting obligations, and how it affects payroll and financial reporting.
Let’s Get Straight to the Point
If you’re short on time, here’s a quick summary of what you need to know about Fringe Benefits Tax (FBT):
- FBT applies to non-cash benefits provided to employees, including company cars, gym memberships, and entertainment expenses.
- Employers are responsible for paying FBT at 47% of the taxable value of benefits.
- Some benefits are FBT-exempt, such as work-related tools and minor benefits below $300.
- FBT is separate from income tax and must be reported in a business’s BAS lodgement and tax returns.
- Employers must keep accurate financial records and submit an FBT return annually (by 21 May).
- Businesses using Xero Accounting, MYOB Accounting, or QuickBooks Accounting can automate FBT tracking to streamline reporting.
Now, let’s break it all down in detail.
What is Fringe Benefits Tax (FBT)?
Fringe Benefits Tax is a tax imposed on employers when they provide certain non-cash perks to employees. Unlike income tax, which the employee pays, FBT is paid by the employer.
Who Needs to Pay FBT?
FBT applies to:
- Companies, sole traders, partnerships, and trusts offering fringe benefits to employees.
- Not-for-profits and charities, although some concessions apply.
- Government organisations that provide non-salary benefits to employees.
- Schools, hospitals, and community services offering incentives beyond wages.
This tax ensures that non-cash benefits are accounted for in tax preparation to prevent tax avoidance.
What is Considered a Fringe Benefit?
A fringe benefit includes any non-cash reward given to employees in addition to their regular salary. Common examples include:
| Benefit Type | Example |
| Company Cars | If an employee uses a company car for personal trips. |
| Discounted Loans | Interest-free or reduced-interest loans provided to employees. |
| Gym Memberships | If an employer covers the cost of gym subscriptions. |
| Entertainment | Tickets to concerts, sports events, or corporate events. |
| Salary Packaging | Benefits like rent, school fees, or travel expenses paid on behalf of employees. |
What is NOT Considered a Fringe Benefit?
Certain payments and benefits are exempt from FBT, including:
- Salaries and wages – Regular earnings paid to employees do not attract FBT.
- Superannuation contributions – Employer contributions to an employee’s super fund are not considered fringe benefits.
- Work-related tools – Items required for work, such as laptops, mobile phones, and safety gear, are FBT-exempt.
- Employee termination payments – Any payouts made when an employee leaves the company are not subject to FBT.
Businesses must distinguish between taxable and FBT-exempt benefits to ensure proper tax preparation.
How is FBT Calculated?
The calculation of fringe benefits tax involves several steps.
Step 1: Determine the Taxable Value
The taxable value of a fringe benefit is based on:
- The cost to the employer (including GST).
- Any employee contributions (if they contribute towards the benefit).
Step 2: Apply the Gross-Up Formula
FBT is calculated using a gross-up factor, which accounts for the equivalent pre-tax salary the employee would need to earn to receive the same benefit after tax.
The two gross-up rates for 2025 are:
- Type 1 Benefits (GST Credit Available) – Gross-up rate of 2.0802
- Type 2 Benefits (No GST Credit) – Gross-up rate of 1.8868
Step 3: Apply the 47% FBT Rate
Once the taxable value is grossed up, the final FBT payable is 47% of this amount.
Example:If a company provides a $5,000 benefit with GST credits, the FBT payable is:
- Grossed-up value: $5,000 × 2.0802 = $10,401
- FBT payable: $10,401 × 47% = $4,888.47
FBT must be reported and paid to the ATO to ensure GST compliance.
Common FBT Exemptions & Concessions
Understanding FBT exemptions can help businesses legally reduce their tax burden while continuing to offer attractive perks to employees.
The Australian Taxation Office (ATO) provides various concessions and exemptions based on the type of benefit and the nature of the organisation.
