Fringe Benefits Tax 2026 | Key Changes, Reminders and How to Stay Compliant

In last year’s article we covered the decision in BQKD v FCT, relating to the provision of luxury cars for private use by business owners and directors. The ATO appealed this decision to the Federal Court, which initially decided that FBT should apply to the provision of the vehicles. However, recently, the Full Federal Court has allowed an appeal by the taxpayer in SEPL Pty Ltd ATF the SFT Trust v FCT [2026] FCAFC 36, overturning the earlier Federal Court decision and restoring the AAT’s original finding that FBT did not apply.

The Full Court held that the word “employee” in the FBT legislation takes its ordinary common law meaning, and that the facts must be carefully examined to determine whether a person is genuinely an employee, rather than simply someone who performs work in or for a business. Where an individual holds multiple roles (such as director, shareholder, and discretionary beneficiary of a family trust), the relevant question is the capacity in which the benefit was actually received. Here, private use of the vehicles was funded through a beneficiary account and cleared by trust distributions, a mechanism more consistent with beneficial ownership than with employment remuneration. On that basis, there was no sufficient connection between the benefits and any employment relationship.

The Full Court also confirmed that the definition of “employment” in the FBT legislation does not expand who qualifies as an “employee,” and that s 137 of the FBT legislation is a narrow provision, it can’t be used to deem a person to be an employee simply because they received a non-cash benefit while performing work.

What this means going forward:

• The common law meaning of “employee” applies for FBT purposes — the mere fact that someone works in or for a business does not make them an employee.
• Where a benefit is provided to a person in their capacity as a proprietor, beneficiary, or family controller of a trust structure, it may fall outside the FBT net if the connection to any employment relationship is not sufficiently material.
• The capacity in which a benefit is received and how it is funded and accounted for will be critical to determining whether FBT applies.
• Careful structuring and documentation of the basis on which benefits are provided to owner/operators remains important and can make a real difference to the outcome.

TIP: The SEPL decision is a positive outcome for family business operators, but it is important to note that the result turned on the particular trust structure, the absence of employment contracts and wages, the use of trust mechanisms to fund private use, and the brothers’ roles as proprietors and beneficiaries. Clients in similar structures should review their arrangements against these facts and decision, and keep in mind that even where FBT does not apply, benefits provided to business owners may still give rise to other tax consequences, including Division 7A or income tax issues.

In last year’s article, we covered the ‘arranger provisions’ and the additional FBT exposure that can arise for employers under these provisions.

The ATO has confirmed an increased focus on these benefits, and employers therefore need to be aware of the potential FBT exposure under these provisions.

Even if a benefit is not paid for or provided directly by the employer, FBT can still apply where the employer is involved in ‘arranging, promoting or facilitating’ the provision of a benefit to employees. This is particularly relevant for directors, business owners, and senior staff who have decision-making authority (often referred to as “dual capacity employees”) because they may make decisions ‘on behalf of the employer’ that ultimately result in the provision of benefits for FBT purposes.

In family and closely held businesses, it can be easy to assume that benefits provided to owners are received in their capacity as owners rather than employees. However, in practice, this distinction is often unclear and requires careful consideration (refer to the Director/Owner Benefits section of this article).

Where an individual is involved in accepting or facilitating a benefit on behalf of the business, it can be difficult to support the view that the benefit was not provided in respect of employment. As a result, FBT may still apply.

TIP: Businesses should carefully review any third-party benefits provided to senior staff or owners, as FBT can apply even where the benefit is not provided directly by the employer. 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 whether to themselves or other employees (in which case, FBT will apply).

Employers may manage their FBT exposure by implementing internal policies that limit or prohibit employees from accepting benefits from third parties.

The ATO has raised concerns about arrangements where directors or senior staff pay for work-related meals (e.g. team dinners) personally, whether for reasons of mere convenience or under a more intentional approach to mitigate FBT exposure. Unfortunately, even where the employer does not directly pay for these benefits, FBT may still apply.

Where a director pays for a meal and is not reimbursed, there is generally no FBT on the director’s meal, as no benefit has been provided by the employer. However, meals provided to employees can still attract FBT and this will depend on the relationship and arrangement. If the director has sufficient ownership or control, they may be an associate of the employer, meaning the benefit is treated as provided by the employer. Alternatively, where the director is a third party, the arranger provisions may apply. This includes situations where the employer, senior staff member or owner organises or encourages attendance at the event. However, mere awareness of the benefit is not enough to trigger FBT.

