Fringe Benefits Tax (FBT) is a tax employers pay on non-cash benefits they provide to employees (or their associates) in connection with employment. The FBT rate is 47% — equal to the top individual marginal tax rate plus Medicare levy — and is paid by the employer, not the employee. FBT runs on a separate year to the income tax year: 1 April to 31 March.
What Is a Fringe Benefit?
A fringe benefit is a benefit provided to an employee (or their associate, such as a spouse or child) in connection with their employment, in addition to or instead of salary. Common examples:
| Type of benefit | Example |
|---|---|
| Car benefits | Providing a company car for personal use |
| Expense payments | Paying an employee’s private health insurance |
| Housing | Providing rent-free or subsidised accommodation |
| Loans | Providing an interest-free or low-interest loan |
| Property | Giving goods at a discount |
| Entertainment | Paying for an employee’s restaurant meals |
| Board | Providing meals in an employer-provided residence |
Some benefits are exempt — see below.
The FBT Rate and Why It Is 47%
The FBT rate of 47% is deliberately set to equal the top individual marginal tax rate (45%) plus the 2% Medicare levy. This ensures an employer cannot provide tax-free benefits in lieu of taxable salary — if they tried, the FBT cost would neutralise any advantage.
FBT is calculated on the grossed-up value of the benefit — a formula that converts the after-tax cost of the benefit back to a pre-tax equivalent, ensuring the tax collected equals what the employee would have paid if they received the benefit as salary.
The Gross-Up Rates
There are two gross-up rates depending on whether the provider is entitled to a GST input tax credit on the benefit:
| Type | Gross-up rate | Used for |
|---|---|---|
| Type 1 (GST credit available) | 2.0802 | Cars, computers, entertainment — where GST applies |
| Type 2 (no GST credit) | 1.8868 | Housing, loans, non-GST benefits |
$$\text{FBT payable} = \text{Taxable value} \times \text{Gross-up rate} \times 47%$$
The Three Methods for Calculating FBT on Cars
The car benefit is the most common FBT category and can be calculated under two methods:
1. Statutory Formula Method
FBT is based on a statutory percentage (20%) of the car’s base value (original cost), regardless of actual business use.
$$\text{Taxable value} = \text{Base value} \times 20% \times \frac{\text{Days available}}{365}$$
2. Operating Cost Method (Logbook)
FBT is based on the private use proportion of the car’s actual operating costs. This method is more favourable when business use is high (above about 75% of total kilometres).
$$\text{Taxable value} = \text{Total operating costs} \times \text{Private use %}$$
The employee (or employer) must maintain a 12-week logbook to substantiate the business/private split.
The FBT Year
The FBT year runs from 1 April to 31 March, unlike the income tax year (1 July to 30 June). This separate year applies to:
- FBT return lodgement (due 21 May for self-lodgers; later for tax agents)
- FBT liability calculation
- Quarterly FBT instalments (for employers whose prior-year FBT exceeded $3,000)
Exempt Benefits
Many benefits are exempt from FBT — they can be provided by employers without triggering FBT liability:
| Exempt benefit | Conditions |
|---|---|
| Work-related items | Laptops, tablets, mobile phones, protective clothing, briefcases — one per employee per FBT year for items with business use > 50% |
| Minor benefits | Benefits with a GST-inclusive value under $300 (and infrequent) |
| Work-related travel | Genuine business travel (not commuting) |
| Remote area housing | Housing provided in remote areas where it’s necessary |
| Electric vehicles (from 1 July 2022) | Cars that are zero or low-emission vehicles below the LCT threshold — see FBT Exemptions |
| Fly-in fly-out travel | Employer-paid travel to a remote worksite |
| On-site recreation facilities | Gyms, pools located on the employer’s business premises |
Salary Packaging and FBT
Salary packaging (or salary sacrifice) allows an employee to forgo some pre-tax salary in exchange for benefits. The employer uses the pre-tax salary to fund the benefit, reducing the employee’s taxable income. FBT may still apply to the packaged benefit — but for certain categories (e.g., laptops, portable devices, electric vehicles, additional super), FBT is exempt, making salary packaging advantageous.
Some employers — particularly public hospitals, non-profits, and charities — can offer employees significant FBT-exempt salary packaging entitlements that reduce their taxable income substantially.
Related Articles
- FBT Exemptions — Electric Vehicles and Salary Packaging
- Sole Trader Tax Australia
- Payroll Tax Australia — State by State Guide
- GST and Business Tax hub
Frequently Asked Questions
Who pays FBT — the employer or employee? The employer pays FBT. The employee receives the benefit without paying income tax on it (assuming FBT has been accounted for). The employer can, however, ask the employee to contribute toward the cost of the benefit (an “employee contribution”), which reduces the taxable value and therefore the FBT payable.
Does FBT apply to sole traders and partners? No. FBT only applies to benefits provided to employees. Sole traders and partners are not employees of their own businesses, so they cannot salary-package benefits through FBT.
Is FBT deductible? Yes. FBT is deductible to the employer as a business expense. The taxable value of fringe benefits is also deductible (unlike GST treatment). The FBT paid is included in the employer’s income tax deduction for that year.
This article provides general tax information. FBT calculations can be complex, and the rules differ across benefit types. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register.