1. Minor Benefits Exemption
A minor benefit is an infrequent, low-value benefit that is exempt from FBT if it meets both of the following criteria:
- The value of the benefit is less than $300 (including GST) per employee.
- The benefit is provided infrequently and irregularly.
For example:
- A business giving employees gift cards under $300 for birthdays would qualify for this exemption.
- A one-off meal to celebrate an employee’s anniversary would likely be exempt.
- An occasional cab fare reimbursed for an employee attending a late-night work function may also qualify.
However, if similar benefits are provided regularly, the ATO may rule that they do not qualify for the minor benefits exemption.
2. Work-Related Item Exemptions
Certain work-related items are exempt from FBT, provided they are primarily used for work purposes. These include:
- Portable electronic devices such as laptops, tablets, and mobile phones.
- Computer software that is required for an employee’s role.
- Protective clothing, including safety boots, helmets, and uniforms.
- Tools of trade include specialised equipment for electricians, carpenters, or mechanics.
- Briefcases and work bags needed for carrying work materials.
For example, if an employer provides a laptop for an employee who works remotely, and the laptop is mainly used for business tasks, FBT would not apply.
3. Work-Related Travel Exemptions
Employers often provide travel-related benefits, but not all of them attract FBT. The following are generally exempt:
- Airline lounge memberships, if required for business travel.
- Taxi fares for work-related trips (e.g., travel between meetings).
- Accommodation and meals provided while an employee is traveling for work.
However, FBT applies if an employer provides a benefit outside of work-related use, such as:
- First-class airline tickets for leisure travel.
- Personal travel arrangements paid for by the employer.
4. Not-for-Profit & Charity Concessions
Not-for-profits, charities, religious institutions, and public benevolent institutions receive FBT concessions to help reduce their tax burden.
Organisations such as hospitals, schools, and social welfare agencies are eligible for FBT-reduced rates or exemptions when providing benefits like:
- Salary packaging arrangements for employees.
- Housing assistance for workers in remote locations.
- Meal and entertainment benefits in certain cases.
For example, an aged care facility offering employee meal allowances may not be subject to FBT under existing concessions.
Employers should review their FBT obligations with a business advisory service to determine which exemptions apply to their organisation.
How FBT Affects Small Business Accounting?
Managing FBT obligations correctly is essential for small businesses to remain compliant with ATO regulations while controlling tax costs.
1. Payroll Services & Employee Records
Employers must ensure that FBT obligations are correctly recorded in payroll and financial systems. Some key steps include:
- Keeping detailed records of benefits provided to employees.
- Ensuring benefits are correctly classified as taxable or exempt.
- Adjusting employee remuneration packages to account for FBT costs.
Many small businesses use cloud-based payroll services such as Xero Accounting, MYOB Accounting, or QuickBooks Accounting to automate FBT tracking and compliance.
2. Business Activity Statement (BAS) Lodgement & FBT Reporting
FBT must be reported separately in the business’s BAS lodgement each quarter. Key requirements include:
- Declaring taxable benefits in financial statements.
- Including FBT in quarterly BAS reporting, where applicable.
- Ensuring correct GST compliance when applying gross-up rates to benefits.
Employers must also lodge an FBT return detailing the total fringe benefits provided by 21 May each year. Failure to submit an FBT return may incur ATO penalties and interest charges.
3. Superannuation Services & Employee Tax Impact
While employers pay FBT, fringe benefits can affect an employee’s adjusted taxable income (ATI), impacting:
- Medicare levy surcharges – Employees earning above a certain threshold may be required to pay additional Medicare levies if they receive high-value fringe benefits.
- HELP/HECS repayments – Fringe benefits increase taxable income, which could affect an employee’s student loan repayment obligations.
- Centrelink entitlements – Certain government benefits, including childcare subsidies, are affected by ATI calculations that include fringe benefits.
Employers should communicate FBT-related implications to employees and ensure they understand the impact of salary packaging arrangements on their tax obligations.
