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Fringe Benefits Tax 2025

  • 13 March 2025
  • Posted by: runningthenumbers
  • Categories: 2024, Fringe Benefits Tax, Subcontractors, Tax, Work From Home
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The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT updates and problem areas

· FBT exemption for electric cars

· Providing equipment to work from home

· Does FBT apply to your contractors?

· Reducing the FBT record keeping burden

· The top FBT risk areas

 

Important FBT issues

 

FBT exemption for electric cars

Employers providing employees with eligible electric vehicles (EVs) can benefit from an FBT exemption, provided the vehicle:

  • Is a zero or low-emission vehicle (battery electric, hydrogen fuel cell, or plug-in hybrid electric);
  • Was first held and used on or after 1 July 2022;
  • Is below the luxury car tax threshold for fuel-efficient vehicles ($89,332 for 2024-25).

Changes for Plug-in Hybrid Vehicles From 1 April 2025, plug-in hybrid electric vehicles will no longer be exempt unless:

  • The exemption applied before 1 April 2025, and
  • A financially binding commitment exists to continue providing the vehicle after 1 April 2025.

Even with an exemption, businesses must calculate the taxable value of the benefit for reportable fringe benefits purposes, which can impact employees’ Medicare levy surcharge, private health insurance rebate, and social security payments. The ATO has introduced a 4.20 cents per km shortcut rate to simplify electricity cost calculations for EVs (excluding plug-in hybrids).

 

Providing Equipment for Work-from-Home Arrangements

Many businesses provide work-related items to employees working remotely. Items like laptops and mobile phones are typically exempt from FBT if primarily used for work. If the business has an aggregated turnover of under $50 million, multiple similar items can be provided in an FBT year without triggering tax implications.

 

FBT and Contractors: Are They Truly Independent?

FBT applies to benefits provided to employees and officeholders, not independent contractors. However, the ATO has tightened rules around contractor classifications. If a contractor is misclassified, the business may have employment-related tax obligations, such as superannuation and payroll tax.

Key ATO factors for assessing contractor status:

  • A comprehensive written agreement defining the relationship.
  • Consistency between contract terms and actual working arrangements.
  • Proper tax and reporting obligations met for either employees or contractors.

Businesses should periodically review contractor arrangements to ensure compliance.

 

Reducing the FBT Record-Keeping Burden

From 1 July 2024, businesses can use existing business records for FBT compliance rather than traditional FBT records, reducing administrative burden. Employers can choose between:

  • The existing FBT record-keeping method.
  • Using alternative business records that meet ATO legislative requirements.
  • A combination of both.

Top FBT Risk Areas

  1. Entertainment Expenses and FBT
    • A mismatch occurs when businesses claim deductions for entertainment expenses without declaring an FBT liability. For instance, client meals generally aren’t deductible unless subject to FBT.
    • The minor benefits exemption may apply for infrequent benefits under $300 per employee.
    • Businesses using the 50/50 method must allocate 50% of entertainment costs to FBT.
  2. Employee Contributions via Journal Entries
    • After-tax employee contributions can reduce FBT liabilities, but must be properly documented.
    • Journal entries reducing taxable fringe benefits must be completed before financial accounts are prepared.
    • The ATO scrutinises late or unsupported journal entries.
  3. Failure to Lodge an FBT Return
    • Employers providing benefits like cars, entertainment, or reimbursements should ensure they meet FBT obligations.
    • Certain exemptions exist, but businesses must confirm eligibility.
    • Not lodging an FBT return can expose businesses to penalties.

Stay Compliant

With increasing ATO scrutiny, it’s essential to review FBT records and processes. Ensure your business is FBT-compliant by reviewing the FBT client questionnaire we sent you.

If you need assistance navigating FBT obligations, contact us at Running the Numbers today!

 

 

Please do not hesitate to contact us if you wish to discuss any of these matters further.



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