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Understanding Fringe Benefits Tax

Fringe Benefits Tax (FBT): What Small Business Owners Need to Know


Fringe Benefits Tax (FBT) is one of those areas of Australian tax law that can easily catch business owners off guard. Unlike income tax, which is paid on profits, FBT is a separate tax paid by employers on certain benefits provided to employees or their associates (such as family members). Understanding how it works is essential for staying compliant and managing your overall employment costs effectively.

What is a Fringe Benefit?

A fringe benefit is a benefit provided in place of, or in addition to, an employee’s salary or wages. Common examples include:

  • Company cars available for private use
  • Entertainment expenses such as meals, events or functions
  • Loans provided at reduced interest rates
  • Housing or accommodation
  • Salary packaging arrangements (e.g., laptops, phones, or super top-ups)

If your business provides these types of benefits, you may have an FBT liability.

Who Pays FBT?

FBT is payable by the employer, not the employee. It is calculated on the taxable value of the fringe benefit and reported separately from your income tax. Importantly, FBT is tax-deductible for the business, and in many cases, the cost of providing benefits can be reduced by employee contributions.

The FBT Year

The FBT year runs from 1 April to 31 March, which is different from the standard income tax year. Employers are required to:

  1. Keep detailed records of any benefits provided.
  2. Lodge an FBT return (if required) by the due date.
  3. Pay any FBT owed to the ATO.

Calculation Methods

The ATO allows different methods to calculate the taxable value of fringe benefits, depending on the type of benefit:

  • Statutory Formula Method (commonly used for cars where a complying logbook has not been maintained).
  • Operating Cost Method (based on actual expenses and usage).
  • 50/50 Split Method (for meal entertainment expenses).
  • Actual Cost Method (tracking who received the benefit and when).

Choosing the right method can significantly reduce your FBT liability.

Exemptions & Concessions

There are some important exemptions and concessions available, particularly for small businesses and those operating in regional or remote areas. For example:

  • Minor benefits under $300 are generally exempt.
  • Tools of trade, laptops, and phones used mainly for work are often exempt.
  • Remote area housing and certain relocation benefits may qualify for concessional treatment.

Why It Matters

The ATO continue to deploy significant resources into FBT audits, so getting FBT wrong can result in penalties, interest, and unexpected costs. At the same time, with proper planning, FBT can often be managed strategically, especially where you want to attract and retain talent.


At Sterling Business Advisory, we take the hassle out of FBT. If you're wondering whether you have an obligation to lodge an FBT return, reach out to us today, and we'll help you through it.