Fringe Benefits Tax : What Should Be Reviewed Before 31 March

At 47%, Fringe Benefits Tax is not a minor compliance issue. It is a high-rate tax applied to benefits that many businesses provide routinely and informally. Company vehicles, entertainment, reimbursements and salary packaging arrangements can quietly accumulate into a significant liability if not reviewed properly before 31 March.

What is Fringe Benefits Tax?

Fringe benefits are non-cash benefits provided to employees, from vehicles and entertainment to health insurance, salary sacrifice arrangements, and expense reimbursements. FBT is charged at 47% on the grossed-up taxable value of those benefits. With the FBT year ending 31 March, this is the final opportunity to review what has been provided, ensure records are defensible, and apply concessions correctly.

Below are the key areas shaping FBT compliance and what your business should be reviewing now.

1. Electric Vehicles

Eligible electric vehicles first held and used on or after 1 July 2022 may qualify for an FBT exemption, but only if specific criteria are satisfied.

The vehicle must:

• Be a car (as defined for FBT purposes)

• Be an eligible zero or low-emissions electric car. Note that from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer treated as zero or low emissions for FBT purposes, except where transitional conditions apply

• Have been below the luxury car tax threshold for fuel-efficient vehicles at the time of first retail sale

• Meet ownership and usage requirements

Even where an EV benefit is exempt from FBT, it may still be a reportable fringe benefit (RFBA). An RFBA may be required where the grossed-up taxable value of the benefit exceeds $2,000 (subject to the reporting rules that apply).

Not reporting an RFBA doesn’t change whether the benefit is exempt for FBT purposes, but mismatches between payroll reporting and the FBT position can increase ATO scrutiny.

2. Work-From-Home Reimbursements

Hybrid work has changed the nature of employee reimbursements.

Where an employer pays or reimburses expenses such as internet, phone bills, or home office equipment, the FBT outcome depends on how the expense is structured and substantiated.

Many work-related expenses can be reduced under the “otherwise deductible” rule, meaning the taxable value of the benefit may be reduced to the extent the employee would have been entitled to a tax deduction personally. However, this requires proper substantiation and reasonable apportionment between work and private use. Employee declarations (where required) must be completed and retained to support any ‘otherwise deductible’ reductions.

Reimbursing an employee’s full internet bill, for example, without evidence of work-use percentage, can result in a taxable fringe benefit component.

With the FBT year closing, businesses should review home-office reimbursements to ensure:

• Work-use percentages are reasonable and documented

• Employee declarations are retained

• Benefits are correctly classified

3. Travel Allowance vs Living-Away-From-Home Allowance (LAFHA)

The distinction between travel allowances and living-away-from-home allowances remains one of the most commonly misclassified areas in FBT.

Broadly:

• Travel allowances are generally exempt from FBT under the FBTAA where the allowance is within ATO reasonable amounts and the arrangement is correctly characterised and substantiated, meaning income tax and PAYG rules apply instead.

• LAFHA is a fringe benefit and subject to FBT, unless specific concession rules apply

The issue often arises where a short-term travel arrangement gradually becomes longer-term or semi-permanent. What started as business travel may evolve into an arrangement that satisfies the LAFHA definition.

If your business has interstate placements, FIFO arrangements, or extended secondments, March is the appropriate time to reassess whether the classification remains correct.

4. Salary Sacrifice

Salary sacrifice arrangements do not automatically reduce FBT liability. They simply restructure remuneration.

For concessional treatment to apply:

• The agreement must be entered into before the employee becomes entitled to the income

• The arrangement should be properly documented

• The benefit must be correctly classified for FBT purposes

Informal arrangements — where benefits are provided without written agreement or timing compliance — can lead to unintended FBT consequences.

5. Minor Benefits Exemption

While benefits under $300 (GST inclusive) may qualify for exemption, this is not automatic. The benefit must also be:

• Provided infrequently and irregularly, and

• Such that it would be unreasonable to treat it as a fringe benefit, considering frequency and total value

Multiple small benefits provided regularly can still create a taxable position.

6. The NIL Return Strategy

If, after review, your business determines no FBT is payable, lodging a NIL return remains a prudent compliance and risk-management step.

An FBT return can generally only be amended within 3 years from the date of lodgment (subject to exceptions). Lodging, even where no tax is payable, starts that clock running and limits the window in which the ATO can revisit your position without the higher burden that applies to unamended periods.

For businesses that have historically assumed “no FBT applies” without formal review, this is often an area worth revisiting.

If your business provided any of the following during the FBT year ending 31 March, a brief review is worth completing before deciding not to lodge. The cost of review is generally far lower than the cost of an unplanned ATO enquiry:

• A company car garaged at an employee’s home

• Meal entertainment where employees attended

• Employee gifts under $300 provided multiple times

• Health insurance or wellness benefits

• Salary sacrifice arrangements

Record-Keeping: Where Most Problems Begin

In FBT reviews and ATO audits, the issue is rarely that businesses deliberately provided taxable benefits; it is that their records are insufficient to substantiate the treatment adopted.

For car fringe benefits:

• Logbooks must cover at least 12 continuous weeks

• Logbooks are typically relied on for up to five years where usage patterns don’t materially change, but you should refresh them if circumstances change

• Odometer readings at the start and end of each FBT year must be retained

• Where the operating cost method is used without valid logbooks, the ATO may default to less favourable calculations

For entertainment, you must document:

• who attended

• whether they were employees or clients

• the business purpose of the event (a receipt alone is insufficient)

Before 31 March, consider conducting a records audit to confirm that documentation supports your FBT position.

What Stays the Same

• The FBT rate remains 47%, aligned with the top marginal tax rate plus Medicare levy

• The $300 minor benefits threshold remains unchanged

• The ATO uses employer reporting and data-matching to identify inconsistencies between income statements and FBT returns

Key March Action Items

Before 31 March, review:

• All non-cash benefits provided this year

• EV eligibility and reporting

• Logbooks and car records

• Home-office reimbursements and employee declarations

• Salary sacrifice documentation

• Whether lodging a NIL return is appropriate

Need Support Before 31 March?

FBT sits at the intersection of employment arrangements, payroll reporting, and tax law. Small classification errors can produce disproportionate tax exposure.

If you are unsure whether a benefit triggers FBT or whether your records would hold up under scrutiny, we can help you work through it before the deadline. Reviewing now is almost always simpler and less costly than managing the consequences later.

This article is general information only and does not constitute tax advice. Please consult a registered tax agent regarding your specific circumstances.