FBT 2025: What you need to know

Clarke McEwan Accountants

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT exemption for electric cars

Employers that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
The car is both first held and used on or after 1 July 2022; and
The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $89,332 for 2024-25 financial year).

Plug-in hybrid vehicles no longer FBT exempt

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

The use of the vehicle was exempt before 1 April 2025, and
There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption normally won’t be available any more.

Working with the exemption

Even if the FBT exemption applies, your business will still need to work out the taxable value of the benefit as if the FBT exemption didn’t apply. This is because the value of the exempt benefit is still taken into account when calculating the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments).

This means the employee’s own home electricity costs incurred on charging the electric vehicle will often need to be worked out. This figure can generally be treated as an employee contribution to reduce the value of the benefit.

While this can be practically difficult to determine, the ATO has issued some guidelines that provide a 4.20 cent per km shortcut rate that can potentially help with the calculation. These guidelines do not apply to plug-in hybrid vehicles.

Many electric vehicles are also packaged together with electric charging stations. Just be aware that the FBT exemption for electric cars does not extend to charging stations provided at the employee’s home.

Providing equipment to work from home

Many businesses continue to offer flexible work from home arrangements. employees are often provided with work-related items to assist them to work from home. In general, where work related items are provided to employees and used primarily for work, FBT shouldn’t apply.

For example, portable electric devices such as laptops and mobile phones provided to employees shouldn’t trigger an FBT liability as long they are primarily used by your employees for work. Multiple similar items can also be provided during the FBT year where required – for example multiple laptops have been provided to the employee – but only if the business has an aggregated turnover of less than $50m (previously, this threshold was less than $10m).

If the employee is using equipment provided by the business for their own private use, normally FBT would apply to the private use. However, the FBT liability can be reduced based on the business use percentage.

Does FBT apply to your contractors?

The FBT rules tend to apply when benefits are provided to employees and certain office holders, such as directors. FBT should not apply when benefits are provided to genuine independent contractors but, you need to be sure that your contractors are in fact contractors.

Are your contractors really contractors?

Following two landmark decisions handed down by the High Court, the ATO has now finalised a ruling TR 2023/4 that helps determine whether a worker is an employee or an independent contractor.

If the parties have entered into a written contract, then you need to focus on the terms of that contract to establish the nature of the relationship (rather than looking at the conduct of the parties). However, merely labelling a worker as an independent contractor doesn’t necessarily mean that they won’t be treated as an employee if the terms of the contract suggest that the parties have entered into an employment relationship.

The ATO has also issued PCG 2023/2 that sets out four risk categories. Arrangements will tend to be viewed in a more favourable light where:

There is evidence to show that you and the worker have agreed on the classification;
There is a comprehensive written agreement that governs the relationship;
There is evidence that you and the worker understand the consequences of the classification;
The performance of the arrangement hasn’t deviated significantly from the terms of the contract;
Specific advice has been sought confirming that the classification is correct; and
Tax, superannuation, and reporting obligations have been met when the worker is classified as an employee or independent contractor (whichever relevant).

If your business employs contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.

Even when a worker is a genuine independent contractor, just remember that this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.

Reducing the FBT record keeping burden

Record keeping for FBT purposes can be onerous. From 1 July 2024 however, your business will have a choice to keep using the existing FBT record keeping methods, use existing business records where those records meet the requirements set out by the legislative instrument, or a combination of both methods:

Travel diaries – see LI 2024/11
Living-away-from-home-allowance – FIFO/DIDO declarations – see LI 2024/4
Living-away-from-home – maintaining an Australian home declaration – See LI 2024/5
Otherwise deductible rule – expense payment, property or residual benefit declaration – See LI 2024/6
Otherwise deductible rule – private use of a vehicle other than a car declaration – See LI 2024/7
Car travel to an employment interview or selection test declaration – See LI 2024/14
Remote area holiday transport declaration – See LI 2024/10
Overseas employment holiday transport declaration – See LI 2024/13
Car travel to certain work-related activities declaration – See LI 2024/9
Relocation transport declaration – See LI 2024/12
Temporary accommodation relating to relocation declaration – See LI 2024/8

FBT housekeeping

It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.

The top FBT risk areas

Mismatched claims for entertainment – claimed as a deduction but no FBT

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses related to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

Let’s say you taken a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there should not be any FBT implications. This is because benefits provided to client are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits.

