FBT 2025: What you need to know

As the Fringe Benefits Tax (FBT) year draws to a close on 31 March, it’s essential for employers and employees to stay informed about key updates and changes. Here’s what you need to be aware of for the 2025 FBT year.

FBT Exemption for Electric Vehicles (EVs)

Employers who provide eligible electric vehicles (EVs) for employee use may qualify for an FBT exemption. To be eligible, the following conditions must be met:

• The vehicle must be a zero or low-emission car (battery electric, hydrogen fuel cell, or plug-in hybrid electric).

• The car must be both first held and used on or after 1 July 2022.

• The value of the car must be below the luxury car tax threshold for fuel-efficient vehicles ($89,332 for the 2024-25 financial year).

Plug-in Hybrid Vehicles No Longer Exempt

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

• The exemption applied before 1 April 2025, and

• A financially binding commitment exists to continue providing private use of the vehicle on and after this date.

Any break or change to this commitment after 1 April 2025 would generally remove the exemption.

Working with the Exemption

Even when the FBT exemption applies, businesses must still determine the taxable value of the benefit for reporting purposes. The value of the exempt benefit affects the employee’s reportable fringe benefits amount, which may impact Medicare levy surcharges, private health insurance rebates, employee share scheme reductions, and social security payments.

To simplify calculations, the ATO has issued a guideline allowing a 4.20 cent per km shortcut rate for determining electricity costs related to charging EVs at home. However, this does not apply to plug-in hybrid vehicles. Additionally, while many EV packages include home charging stations, these are not covered under the FBT exemption.

Providing Equipment for Remote Work

With flexible work arrangements becoming the norm, businesses often provide employees with work-related equipment. If these items are used primarily for work, they may be exempt from FBT.

Portable electronic devices such as laptops and mobile phones typically do not trigger FBT liabilities. Small businesses with an aggregated turnover of less than $50 million can provide multiple similar items within a single FBT year without incurring FBT, a threshold increase from the previous $10 million limit.

If an employee uses business-provided equipment for personal reasons, FBT may apply, but the liability can be reduced based on the percentage of business use.

FBT and Independent Contractors

FBT generally applies to employees and officeholders, such as company directors, but not to independent contractors. However, it’s crucial to ensure that your contractors are genuinely independent.

Are Your Contractors Truly Independent?

Following two landmark High Court rulings, the ATO has issued guidance (TR 2023/4) to help businesses determine whether a worker is an employee or an independent contractor. Key considerations include:

• The written contract must define the relationship, not just the working arrangements.

• Simply labeling a worker as an independent contractor is not enough—contract terms must support this classification.

The ATO has also released guidelines (PCG 2023/2) categorizing arrangements into four risk levels. Lower-risk classifications have:

• Clear evidence of agreement on worker classification.

• A comprehensive written contract.

• An understanding of classification consequences.

• No major deviations from contract terms.

• Professional advice confirming the classification.

• Proper tax, superannuation, and reporting compliance.

Even when a worker is a genuine independent contractor, businesses may still have obligations, such as superannuation and payroll tax.

Reducing FBT Record-Keeping Burden

From 1 July 2024, businesses can choose between the traditional FBT record-keeping methods and using existing business records where they meet legislative requirements. This change applies to various declarations, including:

• Travel diaries

• Living-away-from-home declarations

• Otherwise deductible expense declarations

Check the ATO legislative instruments for full details.

FBT Housekeeping Tips

Keeping accurate FBT records can be challenging, especially when employees must submit documentation. If your business provides cars, ensure odometer readings are recorded on 31 March and 1 April. A simple way to do this is by having employees take a photo and send it to a designated contact.

Common FBT Risk Areas

Mismatched Claims for Entertainment

The ATO monitors discrepancies between entertainment expenses and FBT reporting. Meals in restaurants, for example, are generally not deductible unless subject to FBT.

• Using the actual method: Benefits provided to clients are not subject to FBT, and minor employee benefits (under $300) are usually exempt, but deductions and GST credits cannot be claimed.

• Using the 50/50 method: 50% of entertainment expenses are subject to FBT, making 50% deductible and eligible for GST credits.

Employee Contributions via Journal Entries

Many businesses use after-tax employee contributions to reduce FBT liabilities. While journal entries can be valid, they must be properly structured:

• Employees must have a contractual obligation to contribute.

• The employer must have a matching obligation to pay the employee (e.g., a bonus or loan).

• Both parties must agree to offset these amounts.

• Journal entries must be recorded before finalizing financial accounts.

Failure to document these arrangements properly can result in unexpected FBT liabilities.

Failure to Lodge FBT Returns

The ATO has raised concerns that some businesses are not lodging required FBT returns. If your business provides any of the following, you may have an FBT obligation:

• Company cars and parking spaces

• Reimbursement of private expenses

• Entertainment benefits (e.g., meals, tickets)

• Employee discounts

Exempt benefits, such as work-related portable electronic devices and tools of trade, generally do not require FBT reporting.

Make sure you’ve completed our FBT Client Questionnaire to ensure compliance.

Note: The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone. 

If expert assistance is required, Contact the team @ Clear Accounting Solutions to run you through your options