Guide · Updated 17 August 2026
Fringe benefits tax, without the headache
What triggers FBT, why the effective rate is so high, the exemptions that matter to small business, and how the Christmas party actually works.
What is fringe benefits tax and who pays it?
FBT is paid by employers on non-cash benefits provided to employees or their associates — a car available for private use, entertainment, gym memberships, school fees, loans at below-market rates. It's assessed on a 1 April to 31 March year, separate from the income tax year, and calculated on the grossed-up value of the benefit at 47%. Because of the gross-up, providing a benefit worth $1,000 can cost close to $1,000 in FBT on top — which is why the cheapest answer is often to pay salary instead, or to use one of the specific exemptions.
- FBT year: 1 April to 31 March
- Rate: 47% on the grossed-up value
- Minor benefits exemption: under $300, infrequent
- Some electric vehicles are FBT-exempt
The benefits that catch small business
- Cars. A vehicle owned by the business and available for an employee's (or director's) private use — including parked at home overnight. Availability, not actual use, is the test.
- Entertainment. Meals, drinks, functions and recreation for employees.
- Expense payments. Paying or reimbursing an employee's private expenses — school fees, private health, home internet.
- Loans and debt waivers. Interest-free or low-interest loans to employees.
- Car parking in some circumstances, and living-away-from-home allowances.
Benefits provided to a sole trader or partner in a partnership aren't FBT — they're private use adjustments instead. Directors of a company are employees for FBT purposes, which surprises many owner-operators.
The exemptions worth knowing
Minor benefits. Benefits under $300 (GST-inclusive) provided infrequently and irregularly are generally exempt. This is what makes modest staff gifts and one-off celebrations workable.
Work-related items. A laptop, phone, tablet, protective clothing or tools provided primarily for work — generally exempt, limited to one item per type per employee per year for most items.
Commercial vehicles. Utes and vans not designed principally to carry passengers are exempt where private use is limited to travel between home and work plus minor, infrequent and irregular use.
Electric vehicles. Eligible zero and low-emissions cars first held and used from 1 July 2022 can be exempt from FBT, subject to conditions and the luxury car tax threshold for fuel-efficient vehicles. Reportable amounts still apply on employee payment summaries, and the plug-in hybrid concession has been wound back — check current eligibility before committing.
The Christmas party, properly explained
If a party costs less than $300 per head and is held infrequently, the minor benefits exemption generally applies — no FBT. The catch: benefits that are exempt from FBT as entertainment are also not deductible, and you can't claim the GST credits. So the exemption saves FBT but the cost is after-tax.
If you'd rather have the deduction, you pay FBT on the entertainment and then it becomes deductible. Either way, gifts are treated separately from the meal, and a $250 gift plus a $250 party can both be minor benefits. Client entertainment is neither deductible nor subject to FBT — it's simply a private cost of doing business.
How to reduce FBT legitimately
- Employee contributions — the employee pays part of the cost from after-tax income, reducing the taxable value.
- Keep a log book for cars and use the operating cost method where business use is high; the statutory formula method ignores actual use.
- Choose exempt vehicles — a genuine commercial vehicle with restricted private use, or an eligible EV.
- Provide work-related items rather than cash allowances where the exemption applies.
- Pay salary instead. Often the honest answer: the grossed-up cost of a benefit frequently exceeds the value the employee places on it.
Frequently asked questions
Do I have to register for FBT?
Only if you provide fringe benefits. If you do and the taxable value is above nil, you must register, lodge an FBT return (21 May for self-lodgers; later through an agent) and pay. Many small businesses provide only exempt benefits and never register — but that conclusion should be documented, not assumed.
Is the work ute FBT-free?
Potentially, if it's a genuine commercial vehicle not designed principally to carry passengers, and private use is limited to home-to-work travel plus minor, infrequent and irregular use. A dual-cab used for family weekends away is a different story. The exemption is conditional, not automatic.
Are staff Christmas gifts deductible?
Non-entertainment gifts (a hamper, a bottle of wine to take home, a gift card) under $300 are generally FBT-exempt and deductible with GST credits available. Entertainment gifts (concert or sports tickets) under $300 are FBT-exempt but not deductible. The distinction is real and worth respecting.
How does salary packaging work with FBT?
An employee gives up salary for a benefit. It works where the benefit is FBT-exempt or concessionally treated — superannuation, work-related items, eligible EVs, or benefits from an FBT-rebatable or exempt employer such as a public hospital or charity. For an ordinary business packaging a taxable benefit, the FBT usually cancels the advantage.
Do I pay FBT on benefits to my own family in the business?
If they're employees or associates of employees, yes — FBT applies to benefits provided to an employee's associates too. Family businesses are where this is most often overlooked.
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