Employee contributions by journal entry in the accounts

Many businesses use after-tax employee contributions to reduce the value of fringe benefits. It is also reasonably common for these contributions to be made by journal entry through the accounting system only (rather than being paid in cash).

While this can be acceptable if managed correctly, the ATO has flagged numerous concerns including whether journal entries made after the end of the FBT year are valid employee contributions.

For an employee contribution made by way of journal entry to be effective in reducing the taxable value of a benefit, all of the following conditions must be met:

The employee must have an obligation to make a contribution to the employer towards a fringe benefit (i.e., under the employee’s remuneration agreement);
The employer has an obligation to make a payment to the employee. For example, the parties may agree that the employer will lend an amount to the employee or the employee might be entitled to a bonus that hasn’t been paid yet. If a loan is made by the employer then this could trigger further tax issues that need to be managed;
The employee and employer agree to set-off the employee’s obligation to the employer against the employer’s obligation to the employee; and
The journal entries are made no later than the time the financial accounts are prepared for the current year (i.e., for income tax purposes).

Failing to ensure that arrangements involving fringe benefits and employee contributions are clearly documented can lead to problems. For example, the ATO may ask to see evidence of the fact that the employer is actually under an obligation to make contributions towards a fringe benefit. If there is no evidence, then significant FBT liabilities could arise.

Not lodging FBT returns

The ATO is concerned that some employers are not lodging FBT returns when required to.

If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential to ensure that the position is reviewed to check whether the business could potentially have an FBT liability.

If the business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you are likely to be providing at least some fringe benefits.

There is a list of benefits that are considered exempt from FBT, such as portable electronic devices like laptops, protective clothing, tools of trade etc. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.

Make sure you have reviewed the FBT client questionnaire we send to you!

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Discretionary trusts and the proposed 30% minimum tax

By Clarke McEwan • September 8, 2026

Discretionary trusts, often referred to as family trusts, have been a popular structure for Australian families and businesses for many decades. They are commonly used to operate family businesses, hold investments and assist with succession planning. Their flexibility, together with asset protection and estate planning benefits, has made them an attractive option for many groups. In the 2026–27 Federal Budget, the Government announced a significant proposed change. From 1 July 2028, trustees of discretionary trusts would generally be required to pay a minimum tax of 30% on the trust's taxable income. According to the Government, the proposal is intended to better align the tax paid on trust income with that paid by salary and wage earners, while reducing opportunities to split income between family members. However, the announcement has generated considerable debate. Professional bodies, business groups and tax advisers have expressed concerns that the changes could increase complexity and compliance costs for many genuine family businesses and investment structures. How the proposal is expected to work Under the proposal, the trustee would generally pay the minimum 30% tax on the trust's taxable income. Where trust income is distributed to individual beneficiaries or certain other non-corporate beneficiaries, those beneficiaries would generally receive a non-refundable tax offset recognising the tax already paid by the trustee. This is intended to reduce the risk of the same income being taxed twice, but while maintaining the impact of the 30% minimum tax rate. Importantly, the minimum tax would not apply to every trust. The Government has indicated that a number of trusts would be excluded, including fixed trusts, widely held trusts, complying superannuation funds, charitable trusts, deceased estates, special disability trusts and genuine testamentary trusts. Primary production income and certain income relating to vulnerable minors would also be excluded. The Government has also stated that more than 90% of small businesses are not expected to be affected. While that may be reassuring for some taxpayers, there are still some important issues that could affect family groups using discretionary trusts. What could this mean in practice? One area likely to receive close attention is the use of companies as beneficiaries of family trusts. Many family groups have historically distributed some trust income to a company. This can provide flexibility in managing cash flow, retaining profits within the business and funding future growth. Under the proposed rules, however, the corporate beneficiary would not receive a tax offset for the tax already paid by the trustee. In many cases this will mean that income distributed from a discretionary trust to a company would be subject to double taxation. Another practical impact of the proposed change is that some family groups may find it more difficult to fully utilise existing tax losses. While the impact will depend on each group's circumstances, the proposed minimum tax is likely to reduce some of the flexibility that currently exists when managing taxable income across a family structure within many groups. The Government has also proposed a temporary three-year rollover period, commencing from 1 July 2027, to help restructure into alternative business structures, such as companies or fixed trusts, without triggering immediate income tax or capital gains tax consequences. While this may assist some groups, restructuring is rarely straightforward. Depending on the circumstances, it might be necessary to consider things like stamp duty, loan approvals, financing arrangements, contract changes, licensing requirements and professional advice. Even relatively simple restructures can involve significant time and cost, so careful planning will be important. The rules are not yet final At this stage, the proposal remains subject to consultation. Treasury released a consultation paper in July 2026 seeking feedback on a range of design issues, including how the new rules would operate in different situations. Final legislation has not yet been introduced, meaning aspects of the proposal could still change before the rules become law. For this reason, most groups utilising discretionary trust structures should avoid making major structural decisions based solely on the announcement. Instead, it is sensible to monitor developments while considering whether existing structures are likely to remain appropriate if the proposal proceeds. What should you do now? For many families, discretionary trusts are about much more than tax. They can continue to provide valuable asset protection, succession planning and business flexibility. The proposed changes do not remove those benefits, nor do they prevent discretionary trusts from continuing to be used. However, the proposal does have the potential to change the tax outcomes for some family groups, particularly those with more complex structures or those that regularly distribute income to companies. With the proposed start date still some time away, there is an opportunity to pause and carefully understand how the changes may affect your circumstances and consider whether any planning or restructuring might be appropriate. As the legislation develops, we can help you assess the impact on your business or investment structure and determine whether any action is warranted.