TIP: Employers should be aware that fringe benefits can arise even where the employer has not paid for the benefit, and simply choosing not to reimburse a director does not enable the employer to avoid the potential FBT implications of such arrangements. Clear policies around staff entertainment and third-party benefits can help manage exposure, particularly where directors or senior staff are involved.

Employers should also be aware that where such costs are not reimbursed, the cost will not be recorded in the accounts of the employer, the potential fringe benefits will therefore likely be overlooked.

In recent years, the ATO expanded its interpretation of a “commercial parking station” to include ‘special purpose’ car parks such as those at shopping centres, hospitals and hotels, even where pricing structures discourage all-day parking. This broader view increased the number of employers subject to car parking FBT.

However, in Toowoomba Regional Council v FCT [2025], the Federal Court found that a shopping centre car park was not a “commercial parking station”, as its primary purpose was to attract customers rather than operate as a standalone parking business. This decision directly challenges the ATO’s position, which has since been appealed.

Until the appeal decision is finalised, the ATO’s current guidance remains in place. As such, employers should continue to assess car parking fringe benefits on the basis that nearby facilities (including shopping centres, hospitals and hotels) may qualify as commercial parking stations where they are within a 1km radius.

If the courts ultimately reject the ATO’s interpretation, affected employers may need to revisit prior year FBT positions and consider amending returns (where the amendment period has not expired) to recover any overpaid FBT.

TIP: Small business employers (turnover under $50 million) can continue to access the car parking FBT exemption, provided the parking is not located in a commercial parking station.

The ATO has updated its guidance on calculating home charging costs for electric vehicles, relevant where employers reimburse employees or need to determine operating costs for FBT purposes.

Previously, the shortcut method only applied to zero emissions vehicles. Updated guidance (PCG 2024/2) now extends a shortcut method to plug-in hybrid electric vehicles (PHEVs), making it easier to calculate electricity costs where home charging cannot be separately identified.

The PHEV shortcut method applies from the 2025 FBT year onwards and can be used on a per vehicle basis as an alternative to calculating actual electricity costs.

Importantly, the ATO confirms the method can still be used where a vehicle is charged across multiple locations (e.g. home, commercial stations, or workplace). In these cases, employers must adjust the calculation to reflect the ‘home charging percentage’ to ensure only home electricity costs are captured and not overstated.

Care is required where the vehicle cannot track charging location, as estimates may be needed or the actual cost method may be more appropriate.

The method also requires basic record-keeping, including odometer readings and petrol costs, although the ATO allows reasonable estimates where records are incomplete (particularly for the 2025 FBT year).

TIP: The shortcut method can significantly simplify compliance, but employers should ensure appropriate adjustments and records are maintained to support the calculation.

We covered this exemption in our article last year and with this being a popular exemption that can easily be applied incorrectly, we encourage you to read our full article here.

Employers can lodge ‘nil’ FBT returns or non-lodgement notices where fringe benefits do not give rise to an FBT liability, such as where benefits provided are FBT-exempt or fully offset by employee contributions. Traditionally, the ATO has accepted this practice, with lodgement triggering the standard three-year amendment period.

However, the ATO has announced that they are dedicating audit resources to identify employers who lodge ‘nil’ returns without properly verifying whether a liability exists. Incorrectly lodging a ‘nil’ return can lead to penalties, and the amendment period can be extended to six years where full and true disclosure is not made—or unlimited in cases of fraud or where a non-lodgement notice is filed.

To address this, the ATO is targeting employers who submit ‘nil’ FBT returns without sufficient supporting information. Employers must ensure they have correctly applied the FBT rules, maintained the required documentation, and can substantiate a nil liability. The same caution applies to non-lodgement notices, which carry an even higher audit risk due to unlimited amendment period.

TIP: Employers lodging ‘nil’ FBT returns or non-lodgement notices should review their fringe benefits, ensure compliance with documentation requirements, and confirm that nil liability is properly calculated to avoid penalties and extended audit exposure. Additionally, employers should seek professional advice from their accountant to assist them with navigating their FBT obligations.

Entertainment continues to be one of the most common fringe benefits provided by employers and it can be challenging for employers to correctly identify when entertainment has arisen.

Entertainment includes the provision of food, drink or recreation in the course of a social activity, as well as accommodation or travel in connection with or facilitating the provision of food, drink or recreation (e.g. taxi travel to and from a restaurant). It also includes the payment or reimbursement of expenses incurred in providing entertainment by way of food, drink, or related accommodation and travel. The meaning of ‘entertainment’ is quite broad and can include business lunch meetings, even where business matters have genuinely been discussed at the lunch.

