FBT 2025: What You Need to Know

The Fringe Benefits Tax (FBT) year wraps up on 31 March, and there are some key updates employers and employees need to be across. Here’s a breakdown of what’s changing and what to watch out for.

FBT Exemption for Electric Cars

If you’re providing an electric vehicle (EV) to an employee, you might be eligible for an FBT exemption—but only if a few conditions are met:

• The car must be a zero or low-emission vehicle (think battery electric, hydrogen fuel cell, or plug-in hybrid).
• It must have been both first held and used on or after 1 July 2022.
• Its value must be under the luxury car tax threshold for fuel-efficient vehicles, which for 2024–25 sits at $89,332.

Plug-In Hybrids Losing Their FBT-Free Status

As of 1 April 2025, plug-in hybrid EVs will no longer qualify for the FBT exemption unless:

• The exemption was already in place before 1 April 2025, and
• There’s a legally binding commitment to continue offering private use of the vehicle beyond that date.

If there’s any break or change in that agreement after 1 April 2025, the exemption will likely no longer apply.

How to Make the Most of the FBT Exemption

Even if your EV qualifies for the FBT exemption, your business still needs to calculate the taxable value of the benefit as if the exemption didn’t exist. Why? Because the reportable fringe benefits amount (RFBA) still factors into an employee’s financial situation, impacting things like the Medicare levy surcharge, private health insurance rebates, employee share scheme reductions, and even some government payments.

Employees may also need to work out their electricity costs for home charging. The ATO has issued a guideline allowing a 4.20 cent per km shortcut method for these calculations (but it doesn’t apply to plug-in hybrids).

One more thing – while EVs may be FBT-free, home charging stations aren’t. If your business provides one to an employee, it’s not covered under the exemption.

Work-From-Home Equipment: What’s Taxable?

With flexible work arrangements still in full swing, many businesses are providing employees with work-related tools. Generally, if an item is primarily used for work, it shouldn’t trigger FBT.

For example, giving employees laptops and mobile phones typically won’t result in an FBT liability—as long as they’re used mainly for work. And good news for small businesses (those with an aggregated turnover under $50 million): you can provide multiple similar devices in a year if necessary (previously, this threshold was $10 million).

If an employee is using business-provided equipment for personal reasons, FBT might apply. However, the liability can be reduced depending on how much of its use is for business.

Do Contractors Trigger FBT?

FBT generally applies when benefits are provided to employees or office holders (like directors). But when it comes to independent contractors, it’s a bit more complex.

Are Your Contractors Actually Contractors?

Thanks to a couple of recent High Court rulings, the ATO has finalised TR 2023/4, which lays out how to determine whether someone is an independent contractor or an employee.

If there’s a written contract, the terms of that contract take priority. However, calling someone a contractor doesn’t necessarily mean they are one—if the contract’s details suggest an employer-employee relationship, the ATO might still classify them as an employee.

The ATO’s PCG 2023/2 outlines four key factors that make a contractor arrangement more defensible:

1. There’s clear evidence that both parties agreed on the classification.
2. A detailed written agreement governs the relationship.
3. Both parties understand the tax and legal consequences.
4. The contract is actually followed—no significant deviations.
5. Professional advice has been sought to confirm the classification.
6. All tax, super, and reporting obligations are met correctly.

If your business hires contractors, have a clear process in place to classify them correctly. Even if they’re legitimate independent contractors, you may still have obligations – like paying superannuation guarantee or payroll tax in some cases.

Cutting Down the FBT Paperwork

FBT record-keeping can be a hassle. But starting 1 July 2024, businesses will have more flexibility. You can:

• Stick with the current record-keeping methods.
• Use existing business records (if they meet ATO requirements).
• Combine both approaches.

Here are some of the key declarations businesses might need:

• Travel diaries (LI 2024/11)
• Living-away-from-home allowance declarations (LI 2024/4, LI 2024/5)
• Expense payment deductions (LI 2024/6)
• Remote area holiday transport declarations (LI 2024/10)
• Relocation-related declarations (LI 2024/12, LI 2024/8)

Keeping accurate records is crucial, especially when relying on employees to provide them. If your business has company cars, make sure employees snap a photo of the odometer on 31 March and 1 April and email it to a central contact. This saves you the headache of chasing them down later.

The Biggest FBT Risk Areas

1. Claiming Deductions Without Paying FBT

The ATO watches for mismatches—particularly with entertainment expenses. Businesses love claiming deductions for things like client lunches, but these expenses aren’t always deductible unless they’re subject to FBT.

For example:

• If you took a client to lunch, and the per-head cost was under $300, and you use the actual method for FBT, there’s no FBT—but you can’t claim a deduction either.
• If your business uses the 50/50 method, then half of the entertainment costs are subject to FBT, deductible, and eligible for GST credits.

2. Using Journal Entries for Employee Contributions

Many businesses reduce their FBT liability by making after-tax employee contributions – but the ATO has concerns about journal entries being used instead of actual payments.

To be valid, all of the following conditions must be met:

• The employee has a formal obligation to contribute towards the fringe benefit.
• The employer also has a financial obligation to the employee (e.g., a pending bonus or loan).
• Both agree to offset the amounts.
• The journal entry is made before the financial accounts are finalised for tax purposes.

If these elements aren’t in place, the ATO could reject the contribution, leading to unexpected FBT bills.

3. Not Lodging an FBT Return

Many businesses assume they don’t need to lodge an FBT return—but if you provide cars, car spaces, entertainment, or reimburse private expenses, you might have an FBT liability.

The ATO has a list of FBT-exempt items (like work-related devices, protective clothing, and tools of the trade). If your business only provides these or benefits under $300, you likely don’t need to worry. But if you’re unsure, it’s worth reviewing your position – because not lodging an FBT return could mean penalties down the track.

Do you have FBT questions or want to ensure you’re not paying more tax than you need to? Let’s sort it out. Whether it’s exemptions, employee benefits, or record-keeping, we’ll help you navigate the rules without the headache. Give us a call, drop us an email, or book a quick chat today.