FBT 2025–26: What you need to know

The Fringe Benefits Tax (FBT) year wraps up on March 31, and it’s a good time to check in on the areas that can trip up employers and employees. We’ve pulled together the key things to watch for the 2025–26 FBT financial year.

Hot Spots for Employers

Here are the main areas that are causing headaches this year:

• FBT exemption for electric cars

• Overlooking or misreporting FBT on private use of work vehicles

• Does FBT apply to your contractors?

• The top FBT risk areas

FBT Exemption for Electric Cars

Eligible electric vehicles can still qualify for an FBT exemption where the criteria are met. This generally applies to battery electric and hydrogen fuel cell vehicles.

Following changes that took effect from 1 April 2025, plug-in hybrid electric vehicles no longer qualify for the FBT exemption in most cases.

The only exception is where:

• The vehicle was used or available for use before 1 April 2025, and

• There is a financially binding commitment in place to continue providing the vehicle

If that arrangement has been changed, extended, or replaced after this date, the exemption will no longer apply.

For the current FBT year, this means most plug-in hybrids are now treated like standard vehicles for FBT purposes.

Watch Out for Misreporting on Work Vehicles

The ATO is using sophisticated tools to spot businesses that get it wrong, especially when it comes to private use of company vehicles. Common mistakes include:

• Not lodging FBT returns despite providing vehicles for private use

• Misunderstanding exemptions (for example, dual-cab utes aren’t automatically exempt)

• Poor record-keeping, like missing logbooks or odometer readings

• Incorrectly apportioning private vs business use (Remember, if a vehicle is parked at or near an employee’s home, it’s considered available for private use, even if the employee doesn’t actually drive it.)

To stay compliant, make sure you:

• Identify the vehicle type correctly

• Keep robust documentation — a valid logbook is key

• Accurately apportion private and business use

The ATO doesn’t mess around. One Melbourne restaurant ended up with an FBT liability of $938,000 due to missing logbooks and late returns, including penalties and interest.

Are Your Contractors Really Contractors?

Determining whether someone is an employee or an independent contractor isn’t always straightforward, and getting it wrong can create serious FBT and compliance issues. The ATO’s TR 2023/4 ruling helps clarify this, but here’s the practical takeaway:

Even if you have a written contract labeling someone as a contractor, it’s the terms of that contract that really matter — not just the label or how the relationship feels day-to-day. If the contract suggests an employment relationship, the ATO may treat the worker as an employee.

The ATO also issued PCG 2023/2, which sets out four risk categories for arrangements. Your setup is more likely to be viewed favourably if:

• You and the worker have clearly agreed on their classification

• There’s a comprehensive written agreement governing the relationship

• Both parties understand the consequences of the classification

• The work performed matches the terms of the contract

• You’ve sought specific advice confirming the classification is correct

• All relevant tax, superannuation, and reporting obligations have been met

If you engage contractors, it’s important to have a process to regularly review their classification and check the ATO’s risk rating. Even genuine independent contractors can trigger some employment-like obligations. For example, certain contractors may still be considered employees for superannuation guarantee or payroll tax purposes.

Bottom line: keeping clear records, reviewing contracts, and seeking advice when needed can help your business avoid costly mistakes.

Top FBT Risk Areas

Mismatched Entertainment Claims and FBT

One of the easiest ways the ATO spots issues is through mismatched claims, especially when it comes to entertainment. Employers often want to claim a deduction for meals or other entertainment, but this can be tricky if the expense is actually considered a fringe benefit for employees.

Here’s the key: entertainment expenses like restaurant meals are generally not deductible, and GST credits usually aren’t available unless the expenses are properly subject to FBT.

For example, if you take a client out to lunch and the cost per head is less than $300:

• If you use the ‘actual’ method for FBT purposes, there’s often no FBT implication. That’s because benefits provided to clients aren’t subject to FBT, and minor benefits (under $300, provided infrequently) to employees are usually exempt. However, you cannot claim a deduction or GST credit for these expenses.

• If you use the 50/50 method, 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption doesn’t apply). As a result, 50% of the expense would be deductible and you could claim 50% of the GST credits.

Not Lodging FBT Returns

The ATO is also concerned about businesses not lodging FBT returns when required. Even if your staff are closely held (like family members), or your business isn’t registered for FBT, it’s important to review whether an FBT liability might exist.

If your business provides any of the following, you’re likely providing some fringe benefits:

• Cars or car spaces

• Reimbursement of private (not business) expenses

• Entertainment (food, drink, events)

• Employee discounts

Some benefits are exempt from FBT, such as laptops, protective clothing, tools of trade, or other low-value items. If your business only provides these, or the items are occasional and under $300, FBT is usually not an issue.

Stay Ahead of FBT

Make sure you’ve reviewed the FBT client questionnaire we sent — it’s the best way to check you’re on top of any potential liabilities.