As a result, employers must carefully assess whether expenditure such as business lunches, social functions, light lunches, snacks, and associated costs reflect the provision of entertainment. Correct classification is important, and errors can be costly and can cascade across FBT, income tax and GST, potentially resulting in incorrect FBT, income tax and GST liabilities.

Depending on the type of entertainment provided (i.e. meal, recreation or entertainment facility leasing expenditure) and whether the employer incurred the costs of providing the entertainment, the employer may have a choice as to which valuation method is applied (actual method, 50:50 split method or 12-week register method) to work out the taxable value of benefits provided. The default method is the actual method, and where an employer is eligible to use the 50:50 split method, an election is required for both FBT and GST purposes.

For income tax purposes, entertainment is only tax-deductible to the extent those costs were subject to FBT, whereas non-entertainment benefits can generally be deducted regardless of whether FBT was incurred.

TIP: Since entertainment benefits and associated costs (e.g. travel) may be recorded across several accounts within the employer’s accounting system, employers need to carefully review their expenses to identify all potential entertainment costs.

Additionally, where the employer applies the actual method for valuing entertainment, the employer must maintain sufficient records to identify which employees have received those benefits. Having good internal procedures and record-keeping requirements is critical and can save time when assessing any potential FBT exposure.

Providing food or drink to employees working predominantly or exclusively from home, whether as a reward or for wellbeing, can create unexpected FBT exposure if not carefully considered.

Car fringe benefits remain one of the most popular non-cash benefits for employees, and are subject to high levels of ATO scrutiny, including audit of exemptions for utes and similar “workhorse vehicles”.

One of the key issues for employers is correctly classifying a vehicle as either a ‘car’ or ‘non-car’ for FBT purposes and then working out the taxable value and any available concessions.

As a reminder, a car fringe benefit will generally arise where there is a ‘car’ (as statutorily defined) that is held by the employer or otherwise made available by the employer to the employee, and there is private use or deemed private use of the car. Deemed private use will occur where the car is kept at or near the employee or their associate’s usual place of residence and/or they have custody and control of the car.

Common errors include:

• Using motor vehicle cost details per the financial statements as the base value for FBT purposes. Generally, the cost for accounting purposes will never be the same as the base value for FBT purposes because these amounts are calculated differently.
• Where a vehicle does not satisfy the definition of a ‘car fringe benefit’, a residual fringe benefit will generally arise, which many employers overlook.
• Incorrectly classifying reimbursed expenses that relate to vehicles owned or leased by the employee. These are generally a separate fringe benefit and would be classified as either an expense payment or residual benefit.

Where employees are required to travel for work, employers may cover the cost of accommodation, meals, or transport costs. However, as we have highlighted in prior articles, such costs can create an unexpected FBT exposure where an employee is travelling “to” work rather than “on” work (this was highlighted in Bechtel Australia v FCT).

The correct FBT treatment depends on the nature of the expense and the employee’s travel status:

• Travelling overnight for work: Accommodation and meal benefits may generally be reduced to $nil under the ‘otherwise deductible rule’.
• Living away from home (LAFH): FBT concessions or exemptions may apply, including allowances for food and accommodation.
• Relocating for work: Certain benefits, such as storage of household effects, may be eligible for certain exemptions.
• Transport costs: Travel from home to an alternate workplace (not by personal choice) is generally exempt under the ‘otherwise deductible rule’.

Employers should also consider incidental private activities. Minor personal activities during work travel typically do not trigger FBT, but extending work trips for private holidays, especially with family, can create an FBT exposure with respect to transport, meals, and accommodation.

For more information on whether an employee may be regarded as travelling “on” work rather than “to” work, please see last year’s FBT article here.

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.
• 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.

• Logbooks substantiate a car’s business use percentage under the Operating Cost Method and are required at least once every five years.
• Employers must consider changes in car usage before applying a previous logbook’s percentage in a non-logbook year. Where the use of the vehicle changes, a new logbook should be prepared to ensure accuracy.
• Each entry must include date, odometer readings, kilometres travelled, and a clear description of the journey’s purpose. Accurate record-keeping of odometer readings, fuel costs, and other documentation is essential for compliance.
• Incomplete or deficient entries may be disregarded by the ATO, increasing FBT liability.
• Logbooks are generally regarded as being attached to the car, not the employee.