Fringe Benefits Tax for Small Business: What You Must Know in 2026

Fringe benefits tax (FBT) is consistently one of the most misunderstood taxes in Australia. Many small business owners provide benefits to employees — a company car, meals, entertainment — without realising those benefits trigger FBT obligations. And because FBT is self-assessed, the ATO does not send you a bill: it expects you to identify, calculate, and pay it yourself.

This guide explains what counts as a fringe benefit, how FBT is calculated, key exemptions, and what you need to do to stay compliant.

What Is FBT?

Fringe benefits tax is a tax paid by employers on certain non-cash benefits they provide to employees (and their associates — family members, etc.) in connection with employment.

FBT is separate from income tax and is paid by the employer, not the employee. However, the cost is often built into the total remuneration package.

The FBT year runs from 1 April to 31 March — not the standard financial year.

What Counts as a Fringe Benefit?

A fringe benefit is a benefit provided to an employee (or their associate) by an employer (or someone on the employer's behalf) in respect of the employment.

Common fringe benefits include:

Car Fringe Benefits

If you provide an employee with a car that is available for private use — even if the car is primarily for business — you may have a car fringe benefit. This is one of the most common sources of FBT exposure for small businesses.

"Available for private use" includes a car that is garaged at the employee's home overnight, even if the employee does not actually drive it privately.

There are two methods for calculating car FBT:

• Statutory formula method — based on the car's cost price and the number of days the car is available for private use
• Operating cost method — based on actual costs and a logbook showing the percentage of private vs business use

Expense Payment Benefits

If you pay for or reimburse an employee's private expenses — health insurance, home internet, school fees, holiday accommodation — these can be fringe benefits.

Living Away from Home Allowances

Payments made to employees who live away from their usual home to perform work duties may be fringe benefits rather than ordinary wages.

Entertainment Benefits

Providing meals, entertainment (event tickets, restaurant meals), or accommodation to employees can attract FBT. This is a complex area — the rules differ for entertainment that is "meal entertainment," "recreation entertainment," and entertainment involving third parties.

The "minor and infrequent benefits" exemption (see below) applies here, which is why a once-a-year Christmas party is generally not an FBT issue — but regular Friday afternoon drinks at a bar can be.

Property Fringe Benefits

Providing goods or property to employees — including employee discounts on products — can be a fringe benefit if the benefit exceeds a minor threshold.

Loan Fringe Benefits

Loans to employees at below-market interest rates are fringe benefits.

Debt Waiver Fringe Benefits

Waiving a debt an employee owes you is a fringe benefit.

Key FBT Exemptions

Not all non-cash benefits are subject to FBT. Key exemptions include:

Minor Benefits Exemption

A benefit is exempt from FBT if:

• Its value is less than $300 (GST-inclusive), and
• It would be unreasonable to treat the benefit as a fringe benefit based on its infrequency, irregularity, and difficulty in valuing

This exemption is commonly used for Christmas gifts, birthday gifts, and occasional event tickets. However, it does not apply to benefits provided as part of a salary packaging arrangement.

Work-Related Exempt Items

Certain work-related items are exempt from FBT:

• Portable electronic devices (laptops, tablets, mobile phones) — one per employee per year, if primarily used for work
• Computer software for use in employment
• Protective clothing required for work
• Tools of trade
• Brief cases and similar items

Note: if you provide more than one laptop to the same employee in the same FBT year, only one is exempt.

In-House Fringe Benefits

Some in-house benefits (e.g., goods or services your business normally sells, provided at a discount to employees) may attract a reduced taxable value.

Employee Share Schemes

Shares or options provided to employees under a qualifying employee share scheme are generally not fringe benefits — they are taxed under the employee share scheme rules instead.

Exempt Employers

Certain employers — public benevolent institutions, health promotion charities, and some public and non-profit hospitals — have access to FBT exemptions or concessions that commercial businesses do not.

How Is FBT Calculated?

FBT is calculated on the "grossed-up" taxable value of the fringe benefit. The grossing-up process is designed to put the employer in the same position as if the employee had received cash salary (which would be subject to income tax) and paid for the benefit themselves.

The FBT rate for the 2025–26 FBT year is 47%, applied to the grossed-up taxable value.

Type 1 gross-up rate (where the employer is entitled to a GST credit): 2.0802
Type 2 gross-up rate (where no GST input tax credit is available): 1.8868

Example

You provide an employee with a car with a taxable value of $5,000 for the FBT year. Using the Type 1 gross-up rate:

Grossed-up value = $5,000 × 2.0802 = $10,401
FBT payable = $10,401 × 47% = $4,889

The FBT cost to you is nearly equal to the taxable value of the benefit itself — which is why many employers factor FBT into total remuneration discussions.

FBT Reporting and Lodgement

FBT Returns

If you have an FBT liability for a given year, you must lodge an FBT return by 21 May (for self-lodgement) or 25 June (if lodging through a tax agent). The FBT return covers the period from 1 April to 31 March.

Reportable Fringe Benefits

If the total taxable value of fringe benefits provided to an employee exceeds $2,000 in an FBT year, you must include a reportable fringe benefits amount on that employee's payment summary (or income statement in Single Touch Payroll). This amount is not taxed — but it affects the employee's adjusted taxable income for various government purposes (Medicare levy surcharge, HECS repayments, etc.).

Record-Keeping

You must keep records to support your FBT calculations for 5 years from the date of lodgement of the FBT return.

For car fringe benefits calculated using the operating cost method, you must maintain a logbook for at least 12 continuous weeks within the last 5 years showing the business use percentage.

The ATO's Approach to FBT Compliance

The ATO uses data matching and Single Touch Payroll data to identify employers who may have FBT obligations they are not meeting. Common triggers for ATO review include:

• Business vehicles registered to the business but with no FBT return lodged
• Significant entertainment expenses claimed as tax deductions without corresponding FBT reporting
• Salary packaging arrangements that appear to include benefits without FBT reporting

The ATO's small business FBT benchmarks can be used to assess whether your FBT profile looks unusual compared to similar businesses.

Practical Steps to Get FBT Right

1. Identify all non-cash benefits you provide to employees — cars, loans, entertainment, expense reimbursements, goods
2. Assess each benefit for FBT applicability — apply exemptions where they legitimately apply
3. Calculate taxable values using the correct method for each benefit type
4. Gross up and calculate FBT using the correct rate
5. Lodge your FBT return by the due date and pay any liability
6. Report reportable fringe benefits amounts to affected employees
7. Maintain records for 5 years

How Reguladar Helps

FBT obligations are time-sensitive (the annual return deadline) and often overlooked by small businesses that do not have specialist tax advisers on staff. Reguladar surfaces your key tax deadlines — including the FBT return — in your personalised compliance dashboard, alongside your other ATO obligations.

You get a clear picture of what is due and when, so you are not caught out by a deadline you did not know was approaching.

Stay on top of FBT and all your ATO obligations. Start your free compliance check at Reguladar and see your complete tax compliance profile today.