TL;DR
Fringe Benefits Tax (FBT) is a tax employers pay on certain non-salary benefits provided to employees or their associates. This guide explains what counts as a fringe benefit, how FBT is calculated, and the main categories the ATO recognises. Ideal for ANZ finance teams who need a clear, digestible overview.
Explore ProSpend’s FBT Management module
What Is a Fringe Benefits Tax?
FBT is a tax employers must pay when they provide certain non-cash benefits to employees or their associates (such as family members). These benefits sit outside regular salary and wages and are assessed under dedicated ATO rules.
What is a fringe benefit?
A fringe benefit is a non-cash advantage provided by an employer, such as a car, entertainment, loan, accommodation or reimbursed expense in addition to wages or under a salary-sacrifice arrangement. It can apply to the employee, their spouse or dependent children.
Who this guide is for (and the challenges you’re facing)
This guide is designed for CFOs, Finance Managers, Payroll teams and HR leaders across Australia and New Zealand who need clarity on FBT rules without navigating dense ATO documentation. Most teams struggle with:
- Understanding which benefits trigger FBT
- Keeping compliant records for audits
- Managing complex situations like vehicles, entertainment and mixed-purpose expenses
- Interpreting exemptions and concessions
- Calculating FBT consistently across entities and systems
- Tracking FBT-related expenses across AP, cards and reimbursed claims
Types of fringe benefits (ATO-recognised categories)
1. Vehicles, parking and tolls
FBT may apply when an employer provides:
- Private use of a passenger vehicle (fewer than nine seats, including 4WDs)
- Private use of a commercial vehicle beyond “limited private use”
- Car parking at or near the workplace
- Employer-paid road or bridge tolls relating to private travel
2. Entertainment
Food, drink and recreation can count as entertainment when its purpose is social or recreational. There’s no standalone “entertainment fringe benefit” category—entertainment is classified into one of four existing benefit types, depending on context.
3. Expense payment
Occurs when an employee incurs an expense and the employer either reimburses them or pays the supplier directly. Only employee-incurred expenses qualify.
4. Loan and debt waiver
- Loan fringe benefit: when an employer lends money below the statutory interest rate
- Debt waiver fringe benefit: when an employer forgives an employee’s loan
5. Accommodation and location-based benefits
Includes:
- Housing benefits (reduced or rent-free housing)
- Board
- Living-away-from-home allowances
- Remote area concessions
- Overseas employment concessions
- Relocation expense concessions
6. Property
Covers goods, real property and financial assets such as:
- Clothing, tech or household items
- Land or buildings
- Shares, bonds or crypto assets
7. Residual benefits
Anything that doesn’t fit the above categories—rights, privileges, services or facilities—often becomes a residual fringe benefit.
Who pays FBT and how FBT calculation works
Who pays FBT?
The employer pays FBT, not the employee.
How FBT is calculated
FBT is calculated by grossing up the taxable value of benefits. This represents how much pre-tax salary an employee would need (using the highest marginal tax rate) to purchase the benefit themselves.
Providing fringe benefits is legal and often strategic—helping employers attract and retain talent—so long as FBT obligations are properly managed and reported.
How FBT works in Australia (step-by-step)
Using ATO-aligned rules, an employer typically follows these steps:
Step 1 — Identify benefits provided
Capture all non-cash benefits across AP, cards, reimbursements, allowances, vehicles and entertainment.
Step 2 — Classify into FBT categories
Assign each benefit to one of the ATO categories (vehicle, loan, property, entertainment etc.).
Step 3 — Determine taxable value
Apply the ATO’s valuation rules (statutory formula, operating cost method, taxable value for property, etc.).
Step 4 — Apply exemptions and concessions
Check for:
- Minor benefits (<$300, infrequent)
- Remote area concessions
- Relocation concessions
- Work-related items
- Property vs entertainment distinctions
Step 5 — Gross-up and calculate FBT payable
Use Type 1 or Type 2 gross-up rates depending on whether the employer can claim GST credits.
