Fringe Benefits Tax 2026 – what business owners need to review before 31 March

FBT year end is approaching – are you exposed?

It’s that time of year again.

The Fringe Benefits Tax (FBT) year wraps up on 31 March – and while it’s not always front of mind, it’s an area where small assumptions can turn into expensive surprises.

Each year we speak with business owners who are confident they “don’t really have an FBT issue” – only to discover that vehicles, entertainment, or contractor arrangements have created exposure they weren’t aware of.

The ATO continues to increase its use of data analytics and targeted reviews in this space. So before the year closes out, it’s worth taking a fresh look.

Here are the key areas we’re discussing with clients this March.

Electric vehicles – what’s changed?

The FBT exemption for electric vehicles (EVs) continues to provide opportunities – but the rules are tightening.

An FBT exemption may apply where:

the employer owns or leases the vehicle
the vehicle is a zero or low emission vehicle (battery electric or hydrogen fuel cell)
it was first held and used on or after 1 July 2022
the value is below the luxury car tax threshold for fuel-efficient vehicles ($91,387 for 2025–26)

Plug-in hybrids – no longer automatically exempt

From 1 April 2025, plug-in hybrid electric vehicles are no longer eligible for the exemption unless:

the exemption applied before 1 April 2025, and
there is a financially binding commitment to continue providing the vehicle.

Any break or change to that commitment can remove the exemption.

If your business provides EVs, it’s worth reviewing agreements now rather than assuming the exemption still applies.

Work vehicles – the ATO is watching closely

Vehicle benefits remain one of the highest FBT risk areas.

The ATO is actively reviewing businesses that:

fail to lodge FBT returns while providing vehicles
assume dual-cab utes are automatically exempt
don’t maintain valid logbooks
incorrectly treat private travel as business use

A key point many employers miss is that if a vehicle is garaged at or near an employee’s home, it is generally considered available for private use – even if private use is not permitted. That alone can create an FBT exposure.

We are seeing more cases where invalid logbooks result in the ATO applying the statutory formula method – often increasing the tax payable.

Contractors – are they really contractors?

FBT generally applies to employees, not genuine independent contractors.

However, the distinction is not always straightforward.

The ATO’s current guidance focuses heavily on the written contract. Simply labelling someone a “contractor” does not determine the outcome.

Risk is lower where:

there is a comprehensive written agreement
both parties understand and agree to the classification
the arrangement operates consistently with the contract
tax, super and reporting obligations are correctly met

Even where a worker is a genuine contractor, there may still be superannuation or payroll tax implications.

If your contractor arrangements haven’t been reviewed recently, this is a worthwhile exercise before 31 March.

Entertainment – the mismatch trap

Entertainment is one of the easiest areas for the ATO to identify discrepancies.

A common issue is claiming a deduction for entertainment expenses without considering the FBT implications.

For example:

if you take a client to lunch and the value per person is under $300, the minor benefits exemption may apply under the “actual” method.
however, this usually means the expense is not deductible and no GST credits are claimable.

Under the 50/50 method:

50 per cent of meal entertainment is subject to FBT
50 per cent becomes deductible
50 per cent of GST credits can be claimed

The method used can materially change the outcome.

Employee contributions – journal entries require care

Many businesses use after-tax employee contributions to reduce the taxable value of benefits.

Where these are made by journal entry rather than cash, the arrangement must be carefully documented and completed before financial accounts are finalised.

The ATO has raised concerns about: