The Fringe Benefits Tax (FBT) year ends on 31 March 2026. For employers who provide vehicles, entertainment, salary packaging or other non-cash benefits to staff, this date marks the cut-off for the 2025–26 FBT year. The FBT rate is high, sitting at 47% and why opportunities to manage your FBT position should be considered before 31 March.
This year the ATO’s approach has shifted from compliance to enforcement. The ATO has confirmed that reducing the FBT gap is an active priority to which enhanced data analytics, risk profiling and targeted audit programs will be deployed. Employers who underreport or fail to report fringe benefits are in the ATO crosshairs. Vehicle-related benefits, entertainment expenses and nil lodgements are receiving particular attention.
FBT returns are due by 21 May 2026 for paper lodgements or 25 June 2026 if lodging electronically through a registered tax agent. Here are five areas your business should review before 31 March 2026.
1. Motor vehicles and private use
Vehicle-related fringe benefits remain one of the most common areas where employers make errors, and the ATO has made this a specific compliance focus for 2025–26.
The ATO now cross-references data from state motor vehicle registries, payroll records and FBT lodgements to identify businesses that register vehicles in a company name but have not lodged an FBT return. Where a vehicle is garaged at or near an employee’s home, the ATO treats it as available for private use, regardless of whether the employee has permission to use it privately.
The areas under closest scrutiny include:
- Employers who have never lodged an FBT return despite providing vehicles for private use.
- Incorrect application of exemptions, particularly the assumption that dual-cab utes are automatically exempt from FBT. To qualify for exemption, a vehicle must be designed to carry a load of one tonne or more, or carry more than eight passengers, and private use must be limited.
- Invalid or expired logbooks. A logbook must be kept in the prescribed form, cover a continuous 12-week period, and be renewed at least every five years or when there is a change in the pattern of vehicle use.
- Incorrect apportionment of usage, such as treating the commute between home and work as business travel.
Action before 31 March: Record odometer readings for every employer-provided vehicle on 31 March 2026. A practical approach is to ask employees to photograph the reading on their phone and send it to a central contact. Confirm that all logbooks are current, complete and reflect actual usage patterns.
2. Plug-in hybrid electric vehicles
The FBT exemption for electric vehicles continues to apply to eligible zero and low-emission vehicles. However, from 1 April 2025, plug-in hybrid electric vehicles (PHEVs) no longer qualify for this exemption unless transitional provisions apply.
For a PHEV arrangement to retain its exemption, the use of the vehicle must have been exempt before 1 April 2025, and a financially binding commitment to continue providing private use of the vehicle must have been in place before that date. Any break or material change to the arrangement on or after 1 April 2025 will generally end the exemption.
The government has also commenced a review of the electric car discount to assess whether the exemption should continue in its current form, and what types of vehicles should attract the concession going forward. Public submissions opened in December 2025.
For employers with eligible battery electric vehicles, Practical Compliance Guideline PCG 2024/2 provides a shortcut method for calculating home charging costs at 4.20 cents per kilometre. Vehicles must meet the eligibility requirements set out in the guideline to use this method.
Action before 31 March: Review any PHEV arrangements in your fleet. If a vehicle was exempt before 1 April 2025, confirm that the financially binding commitment remains in place and that no changes have been made to the arrangement. If the exemption no longer applies, ensure FBT is calculated and reported.
3. Entertainment expenses and the deduction mismatch
One of the most straightforward ways the ATO identifies FBT compliance gaps is through data mismatches between income tax returns (ITRs) and FBT returns. Entertainment expenses are a common source of these mismatches.
The general rule is that entertainment expenses, such as meals at restaurants, are not deductible for income tax purposes and GST credits cannot be claimed unless the expense is subject to FBT. Put plainly, if you claim a deduction for an entertainment expense, you should be accounting for FBT. If no FBT applies, no deduction should be claimed.
Where this commonly goes wrong:
- A business takes clients and staff to lunch. The business claims a deduction for the full cost. The client component is not subject to FBT (benefits to clients fall outside the FBT system). However, the employee component may give rise to an FBT liability depending on the value per head, the frequency of the benefit and the valuation method used.