New reasonable travel and overtime meal rates

By Clarke McEwan • September 8, 2026

The ATO has released its updated reasonable travel and overtime meal allowance rates for the 2026–27 income year in Taxation Determination TD 2026/4. The overtime meal allowance has increased to $40.00, while the reasonable amounts for domestic and overseas travel have also been updated based on salary levels and travel destinations. Although these figures are widely publicised each year, they are often misunderstood. A common misconception is that employees can automatically claim a tax deduction up to the ATO's published rates. In reality, the rules are much narrower, and applying them incorrectly could lead to deductions being denied as well as interest and penalties. A travel allowance is the starting point The ATO's reasonable amounts only become relevant if an employee receives a genuine travel or overtime meal allowance from their employer. Generally, an allowance should: Be paid specifically to cover work-related travel or overtime meal expenses; Relate to particular work trips or overtime worked, rather than being a general additional payment; Be shown separately from normal salary or wages; and Be intended to help cover expenses the employee is expected to incur. If an amount has simply been built into an employee's normal salary package or is not identified as a separate allowance, the ATO's reasonable rates generally do not apply. Instead, the normal substantiation rules will usually apply to any deduction claimed. The reasonable rates are not an automatic deduction One of the most common misunderstandings is that receiving a travel allowance allows an employee to automatically claim the ATO's published rate as a tax deduction. This is not how the rules operate. Employees can generally only claim the amount they actually spend on deductible work-related travel or overtime meal expenses. The ATO's reasonable amounts simply mean that, in certain circumstances, employees may not need to keep a receipt for every specific expense. Importantly, the expenses must still have been incurred and they must relate to work-related activities. Good records are still essential Even where a genuine travel allowance has been paid, employees should still keep sufficient records to demonstrate that they incurred the expenses and that their claim is reasonable. Useful records may include: A diary recording work trips and overnight travel; Details of meals and incidental expenses incurred while travelling; Bank or credit card statements showing the expenses were personally paid; A representative sample of receipts; and Where travel involves six or more consecutive nights away from home, a travel diary recording the dates, locations and purpose of the travel. While receipts may not always be required, relying solely on the ATO's published rates without any supporting evidence could expose you to unnecessary scrutiny if your return is reviewed. Practical tips for employees and employers If you receive a travel or overtime meal allowance, it is worth checking that the arrangement satisfies the ATO's requirements before claiming a deduction. Some practical steps include: Review your payslip. Check that the allowance is separately identified rather than being included in ordinary salary or wages. Keep records throughout the year. Maintaining a simple travel diary and retaining some supporting documents is much easier than trying to recreate the information months later. Only claim what you actually spend. The ATO's reasonable amounts are not a target or standard deduction. They simply provide a benchmark for when the normal receipt requirements may be relaxed. Take extra care on longer trips. If you are away from home for six or more consecutive nights, additional travel diary requirements will generally apply. A little preparation can avoid problems later The updated reasonable amounts provide a useful guide for employers and employees during the 2026–27 income year, but they should not be viewed as an automatic entitlement to a tax deduction. Understanding how the rules operate, keeping appropriate records and claiming only genuine work-related expenses can significantly reduce the risk of problems if the ATO reviews your tax return. If you or your employees receive travel or overtime meal allowances, now is a good opportunity to review your current arrangements. We can help you confirm whether the allowances meet the ATO's requirements and what records should be kept to support any future claims.

