Fringe benefits tax (FBT) is the tax that stops the oldest trick in the payroll book: paying people in perks instead of wages to dodge income tax. It’s paid by employers — not employees — on non-cash benefits provided to staff, from company cars and cheap loans to gym memberships and school fees. For the 2025-26 FBT year the rate is 47%, and it applies to the grossed-up value of benefits, which makes the real cost higher than most employers expect. This guide explains how FBT is calculated with worked examples, the 2025-26 rates and thresholds, the exemptions (including the electric vehicle rules), and what FBT means for employees.
Rates below are from the ATO’s Fringe benefits tax – rates and thresholds page for the FBT year ending 31 March 2026. Note the FBT year runs 1 April to 31 March — not the standard income-tax financial year. If you’re structuring your own pay package, our salary sacrifice calculator helps you compare salary packaging options.
What is FBT and who pays it?
FBT is a separate tax from income tax. When an employer provides a fringe benefit — a car for private use, an interest-free loan, paid school fees, entertainment — the ATO treats it as a substitute for wages and taxes the employer accordingly. The employee doesn’t pay FBT, but the benefit’s reportable fringe benefits amount can appear on their income statement and affect other calculations (more on that below).
The 47% rate is deliberately set to mirror the top personal tax rate (45%) plus the 2% Medicare levy. The design goal: providing a benefit should cost roughly the same as paying the equivalent amount as salary to a top-bracket employee.
| Item | 2025-26 FBT year (1 Apr 2025 – 31 Mar 2026) |
|---|---|
| FBT rate | 47% |
| Type 1 gross-up rate (GST-creditable benefits) | 2.0802 |
| Type 2 gross-up rate (non-GST-creditable benefits) | 1.8868 |
| Car statutory percentage | 20% of base value |
| Benchmark interest rate (loans) | 8.62% |
| Car parking threshold | $11.03 per day |
| Reportable fringe benefits threshold | $2,000 taxable value |
| Minor benefits exemption | Under $300 per benefit, infrequent |
| FBT return due (self-lodged) | 21 May 2026 |
| FBT return due (via tax agent) | 25 June 2026 |
How FBT is calculated: the gross-up explained
FBT isn’t charged on the raw cost of the benefit — it’s charged on the grossed-up taxable value. The gross-up answers the question: how much pre-tax salary would the employee have needed to buy this benefit themselves after paying income tax and GST? Two rates apply:
- Type 1 (2.0802): benefits where the employer could claim a GST credit — e.g. a company car bought by a GST-registered business.
- Type 2 (1.8868): benefits with no GST credit — e.g. an interest-free loan, or benefits involving GST-free supplies.
Worked example — company car. An employer provides a car with a taxable value of $8,000 for the FBT year (Type 1 benefit):
- Grossed-up value: $8,000 × 2.0802 = $16,642
- FBT payable: $16,642 × 47% = $7,822
Providing an $8,000 benefit costs the employer nearly $7,822 in tax on top — almost doubling the cost. This is why FBT planning matters: structuring benefits badly can make a “cheap” perk very expensive.
The most common fringe benefits
Car fringe benefits
The most common FBT category. If a business-owned or leased car is available for an employee’s private use — including driving to and from work — it’s a car fringe benefit. The taxable value is calculated two ways, and the employer can choose the lower:
- Statutory formula: 20% of the car’s base value × days available ÷ 365. No logbook needed. Best for high private use and simple record-keeping.
- Operating cost method: actual running costs × private-use percentage from a 12-week logbook. Best for low private use, but requires rigorous records.
Example. A $55,000 car available all year: statutory method gives a taxable value of $11,000 (20% × $55,000). As a Type 1 benefit: $11,000 × 2.0802 = $22,882 grossed-up; FBT = $10,755. With a logbook showing only 15% private use and $14,000 in running costs, the operating-cost value would be just $2,100 — FBT of $2,053. The logbook saves over $8,700.
Loan fringe benefits
Interest-free or low-interest loans to employees. The taxable value is the interest the employee would have paid at the ATO’s benchmark rate of 8.62%, minus any interest actually paid. A $50,000 interest-free loan for a full year creates a taxable value of $4,310 (Type 2: grossed up at 1.8868 → $8,132; FBT = $3,822).
Car parking, entertainment and housing
- Car parking: employer-provided parking near work is a benefit if the daily fee value exceeds $11.03 and other conditions are met.
- Entertainment: food, drink and recreation provided to employees — the minor benefits exemption (under $300, infrequent and irregular) is the main shelter here, and getting it wrong is an ATO audit focus area.
- Housing and living-away-from-home allowances: accommodation and certain relocation benefits, with specific exemptions and concessions.
Exemptions: the big ones
- Electric vehicles: eligible battery-electric and hydrogen fuel-cell cars remain FBT-exempt. But plug-in hybrids (PHEVs) lost their exemption from 1 April 2025 — a key 2025-26 change that has caught many salary-packaging arrangements.
- Minor benefits: benefits under $300 provided infrequently and irregularly — the classic Christmas party shelter (though entertainment has special rules).
- Work-related items: portable electronic devices, protective clothing, tools of trade and similar items primarily used for work.
- Remote area benefits: certain housing, fuel and transport benefits for employees in remote areas.
- Not-for-profit concessions: public benevolent institutions, health promotion charities, public and not-for-profit hospitals can access FBT rebates or capped exemptions — a major salary-packaging advantage in those sectors.
What FBT means for employees
Employees don’t pay FBT — but they’re not unaffected. If the taxable value of certain fringe benefits you receive exceeds $2,000 in the FBT year, your employer must report a reportable fringe benefits amount (RFBA) on your income statement. The RFBA:
- Counts toward your adjusted taxable income for HECS/HELP repayments, the Medicare Levy Surcharge, childcare subsidy and private health insurance rebate thresholds.
- Can push you over a threshold you thought you were safely under — a $3,000 car benefit grossed up becomes roughly $6,240 of reportable income.
- Does not itself attract income tax — but its knock-on effects can cost you real money.
If you’re salary packaging, always ask for the grossed-up reportable amount, not just the benefit value, when checking whether you’ll cross a threshold.
Compliance: dates and record-keeping
- 1 April 2025 – 31 March 2026: the FBT year you’re accounting for.
- 21 May 2026: FBT return and payment due if self-lodging.
- 25 June 2026: extended deadline when lodging through a registered tax agent (the agent must be appointed by 21 May).
- Quarterly instalments: if your FBT liability last year was $3,000 or more, you’ll need to pay four quarterly instalments.
The ATO has flagged FBT as a compliance focus: it estimates it collects only about 65% of the FBT it should. Car benefits, entertainment, salary packaging arrangements and nil lodgments are the current audit priorities. Keep logbooks, declarations and receipts for five years.
Frequently asked questions
Do employees pay fringe benefits tax?
No. FBT is paid by the employer. However, reportable fringe benefits above $2,000 appear on your income statement and can affect HECS repayments, the Medicare Levy Surcharge and other income-tested benefits.
What is the FBT rate for 2025-26?
47%, applying to the FBT year from 1 April 2025 to 31 March 2026. The Type 1 gross-up rate is 2.0802 and Type 2 is 1.8868.
Are electric cars still exempt from FBT?
Eligible battery-electric and hydrogen fuel-cell vehicles are still exempt. Plug-in hybrids lost the exemption from 1 April 2025.
Is salary packaging subject to FBT?
Often yes — salary-packaged cars, laptops for private use and similar benefits can attract FBT, which the employer usually passes on by reducing the packaged amount. Exempt items (like the eligible EVs above) are the most valuable things to package.
What’s the difference between Type 1 and Type 2 gross-up?
Type 1 (2.0802) applies where the employer could claim a GST credit on the benefit; Type 2 (1.8868) applies where no GST credit was available, such as interest-free loans.
When is the 2026 FBT return due?
21 May 2026 for self-lodgers; 25 June 2026 if lodging through a registered tax agent appointed by 21 May.
Conclusion
Fringe benefits tax rewards one habit above all: planning before you provide. The 47% rate on grossed-up values means a poorly structured $8,000 car benefit can cost nearly $7,822 in tax, while the same benefit delivered as an exempt electric vehicle costs nothing. For employers, the 2025-26 priorities are clear — review PHEV arrangements (the exemption is gone), keep logbooks current, and lodge by 21 May (or 25 June via an agent). For employees, the watch item is the $2,000 reportable threshold and its knock-on effects on HECS, surcharge and subsidies.
If you’re weighing up a salary package, run the numbers first: our salary sacrifice calculator compares packaging options, and the income tax calculator shows your overall position. And because FBT sits at the intersection of payroll, GST and income tax, professional advice pays for itself the first time it prevents a misclassified benefit.