- Under the “actual” method, benefits to employees valued at less than $300 per occasion, provided on an infrequent and irregular basis, may qualify for the minor benefits exemption and have no FBT consequence. But if the business uses the 50/50 method for meal entertainment, the minor benefits exemption does not apply, and 50% of the total meal entertainment expense will be subject to FBT.
- Some businesses classify entertainment expenses as marketing or advertising to claim deductions, without recognising the FBT implications for any employee component.
Action before 31 March: Review entertainment expenditure for the year. Confirm that the treatment of entertainment in your ITR is consistent with your FBT position. Where entertainment has been provided to a mix of clients and employees, ensure the employee portion has been properly assessed for FBT purposes.
4. Nil lodgement and non-lodgement
The ATO has identified nil lodgements and non-lodgements as a specific area of focus. Where a business employs staff and has never lodged an FBT return, the ATO’s data-matching capabilities can now flag this as a potential concern, particularly where the business has registered vehicles or provides salary packaging arrangements.
A nil lodgement is appropriate where a business has assessed its position and determined that the taxable value of fringe benefits provided is genuinely nil. This may be the case where only exempt benefits have been provided, such as portable electronic devices, protective clothing or tools of trade used primarily for work.
However, the ATO has cautioned employers to carry out a proper assessment before lodging a nil return. Simply assuming that no benefits have been provided, or that all benefits are exempt, is a common error that can lead to compliance action. Where no FBT return has been lodged, the ATO has an unlimited review period to issue an assessment.
For this reason, it is worth considering lodging an FBT return each year, even if the result is nil. This starts the standard amendment period and provides a clear record of the business’s assessed position.
Action before 31 March: If your business has employees and has not previously lodged an FBT return, review whether any benefits have been provided during the year. This includes vehicles available for private use, entertainment, reimbursed private expenses, car parking, low-interest loans and salary packaging arrangements.
5. Employee contributions and record-keeping
Employee contributions are one of the primary ways employers reduce their FBT liability. An after-tax payment made by an employee towards the cost of a benefit can reduce the taxable value for FBT purposes.
Where employee contributions are made by journal entry through the accounting system rather than by direct cash payment, the ATO requires specific conditions to be met for the contribution to be effective. The employee must have a genuine obligation to make the payment, the journal entry must be made before the end of the FBT year, and the arrangement must be properly documented. Journal entries made after 31 March will generally not be accepted as valid employee contributions for the FBT year that has closed.
The ATO has also noted that reporting employee contributions at the wrong label on the FBT return creates a mismatch in ATO data and may trigger a review. Employee contributions should be reported at income label 6I for companies, and at label 46T in the business and professional items schedule for trusts.
Broader record-keeping requirements apply across all categories of fringe benefits. Records must generally be retained for five years from the date the FBT return is lodged.
Action before 31 March: Confirm that all employee contribution arrangements are properly documented and that journal entries have been processed before 31 March. Ensure employee declarations are up to date and that records supporting claims for exemptions or reductions are complete and accessible.
Looking ahead: Payday Super and the broader compliance environment
The FBT year-end falls within a period of broader change for employer obligations. Payday Super commences on 1 July 2026, requiring employers to pay superannuation contributions within seven business days of each payday rather than quarterly. The ATO has released PCG 2026/1 setting out its first-year compliance approach and a preparation checklist identifying March 2026 as part of the transition planning window.
For businesses reviewing their FBT position, this is also an appropriate time to assess payroll system readiness, cash flow planning and governance processes ahead of the Payday Super start date.
How Moore Australia can help
Moore Australia’s tax and business advisory services team assists employers with FBT compliance reviews, return preparation and strategic planning to manage FBT exposure. Our advisers can review your current arrangements, identify areas of risk and ensure your business is prepared for 31 March.
If you would like to discuss your FBT obligations or need assistance ahead of 31 March, contact your local Moore Australia adviser.
