How does Fringe Benefits Tax work? Examples, exemptions and calculations

Whether you’re a small business owner, payroll manager or HR professional, properly understanding Fringe Benefits Tax (FBT) not only helps you comply with Australian law but also reduce your tax burden.

This guide explains what fringe benefits are, how to calculate your FBT and how outsourcing your payroll can help with everything from complex calculations to FBT return lodgements.

What is the fringe benefits tax?

Fringe Benefits Tax (FBT) is a tax imposed on Australian employers for the benefits (non-cash perks) they provide to their employees or their employees’ families. FBT is a payroll tax paid by employers, not employees.

If your company pays wages in Australia, it must self-assess the amount of FBT it owes. Keep in mind though that FBT only applies to benefits provided to employees and not contractors.

What are fringe benefits?

The Australian Taxation Office (ATO) defines fringe benefits as non-cash perks provided by an employer to employees. Unlike reimbursements, which relate to business expenses, fringe benefits have a personal element.

For example, if you allow employees to use a company car for private use, buy them tickets to a sporting event or pay their child’s tuition fees, the ATO considers these fringe benefits.

Types and examples of fringe benefits

Here are the 7 categories of fringe benefits with some common examples for each:

Car fringe benefits

Providing a vehicle for private use and related expenses, including:

• Company car for private use
• Car parking
• Home garaging
• EV charging

Expense fringe benefits

Reimbursing or paying for an employee’s personal expenses, including:

• Private health insurance fees
• School fees
• Home mortgage expenses
• Internet bills
• Home desktop computer
• Personal credit card payments
• Self-education expenses
• Vehicle maintenance expenses
• Car insurance expenses

Loan fringe benefits

Lending money to an employee for personal purposes below the statutory interest rate, including:

• Low-interest loans
• Interest-free loans
• Waiving or reducing an employee’s debt

Entertainment fringe benefits

Providing food, drink or recreation considered to be entertainment, including:

• Tickets to sporting events
• Tickets to concerts
• Meals
• Christmas parties
• Gym memberships
• Holidays
• Golf days
• Wellness programs

Property fringe benefits

Giving employees tangible or intangible property, including:

• Clothing
• Electronics
• Watches
• Land
• Buildings
• Shares
• Bonds
• Crypto assets
• Vouchers

Accommodation and location-related fringe benefits

Providing housing or assistance for employees’ living away from home, including:

• Paying rent
• Providing accommodation and/or board
• Remote area housing
• Travel allowance or Living-away-from-home allowance (LAFHA)

Residual fringe benefits

Allowing employees to use employer’s property or services and anything not otherwise categorised, including:

• Using employer’s video camera or television
• Getting advice from a solicitor or lawyer
• Health insurance cover under a group policy

What are reportable fringe benefits?

Reportable fringe benefits are fringe benefits that must be reported to the Australian Taxation Office (ATO). Fringe benefits are reportable if the total value of the benefits provided to an employee over the FBT year (1 April to 31 March) exceeds $2,000.

Reportable fringe benefits must be reported through Single Touch Payroll (STP) or on employee payment summaries. Although FTB doesn’t add to an employee’s income tax, it appears on their income statement and impacts their eligibility for various government benefits and obligations, like Medicare Levy Surcharge, child support and Higher Education Loan Program (HELP) debt repayments.

Total reportable fringe benefits amount

The total Reportable Fringe Benefits Amount (RFBA) is the grossed-up value of the fringe benefits you provide to an employee. The reportable fringe benefits threshold is currently $2,000. However, this changes regularly, making it essential to check the latest thresholds and rates set by the ATO.

What are fringe benefits exemptions?

There are a range of FBT exemptions and concessions that businesses can use to reduce the amount of FBT they pay. Common exemptions include work-related items and benefits valued under $300.

Not-for-profit organisations are also typically exempt from FBT because the benefits they provide their employees are exempt up to a capping threshold. FBT-exempt organisations must calculate their FBT exemption.

Major exemptions

• Work-related items: laptops, tablets, phones, work tools, for example
• Vehicles: utility vehicles, panel vans and electric vehicles (with specific rules)
• Housing: housing in remote areas (such as for primary producers)
• Emergency assistance: aiding employees (with, say, first aid supplies)
• Retraining/reskilling: helping redundant employees find a new job
• Worker entitlement funds: contributions for sick leave, long service leave and so on
• Food/drink on premises: meals/drinks on business premises
• Taxi/public transport: trips to/from work or on employer-provided public transport

Minor exemptions

• Value limit: under $300 (including Goods and Services Tax (GST))
• Infrequent: benefits provided infrequently and irregularly

How to calculate fringe benefits tax

To calculate FBT, you need to work out the taxable value of the fringe benefits provided, identify the type of each benefit, apply the correct gross-up rate and finally apply the FBT rate. The ATO provides guidance and tools to help you calculate your FBT.