Penalty units increase from 1 July 2026

By Clarke McEwan • September 8, 2026

From 1 July 2026, the value of a Commonwealth penalty unit increased from $330 to $364. While this may sound like a minor administrative change, it has a direct impact on many ATO penalties, increasing the cost of a range of compliance failures. A penalty unit is simply the method used under Commonwealth law to calculate many fines and administrative penalties. Rather than specifying a fixed dollar amount, the legislation often refers to a certain number of penalty units. As the value of a penalty unit increases, so too do the penalties that rely on it. The new value applies to breaches that occur on or after 1 July 2026. Earlier breaches continue to be assessed using the previous rate. Where the increase is likely to be felt Many of the ATO's administrative penalties are based on penalty units, meaning the increase flows directly through to the amount payable. Failure to lodge on time One of the most common penalties applies where tax returns, activity statements or other required documents are lodged late. The base penalty is generally one penalty unit for every 28 days (or part of 28 days) that a document remains outstanding, up to a maximum of five penalty units. For a small entity, this means the maximum base penalty has increased from $1,650 to $1,820. Higher penalties may apply to medium and large entities, while significant global entities are subject to much larger penalty amounts. False or misleading statements Providing incorrect information to the ATO can also result in penalties. Where there is no tax shortfall, the law provides for base penalties of 20, 40 or 60 penalty units, depending on the circumstances and the taxpayer's level of care. At the new penalty unit value, these base penalties have increased to $7,280, $14,560 and $21,840 respectively, before taking into account any reductions or increases that may apply. Self-managed super funds Trustees of self-managed superannuation funds (SMSFs) should also be aware of the higher penalty amounts. A range of SMSF administrative penalties are calculated using penalty units. For example, some breaches that previously attracted a penalty of $19,800 (60 penalty units) now carry a penalty of $21,840. Importantly, these penalties are generally imposed on each individual trustee rather than the fund itself. This means the total cost can increase significantly where a fund has multiple individual trustees, and the penalties cannot usually be paid from the assets of the superannuation fund. Other obligations, such as certain record-keeping requirements, tax invoice obligations and some superannuation guarantee penalties, may also be affected by the higher penalty unit value. Why this matters For most taxpayers, these penalties are entirely avoidable. Late lodgements, poor record keeping and incorrect information remain some of the most common reasons businesses and individuals incur ATO penalties. While the increase in penalty units may not seem substantial on its own, the cost can add up quickly where there are multiple outstanding obligations or repeated compliance issues. It is also worth remembering that ATO penalties are generally not tax deductible, meaning they must be paid from after-tax income. The good news is that the ATO will often consider remitting penalties (in part or full) where there are genuine mitigating circumstances, reasonable care has been taken, or a voluntary disclosure is made before the issue is identified by the ATO. Addressing problems early typically results in a better outcome than waiting until formal compliance action begins. Practical steps to reduce your risk There are several simple steps that can help minimise the risk of penalties: Lodge on time. Providing information to us well before due dates gives enough time to prepare accurate returns and meet lodgement deadlines. Keep good records. Accurate and up-to-date records make it easier to prepare returns correctly and support your tax positions if questions arise. Review your compliance regularly. If you operate a business or manage an SMSF, periodic reviews can identify issues before they become costly. Seek advice early. If you think you've made a mistake or have fallen behind with your tax obligations, speaking with us as soon as possible will generally provide more options than waiting for the ATO to contact you. A timely reminder The increase in penalty units is a timely reminder that the cost of tax non-compliance continues to rise. While the higher penalties are intended to encourage timely and accurate compliance, they also reinforce the value of good record keeping and proactive tax management. If you have any concerns about outstanding lodgements, record-keeping obligations or any other tax compliance matter, please contact us. We can help you address issues early and minimise the risk of unnecessary penalties.

