If you provide your employees (or yourself, as a director) with non-cash benefits — company cars, gym memberships, free parking, or entertainment — you may be liable for Fringe Benefits Tax (FBT). The FBT rate in 2026 is 47%, making it one of the highest effective tax rates in Australia. Understanding what triggers FBT and what's exempt can save your business thousands.
1. Common Fringe Benefits for SMEs
- Car fringe benefit — a company vehicle available for private use by an employee or director.
- Entertainment — meals, drinks, tickets to events provided to staff.
- Expense payments — paying or reimbursing an employee's personal expenses (e.g., private health insurance).
- Housing — providing accommodation at below-market rent.
- Loans — interest-free or low-interest loans to employees.
- Property — giving employees goods (e.g., a laptop for personal use, Christmas gifts over $300).
2. FBT Exemptions Every SME Should Know
Not all benefits attract FBT. Key exemptions for small businesses include:
| Exemption | Limit | Conditions |
|---|---|---|
| Minor benefits | <$300 per benefit | Infrequent and irregular |
| Work-related devices | 1 per FBT year | Laptop, phone, tablet primarily for work |
| Protective clothing | Unlimited | Must be genuinely protective (steel caps, hi-vis) |
| Tools of trade | Unlimited | Primarily for work use |
| Electric vehicles | Full exemption | First held after 1 July 2022; below luxury car limit |
The electric vehicle (EV) exemption is particularly valuable. A novated lease on an EV can save an employee $10,000–$15,000 per year in tax compared to a petrol car.
3. The Company Car Trap
If your business owns a car that's available for private use — even if the employee barely uses it privately — FBT applies. The two methods for calculating car FBT are:
- Statutory formula method: 20% of the car's base value × 47% = FBT. Simple but often expensive.
- Operating cost method: Based on actual private-use percentage via a 12-week logbook. More work but often cheaper.
For a $60,000 car, the statutory method costs roughly $5,640 in FBT per year. If private use is only 20% (per logbook), the operating cost method could reduce this to under $2,000.
4. Entertainment vs. Sustenance
The distinction between "entertainment" and "sustenance" matters:
- Entertainment (FBT applies): Friday drinks, Christmas party (if >$300/head), client dining.
- Sustenance (no FBT): A simple working lunch ordered to the office, meals during overtime or business travel.
Keep the Christmas party under $300 per head (including GST) to stay within the minor benefit exemption.
5. FBT Reporting and Lodgment
The FBT year runs 1 April to 31 March (not the standard financial year). Key dates:
- 21 May — FBT return lodgment deadline (or later if lodged by a tax agent).
- 28 June — deadline if lodged electronically through a tax agent.
Even if you have nothing to report, review your benefits annually. Accidental FBT liabilities are common in growing SMEs that start offering perks without considering the tax implications.
Key Takeaways
- FBT is taxed at 47% — higher than any individual marginal rate.
- Electric vehicles are fully FBT-exempt (huge savings via novated leases).
- Keep Christmas party costs under $300/head to use the minor benefit exemption.
- Use the operating cost method + logbook for company cars to reduce FBT.
- FBT year ends 31 March — review your benefits before then.