1. Calculate taxable value

The taxable value of the benefit is usually how much it cost to provide minus any contributions made by the employee. Calculating taxable value depends on the type of benefit. For example, car fringe benefits often use the statutory formula method or the operating cost method.

2. Identify benefit type (1 or 2)

Each fringe benefit falls into one of two categories depending on whether you’re entitled to claim a GST credit:

Type 1: benefits where you can claim a GST credit (such as a car, loan).

Type 2: benefits where you cannot claim a GST credit (for example, movie tickets or school fees).

3. Gross-up taxable value

Next multiply the taxable value of the fringe benefit by the appropriate gross-up rate (use the Type 1 Gross-Up rate for Type 1 benefits and the Type 2 Gross-Up rate for Type 2 benefits).

Type 1 Gross-Up Rate: 2.0802

Type 2 Gross-Up Rate: 1.8868

4. Apply FBT rate

Now you have the gross-up taxable value, simply multiply it by the FBT rate (currently 47%) to calculate the amount of FBT you need to pay on the benefit.

FBT calculation example

The following table shows how to calculate the FBT due on two fringe benefits.

Fringe benefit	Car	School fees
Taxable value	$10,000	$20,000
Can claim GST credits?	Yes	No
Type 1 or Type 2?	Type 1	Type 2
Gross-up rate	2.0802	1.8868
Gross-up taxable value	= 10,000 x 2.0802 = 20,802	= 20,000 x 1.8868 = 37,736
FBT rate	47%	47%
FBT payable	= 20,802 x 47% = 9,776.94	= 37,736 x 47% = 17,735.92

Unfortunately, calculating your FBT isn’t always this straightforward — especially with a growing workforce. However, a payroll provider can help. With automated calculations and lodgements, outsourcing payroll to a trusted third party like ADP makes the process faster and easier.

Employer obligations and deadlines

Australian employers must self-assess their FBT for the FBT year, which runs from 1 April to 31 March (different to the standard tax year). When you’ve finished crunching the numbers, you must lodge your FBT return with the ATO and pay any tax owed by 21 May.

However, this deadline extends to 25 June if you submit your return electronically via a registered tax agent. Keep in mind that if your business pays more than $3,000 in FBT, you’ll likely be required to pay quarterly instalments.

Key FBT obligations:

• Register for FBT: register with the ATO online using your Australian Business Number (ABN), by phone, mail or through your tax agent
• Keep records: keep detailed payroll records of all fringe benefits complete with dates, recipients, costs and types
• Self-assess: calculate your taxable values, gross-up values and FBT liability for the FBT year (ending 31 March)
• Lodge FBT returns: send your FBT return to the ATO by the 21 May (or 25 June if using a tax agent)
• Pay FBT liability: pay your FBT amount to the ATO by the 21 May, 25 June (or quarterly if your FBT liability exceeds $3,000)

Key FBT deadlines:

• FBT year end: 31 March
• Standard lodgement and payment date: 21 May
• Tax agent lodgement date: 25 June

Failing to meet any of these FBT compliance requirements can lead to penalties, including hefty fines, general interest charges (GIC) and even FBT audits. Given the costs of non-compliance, compliant payroll systems are essential to calculating your FBT liability correctly and submitting your FBT lodgement on time.

Common FBT mistakes and how to avoid them

Many employers make common FBT mistakes, including:

Misclassifying benefits

Failing to identify personal benefits and assuming benefits are exempt when they aren’t are two of the most common FBT mistakes. To avoid them, always check ATO guidance.

Overlooking exemptions and concessions

Many companies miss out on FBT relief because they aren’t aware of the latest ATO rule changes. Stay up to date or use a solution that keeps up with the regulatory changes.

Incorrect valuations

These mistakes are most common with car fringe benefits and can be avoided by being clear on private vs business use and applying the correct valuation method.

Poor record-keeping

Good record-keeping is the key to FBT. Record detailed information about all benefits as you go throughout the year. Photos and digital tools can make this easier.

Incorrect or late reporting

Inefficient payroll processes lead to errors and late submissions. Consider software solutions to help automate processes and improve accuracy. And remember you still have to submit an FBT return even if you don’t owe any FBT.