SMSF and property – preparing for a smooth audit

By Clarke McEwan • September 8, 2026

For many SMSF trustees, property is one of the most significant assets held by their SMSF. Unlike personally owned assets, there is a legal requirement that all SMSF assets are valued each 30 June. This can be a simple process for assets that have a ready market like listed shares, however the process for other assets like property can be more onerous. Trustees are responsible for determining the market value of fund assets. After your annual financial statements are prepared your fund auditor will need to see objective and supportable evidence that backs up how you have arrived at the market value. Trustees have the option to use a qualified independent valuer for this and should consider this where an asset represents a significant part of the fund’s value or might be difficult to value. Where trustees choose not to use an independent valuer, they will need to be able to support asset valuations with evidence from multiple sources. Typically, for property this may include: Recent comparable sales – Generally at least 3 and the properties should be genuinely comparable in terms of size and location. A real estate agent appraisal that also includes comparable sales. Net income yields for commercial property (generally not sufficient evidence on its own). The ATO includes some helpful guidance on this in their Guide to valuing SMSF assets. Where an SMSF holds property that meets the business real property (BRP) definition it is possible that this property can be leased to a business that is operated by a member or a related party of the SMSF. However, the fact that an arrangement like this is permitted does not mean the fund trustees can charge a non-market rate of rent. When a rental arrangement is entered into with a related party of the super fund, that arrangement should be on arm’s length (commercial) terms and this should be supported by a rental appraisal. An easy way to think about this is – do all the lease terms reflect an arrangement that would be agreed to if the tenant was an unrelated third party? To evidence that a related party arrangement is on arm’s length (commercial) terms an auditor should be provided with; A properly documented lease; A rent appraisal when the lease was first entered into; Evidence that the arrangement is operating based on the terms of the lease; and Evidence that where a prior lease term has expired the terms have been reset to market value – backed up by a new rent appraisal. Although your financial year 2026 SMSF audit might not be taking place for some months, the process can be much smoother where SMSF trustees are proactive and start to compile this evidence in advance, rather than waiting for the auditor’s request.

Loss carry back rules reintroduced

By Clarke McEwan • September 1, 2026

At the Federal Budget in May 2026, the Government announced that it would reintroduce a loss carry back tax offset for companies, providing a crucial buffer to any business facing difficult trading conditions.

Cents per km or logbook method: which is better?

By Clarke McEwan • August 30, 2026

Tax Time 2026 is in full swing, and with that comes a decision for anyone who uses their car for work purposes: is it better to claim a deduction using the logbook or cents per kilometre method? When can I claim car expenses? Broadly, tax deductions for car expenses (i.e. the costs you incur to own and operate a car) are available where you use your car for work-related trips, such as for travel between workplaces or to perform your work duties. The exception is ordinary commuting to and from work - such expenses cannot typically be claimed, as they’re considered private expenses. Cents per kilometre method The cents per kilometre method allows you to claim a fixed rate for each work-related kilometre you travel, up to a maximum of 5,000 km each year. This fixed rate per km covers all of your car expenses for a year, including decline in value, registration and insurance, maintenance, repairs and fuel costs. For the 2025-26 tax year, the rate of deduction is 88 cents per kilometre, which means this tax time, the maximum potential amount of deduction is $4,400. (And keep in mind that the rate of deduction has been increased to 91 cents per km as of 1 July 2026, meaning a total potential deduction of $4,550 in the 2026-27 tax year). One of the benefits of using the cents per kilometre method is that it’s relatively simple, as you don’t need to keep receipts for your fuel or car expenses. However, you do need to keep records to show how you’ve calculated your work-related kilometres (for example, a diary), and you also need to be able to show that you own the car you’re using for work. Logbook method If you have a lot of work-related car expenses and have the time, you might find that the logbook method gives you the best deduction. The logbook method allows you to claim the work-related portion of your actual car expenses. This means that you can claim for a percentage of the actual expenses incurred on running costs such as fuel, electricity, servicing, registration, insurance and the decline in value, provided you’ve used the car in the course of your work. However, as the potential deductions under the logbook method are higher, there are stricter record-keeping requirements to meet. This includes keeping a logbook, which allows the calculation of how much you can claim back, it must: - cover at least 12 continuous weeks and be broadly representative of your travel, - include the reason and purpose, as well as the destination of every work-related journey, - the odometer reading at the start and end of each journey, - and the total kilometres travelled on the journey, - include odometer readings for the start and end of the logbook period and the total kilometres travelled during that period. Each journey in your logbook must be made at the end of the journey or as soon as possible afterwards. If you don't have a valid logbook, then unfortunately you cannot use the logbook method to claim car expenses, although the cents per km method may be available instead. Which is better? The answer to whether you should choose the logbook or cents per km method is very dependent on your personal situation. If you have light work-related car use and don’t love keeping extensive records, the cents per km method may be better suited to your needs, while those who use their car for work frequently may receive a higher deduction under the logbook method. If you’re unsure which method is best for you, speak to a member of our team today.