Fringe Benefits Tax 2025 | The Overlooked and Hidden Tax

The minor benefits exemption is one of the most frequently relied upon FBT exemptions, particularly for entertainment benefits. Broadly, the exemption applies to benefits that:

• Have a value or cost less than $300 including GST and are provided infrequently and irregularly, or,
• It would be unreasonable to treat as a fringe benefit, having regard to the frequency and regularity of associated benefits, aggregated value, practical difficulty in determining the taxable value.

The exemption cannot be applied to certain benefits including meal entertainment valued under the 50:50 method and in-house fringe benefits.

Employers can generally claim income tax deductions and input tax credits in respect of minor benefits, unless they relate to meal entertainment and recreation.

The ATO has provided updated guidance on the application of the $300 threshold as follows:

• The threshold applies on a per benefit basis – i.e. it is not a cumulative limit for the FBT year and unrelated benefits are considered separately.
• The threshold applies on a per person basis – i.e. employees are not aggregated with their associates (e.g. spouse)
• The frequency and regularity of benefits provided to an employee and their associates should be considered collectively

Benefits provided under a structured recognition scheme are unlikely to be exempt minor benefits, particularly where the employee receives similar benefits frequently or regularly, the aggregate value is substantial, and the provision of the benefit is expected, rather than ad hoc.

TIP: The employer needs to be able to identify the relevant employees to properly assess whether the minor benefits exemption is available on a per person basis. Generally, the more senior the employee, the less likely that the minor benefits exemption will be available because they may receive regular benefits (e.g. meals out with clients).

In our 2024 FBT article we covered the decision in Bechtel Australia v FCT, which held that FBT was payable on expenses paid by the employer to transport employees from home to their work site on Curtis Island, on the basis that the travel was ‘to’ work, not ‘on’ work, and was therefore not otherwise deductible.

Travel between home and work is generally not deductible for income tax purposes (and as such is not ‘otherwise deductible’ for FBT purposes). Some potential exceptions include:

• Employees travelling to an ‘alternate’ workplace (not their regular workplace), provided they do not do so as a matter of personal choice, and the alternate workplace does not become a regular workplace (e.g. on extended secondment)
• On-call employees, provided their duties commenced at home and they are required to travel to the workplace to complete those duties
• Employees who have no fixed regular workplace, where travel to multiple locations in a ‘web’ of workplaces is a fundamental part of the employee’s work
• Employees who work regularly at two or more geographically distant locations for the same employer (further considerations apply)
• Employees who predominantly work from home because their employer does not provide them with a workspace (i.e., the employee’s home is practically their ‘base of operations’)

TIP: Bechtel’s case suggests that FBT will not apply where employees are rostered on, being paid, and under the direction and control of the employer during travel. However, while these arrangements may achieve a positive FBT outcome, they are likely to result in increased employment and travel costs for the employer. Employers should review and consider their existing arrangements and policies for paying or reimbursing employee travel to ensure that any FBT exposure is minimised.

In our 2024 FBT article we discussed the deductibility of employee self-education costs funded by employers and the associated FBT implications.

In TR 2024/3, the ATO confirms that a course comprised of multiple units may be considered in its entirety to determine whether the ‘otherwise deductible rule’ can be applied to reduce FBT on these costs. Courses that are too general in nature can be considered on a unit-by-unit basis, and if particular units have a sufficient connection to the employee’s income-earning activities, then those units may be deductible and no FBT liability will arise.

TIP: The payment or reimbursement of a principal amount borrowed to fund course fees (e.g. under a FEE-HELP loan) are not ‘otherwise deductible’ and FBT will apply.

Where an eligible electric car has been provided to an employee or their associate, the private use of the vehicle and any associated running costs (‘car expenses’) are FBT-exempt. However, where an employer provides for employees to charge their own vehicle at work (i.e. the vehicle is not provided by the employer), a residual or property benefit may arise.

To determine the cost of electricity used to charge an eligible electric vehicle at an employee’s home, the ATO’s shortcut method per PCG 2024/2 may be applied – i.e. 4.20 cents per kilometre for the 2025 FBT year x total kilometres travelled for the FBT year. This may be relevant for calculating car expenses to be reimbursed by the employer or adjusting for employee contributions when calculating employee’s reportable fringe benefits amount (RFBA).

Where the vehicle has been charged at home and at commercial charging stations during the year, PCG 2024/2 allows for these costs to be aggregated, provided that the home charging percentage can be accurately determined.

TIP: The shortcut method outlined in PCG 2024/2 only applies to zero emissions vehicles and cannot therefore be applied to plug-in hybrid electric vehicles (i.e. low emissions vehicles).

Note: The cost of the electric charging station is a separate benefit and where the employer pays for this to be installed at the employee’s home, a property or expense payment fringe benefit may arise.

Plug-in Hybrid Electric Cars
The FBT exemption for plug-in hybrid electric cars ends on 31 March 2025, except where the use of the car was exempt from FBT before 1 April 2025, and the employer had a financially binding commitment to continue providing private use of the car to a particular employee thereafter.

Novated lease arrangements that existed before 1 April 2025, will continue to be exempt unless there is any change to the agreement, such as an extension of the agreement or a change of employer.

