Everything You Need to Know About Fringe Benefits Tax

As a business owner, you’ve invested significant time, effort, and resources into growing your business. But when it comes to Fringe Benefits Tax (FBT), it’s an area you might not have fully tackled yet. Understanding and managing your FBT obligations is not just about compliance; it’s an opportunity to refine your financial strategies, minimise tax liabilities, and avoid unnecessary stress. With the end of the FBT year approaching (31 March 2025), now is the time to review your FBT responsibilities and ensure everything is in order.

What is Fringe Benefits Tax (FBT)?

Australian employers pay Fringe Benefits Tax (FBT) on non-cash benefits provided to employees or their associates (e.g., family members) in addition to their regular salary or wages. Common fringe benefits include the use of company cars, car parking, entertainment, private health insurance premiums, loans, housing assistance, gym memberships, and more. Essentially, if you offer any perks to employees, you need to be aware of FBT and how it affects your business.

Key Dates for FBT Returns

FBT returns are due on 21 May each year, following the end of the FBT year on 31 March. If you lodge your return electronically through a tax agent, the deadline is generally extended to 25 June. However, to qualify for the extension, you must be added to your tax agent’s FBT client list by 21 May. If the due date falls on a weekend or public holiday, the deadline shifts to the next business day, so always plan ahead to avoid last-minute stress.

Who Needs to Lodge an FBT Return?

All businesses providing fringe benefits to employees must assess their FBT obligations. Even if no FBT is payable, a nil return should be lodged to confirm compliance and avoid audits. Many businesses overlook this and end up facing compliance issues down the track. The Australian Taxation Office’s (ATO) audit window is three years. Without this, audits can extend indefinitely, making it a valuable safeguard for both your team and your clients

How to Prepare for Your FBT Return

Preparation is key to staying on top of your FBT obligations and avoiding penalties. Here are the essential steps:

1. Review all benefits provided: Go through the list of perks given to employees, such as cars, loans, housing, and entertainment.
2. Check exemptions: Some benefits, like laptops or mobile phones, are exempt from FBT if used primarily for work purposes. Ensure you meet the criteria for these exemptions.
3. Track vehicle use: If providing company cars, keep logbooks and track odometer readings to determine private vs. business use, which will impact your FBT calculations.
4. Consider salary packaging: Salary packaging can help reduce FBT liabilities, particularly for eligible electric vehicles (EVs), which continue to be exempt from FBT. Note that from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify for the exemption, so review your contracts.
5. Lodge your return on time: Even if no FBT is owed, lodging a nil return confirms your compliance with the ATO.
6. Consult with your accountant: Given the different deadlines for businesses using tax agents and those lodging directly, seeking advice early can ensure you meet all obligations.

Common FBT Mistakes to Avoid

FBT can be complex, and many businesses make simple errors that lead to penalties. Common mistakes include:

• Not tracking entertainment expenses: Meals, tickets, and client events may still be subject to FBT unless specifically exempt. Keep detailed records.
• Incorrectly claiming work-related exemptions: Ensure items like phones or laptops are used primarily for work to qualify for FBT exemptions.
• Overlooking directors: Directors who receive non-cash benefits may also trigger FBT liabilities.
• Poor record-keeping: Inaccurate or incomplete records, such as vehicle use or car parking, can cause problems during the ATO review. Make sure your records are up-to-date.

Consequences of Non-Compliance

Failing to properly manage your FBT obligations can expose your business to a variety of risks. Penalties for non-compliance manifest as financial sanctions imposed by the ATO, often calculated as a percentage of the unpaid tax, and can escalate with repeated or deliberate offences.

Increased tax liabilities stem from reporting errors, such as understating their value or neglecting to apply for eligible exemptions, leading to a substantial retroactive tax bill. 

• Furthermore, the discovery of non-compliance during an audit can severely damage a company’s reputation. Public scrutiny and loss of trust from clients, investors, and employees can result from the perception of financial mismanagement or unethical practices. This reputational damage can have long-lasting effects, impacting business relationships, future opportunities, and overall market standing.

To mitigate these risks, a proactive mindset is essential. One key area to focus on is record-keeping. Proper documentation of the fringe benefits provided— including the nature of the benefit, its value, and dates—is vital for ensuring compliance and avoiding errors that could lead to higher liabilities.

Tips for Effective FBT Record-Keeping and Management

To safeguard your business, consider these strategies:

1. Prioritise record-keeping: Maintain a reliable system to track all fringe benefits provided, ensuring you have complete and accurate records.
2. Seek exemptions and concessions: Familiarise yourself with available exemptions and concessions under FBT law. For example, electric vehicles (EVs) remain exempt, so if your business uses them, make sure your vehicle use meets the criteria for FBT exemption.
3. Engage professional valuation services: For fringe benefits that are harder to value, such as property or entertainment, professional valuation services can help ensure accurate calculations and compliance.
4. Review regularly: Conduct regular reviews and audits of your FBT processes to identify and address issues before they become larger problems.

Key Considerations for the 2025 FBT Year-End

As the end of the FBT year approaches (31 March 2025), businesses must assess their FBT obligations, even if no FBT is owed. A nil return should be lodged to confirm compliance. Some key considerations for the 2025 FBT year-end include:

Electric vehicle FBT exemption

The FBT exemption for eligible electric vehicles (EVs) is still in effect, but from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will no longer qualify. Businesses should review their contracts for PHEVs and ensure they meet the exemption criteria.

Proposed $20,000 entertainment deduction

A proposed tax deduction for business-related entertainment expenses could significantly benefit small businesses, though this is still pending legislation.

Final Steps Before the Deadline

To ensure a smooth FBT return process, consider these final steps:

1. Review prior year records: Use data from previous FBT returns to assess odometer readings, car parking locations, and loan balances.
2. Request information early: Reach out to departments or external parties early for necessary data to avoid delays.
3. Seek professional advice: FBT can be complex, and seeking expert guidance will help ensure compliance and prevent overpayment.

With the 21 May deadline fast approaching, it’s crucial to start preparing your FBT return now. By reviewing your records, tracking all benefits, and consulting with an accountant, you can ensure compliance and avoid unnecessary tax liabilities. Don’t leave it to the last minute; early preparation will help reduce stress and ensure your business is in good standing with the ATO.

Need help with your FBT return? Contact us today for expert guidance and support, or if you’re eager to stay ahead of the curve by anticipating shifts and adapting strategies for your business, download our eBook.