How to Reduce FBT for Your Business
Small businesses can reduce their FBT liability by structuring employee benefits effectively and utilising FBT exemptions where possible.
1. Salary Packaging Strategies
Salary packaging is a strategy where employees receive pre-tax benefits in exchange for a lower taxable salary, reducing their income tax liability. Employers can reduce FBT costs by offering salary packaging on FBT-exempt benefits, such as:
- Superannuation contributions.
- Work-related laptops and mobile phones.
- Public transport and commuting benefits.
For example, an employer who packages super contributions instead of offering a taxable benefit can avoid FBT costs entirely.
2. Opt for FBT-Exempt Benefits
Businesses should take advantage of FBT-free benefits, including:
- Education and training costs – If directly related to an employee’s job, these are tax-deductible and FBT-free.
- Workplace health initiatives – Providing flu vaccinations, ergonomic workstations, or health checks does not attract FBT.
- Office amenities – Benefits such as free coffee, work uniforms, and in-office meals may be exempt under certain conditions.
Employers should review business advisory services to structure benefit programs that are both tax-efficient and appealing to employees.
3. Maintain Accurate Financial Records
Accurate financial reporting and bank reconciliation can help businesses:
- Identify potential FBT obligations early.
- Track exempt versus taxable benefits.
- Ensure ATO compliance in audits or tax reviews.
Businesses using Xero Accounting, MYOB Accounting, or QuickBooks Accounting can automate FBT tracking and payroll services to ensure that taxable benefits are correctly reported in financial statements.
4. Regularly Review Employee Benefits & Tax Planning
FBT laws change regularly, and businesses must stay informed about the latest regulations to minimise tax costs. Strategies include:
- Conducting an FBT review before the end of the FBT year (31 March).
- Adjusting benefit structures to align with new tax rules.
- Consulting a business advisory service for FBT planning.
For example, some businesses transition from taxable fringe benefits (like entertainment allowances) to FBT-free benefits (like remote work reimbursements) to reduce tax liability.
Conclusion
Fringe Benefits Tax is a complex yet important part of small business accounting in Australia. Employers must ensure FBT compliance by keeping accurate records, understanding exemptions, and using the right accounting services to streamline reporting.
Businesses can effectively manage FBT obligations while maximising employee benefits by implementing smart tax planning strategies and leveraging Xero Accounting, MYOB Accounting, or QuickBooks Accounting.
Want to keep your bookkeeping stress-free? Cloud accounting solutions can help automate your financial reporting and ATO compliance-keeping your business tax-ready all year round.
Frequently Asked Questions
How Much Does Fringe Benefits Tax (FBT) Cost My Business?
FBT is payable at a 47% tax rate on the grossed-up value of fringe benefits. Costs vary depending on the type and value of benefits provided, so businesses should review financial statements and use Xero Accounting, MYOB Accounting, or QuickBooks Accounting for accurate calculations.
How Long Does It Take To Handle FBT Compliance And Reporting?
The time required depends on the complexity of the benefits provided. Small businesses using cloud accounting solutions can streamline FBT tracking, payroll services, and BAS lodgement, reducing manual work and ensuring ATO compliance.
Can I Reduce My FBT Liability Legally?
Yes, businesses can reduce FBT liability by opting for FBT-exempt benefits, such as work-related items, salary packaging, superannuation services, and minor benefits under $300. Consulting a business advisory expert can help structure tax-effective benefits.
Do I Need To Include FBT In My Bas Lodgement?
Yes, if your business provides taxable fringe benefits, FBT must be reported in the Business Activity Statement (BAS). Using bookkeeping services with automated bank reconciliation can help ensure accurate reporting and GST compliance.
What Happens If I Don’t Pay FBT On Time?
Failure to lodge an FBT return by 21 May can result in ATO penalties and interest charges. Small businesses should ensure tax preparation is completed early and use accounting services to stay compliant.