This exemption also ceases from 1 April 2025 for cars provided as part of an employer’s vehicle pool.

TIP/REMINDER: Normally FBT-exempt benefits are excluded when calculating an employee’s RFBA. However, car benefits arising in respect of FBT-exempt electric cars are included when calculating an employee’s RFBA.

In a recent decision (BQKD v FCT), it was held that the provision of luxury cars for private use by the beneficial owners of the business (trading through a discretionary trust) were not subject to FBT because the business owners were not employees.

Even where it could be argued they were employees, it was found that the cars were not provided in respect of employment, but rather, because of their entitlement to the property of the trust as beneficial owners of the business. The Tribunal further held that a business owner does not become an employee merely by working in the business and that a person can manage a business in their capacity as an owner or controller.

TIP: When dealing with benefits provided to business owners, employers need to carefully consider whether each benefit has been provided in respect of employment (in which case FBT applies) or due to an owner/controller relationship (and appropriately documented). Importantly, whilst FBT may not apply in some cases, benefits provided to business owners may give rise to other tax consequences.

In recent years, the ATO’s interpretation of a “commercial parking station” for car parking fringe benefit purposes was extended to include parking facilities at shopping centres, hospitals and hotels, despite charging penalty rates to discourage all-day parking. Our 2023 FBT article covered these changes in detail.

However, a recent Federal Court decision (Toowoomba Regional Council v FCT) found that a shopping centre car park is not a “commercial parking station” for FBT purposes, which the ATO have appealed.

Until the appeal is decided, employers should continue to determine car parking fringe benefits where there is a commercial parking station (including a shopping centre, hospital or hotel) within 1 kilometre, consistent with the ATO view in TR 2021/2. If the appeal is decided in the taxpayer’s favour, then impacted employers who have relied on the ATO’s interpretation will need to consider whether their FBT returns require amendment.

TIP: Car parking benefits provided by small businesses (less than $50 million turnover), other than in a commercial parking station, continue to be exempt.

The ‘arranger provisions’ will apply where the employer is involved in the provision of benefits by third parties (such as suppliers and clients), even though the employer has not paid for these benefits. The ATO regards involvement to occur where there is some level of participation, facilitation or promotion by the employer and the provision of the benefits can be under an express or implied arrangement. For example, circulating details of a corporate discount offered by a client to employees could constitute promotion of a third-party benefit.

Mere awareness of benefits having been provided to employees will be insufficient to create potential FBT liabilities for the employer.

TIP: Employers may manage their FBT exposure by implementing an internal policy to limit or prohibit employees from accepting benefits from third parties. Where benefits are provided to senior staff, employers need carefully assess whether these individuals can essentially ‘act on behalf’ of the employer to facilitate the provision of these benefits to themselves (in which case, FBT will apply).

FBT may arise where an employee links their personal loyalty account to a corporate credit card or incurs business expenses on personal credit cards and earns loyalty points on those expenses. Importantly, the points earned must have a sufficient connection with the employee’s employment.
Generally, the ATO will only review such arrangements where:

• The employee accumulates more than 250,000 Frequent Flyer points per year (this is an administrative benchmark, not a strict threshold); or
• The nature of the arrangement suggests that the benefits received serve as a substitute for income that would otherwise be earned; or
• The arrangement is contrived and artificial, with no commercial purpose other than to allow the employee to receive those benefits.

Where a benefit is subject to FBT, the liability for FBT arises when the employee receives the benefit (e.g. takes a reward flight), not when the points are accumulated. If points are redeemed for a combination of business and private travel, then the value must be apportioned.

An ongoing challenge for employers is determining whether an amount paid to an employee in respect of travelling costs represents a travel allowance or a living away from home allowance (LAFHA).

Generally, a travel allowance is paid to compensate an employee for deductible expenses incurred while travelling for work (typically for a shorter time). A LAFHA is intended to compensate an employee for additional non-deductible expenses incurred because their employment duties require them to live away from their normal residence (for an extended time). This distinction is important because there are differing FBT and income tax implications.

The ATO provides guidance, in TR 2021/4, to help employers distinguish between an employee travelling for work and an employee living away from home. The ATO also provides a simplified compliance approach in PCG 2021/3 that allows eligible employers to treat an allowance as a travel allowance under certain conditions.

Documentation and declarations continue to be at the forefront of the ATO’s focus. The onus to retain accurate and appropriate documentation lies with the employer. Key areas for employers to be aware of:

• Evidence, such as invoices and/or receipts, in relation to the provision of expense payments, property or residual fringe benefits should be retained for a minimum of five years.
• Many benefits that adopt concessional valuation methods or that can have their taxable value reduced require a signed employee declaration to be kept on file. Generally, declarations should be provided to employers by 21 May of each FBT year. Approved ATO declarations can be found at the following link: https://www.ato.gov.au/Forms/Employee-Declaration/
• Valid logbooks must be maintained to substantiate an employee’s business use percentage (other than 0%) when adopting the Operating Cost Method to value a car fringe benefit.
• From 1 April 2024, employers can choose to rely on alternative records for certain eligible benefits. Using this method doesn’t change what information needs to be maintained. It merely provides more flexibility around the format and process for obtaining and holding the required information.