Step 6 — Record keeping and reporting
Maintain records for seven years and report RFBA (reportable fringe benefits amounts) on employee payment summaries when thresholds are met.
Explore: The Essential FBT Holiday Guide
Key rules and exemptions (Australia)
Some of the most common ATO considerations include:
- Minor benefits exemption: less than $300 per benefit, infrequent and unreasonable to treat as fringe benefits.
- Work-related item exemptions: tools of trade, protective clothing, certain tech items.
- Property vs meal entertainment: meals on business travel vs meals for social functions.
- Car fringe benefit exemptions: certain commercial vehicles used for limited private use.
- Record-keeping expectations: written evidence, travel diaries, odometer readings, expense receipts.
Always refer to current ATO guidance for organisation-specific advice.
Example: Multi-entity organisation managing vehicle and entertainment benefits
A mid-market construction group operating across NSW and QLD provides dual-cab utes to supervisors and hosts quarterly team BBQs. Historically, the finance team tracked these benefits manually in spreadsheets, often missing distinctions between work travel, limited private use and entertainment. By centralising expenses and using proactive classification rules, they:
- Correctly separated meal entertainment from property benefits
- Applied the minor benefits exemption for small staff events
- Used logbook data to assess vehicle private use
- Reduced year-end adjustments and audit queries
Benefits for Australian organisations
- Clear visibility of taxable and exempt benefits
- Reduced compliance risk and fewer ATO queries
- Consistent classification across AP, cards and expenses
- Ability to forecast FBT liabilities ahead of year-end
- Better support for salary packaging and employee benefits
- Less manual effort and fewer spreadsheet calculations
How ProSpend helps simplify FBT management
ProSpend includes a dedicated FBT Management module designed for Australian FBT and GST rules.
Key capabilities include:
- 50/50 method: Automatically calculates FBT on half of total taxable meal entertainment.
- Actual method: Uses a smart attendee wizard to classify attendees and apply correct FBT.
- Groups: Create reusable attendee groups and FBT splits for consistent classification.
- Multiple tax rates: Apply different rates per item or update full transactions in one step.
- Full audit trail: Track, record and export all FBT-linked spend for AP, cards and expenses.
Book a demo to see ProSpend’s FBT module in action
FAQs
1. Is FBT the same as income tax?
No. FBT is separate from income tax and is paid by employers on certain non-cash benefits.
2. Who receives fringe benefits?
Employees, directors, and trust beneficiaries who work in the business, along with their associates (spouses, children).
3. Are sole traders or partners subject to FBT?
Generally no, because they are not considered employees for FBT purposes.
4. What is a reportable fringe benefits amount (RFBA)?
The amount shown on an employee’s payment summary when their reportable benefits exceed the ATO threshold.
5. Do all entertainment expenses attract FBT?
No. Business travel meals, certain property benefits and minor benefits may be exempt.
6. What’s the difference between the 50/50 method and the Actual method?
50/50 applies FBT to half of all meal entertainment. The Actual method calculates taxable amounts based on attendee types. Read the complete guide here.
7. How long must FBT records be kept?
Seven years, including receipts, travel diaries and classification records.
8. Can software help automate FBT?
Yes, platforms like ProSpend streamline classification, apply rules and simplify reporting.
Related Reading:
Conclusion
Fringe Benefits Tax can feel complex, especially when you’re juggling multiple benefit types, exemptions and reporting obligations across AP, cards and reimbursed expenses. But with the right structure and the right tools, FBT becomes far more manageable. By understanding the main categories and applying consistent classification, your finance team can stay compliant, reduce manual effort and gain far clearer visibility throughout the FBT year.
If you want to simplify FBT even further, ProSpend’s FBT module gives you automated rules, attendee logic and accurate reporting designed specifically for Australian organisations.
Book a demo to see how ProSpend can streamline your FBT management
