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22 May 2024 - 5 min read

Car Fringe Benefits Tax

Fringe benefits are non-monetary perks an employer provides to an employee on top of their wages or in the case of a salary sacrifice arrangement – in lieu of a portion of wages. For example, if the employer provides a business-owned car for the employee’s personal use.

But whether it’s in addition to wages or as a salary sacrifice, provision of vehicle for personal use may be subject to fringe benefits tax (FBT).

Lodging an FBT return to the ATO 

Employers are liable for paying this tax and for lodging an FBT return to the ATO. 

The FBT year differs from the financial year in that it runs from 1 April to 31 March of the following year, with the FBT due for lodging and payment on 21 May of that year. 

However, if the due date falls on a weekend or public holiday, the payment will be due the next business day. 

While the value of a fringe benefit might appear on the employee’s income statement at the end of the financial year, they do not need to be concerned about paying any tax on it. 

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When is an employer-provided car NOT a fringe benefit

The key term in deciding this is ‘personal use.’ 

A supplied car is not considered a fringe benefit if it’s solely meant to help the employee do their job. 

Example: If the worker uses a company car only to run deliveries as part of their work duties and not for private use, then it wouldn’t be considered a fringe benefit. 

Allowances that are provided as part of a salary package are also not fringe benefits. 

Example: An employee gets paid a car allowance as part of their salary to reimburse them for the costs of using their own car in performing work duties. However, the employee may need to pay income tax on the allowance. 

In addition, there are some vehicles that might be used outside of work by an employee but are exempt from FBT. 

Car FBT exemptions 

Electric vehicles (EVs)

To encourage business owners to invest in low emissions vehicles, the government has made certain EVs exempt from FBT. 

To be eligible for an exemption, the car must meet several conditions. It’s required that the vehicle: 

  • Was held and used on or after 1 July 2022 
  • Is a low or zero emissions vehicle 
  • Has a value of less than $89,332, including GST (2023-24), and
  • Is used by a current employee (or their associates, such as family members). 

Certain other expenses for an eligible vehicle are exempt as well – e.g., registration, insurance, and maintenance. For more details and to work out if your EV could be exempt, read our previous article on this topic. 

Other exempt vehicles

Some combustion engine vehicles may also be exempt from FBT. 

These include:

  • Single cab utes
  • Dual cab utes or 4WDs that carry more than 1 tonne or more than 8 passengers
  • Panel vans or goods vans
  • Modified vehicles, such as a hearse
  • Taxis

How the employee uses the vehicle comes into the equation as well. Refer to the ATO website for more information. 

How much is a fringe benefits tax on a car?

The FBT rate for a car fringe benefit is 47%. 

However, the dollar amount due depends on a range of factors – including the value of the vehicle, the degree of personal use, any contributions by the employee, the value of non-business modifications, and whether or not the business is GST-registered. The fringe benefit value also has to be ‘grossed up.’ The gross-up factor is designed to prevent employers claiming a GST credit for private use of cars by employees. The current gross-up rate for a GST-registered business is 2.0802. 

Methods for calculating FBT 

The employer can use one of two methods to calculate the FBT on a car that’s a fringe benefit. 

The statutory formula method

The statutory formula method applies a fixed percentage (20%) based on the car's value.

Operating cost method

The operating cost method can be used where detailed records have been maintained. You will need to know the total operating costs, the percentage of private use, and the employee contribution. 

Once the employer decides on a method, they don’t need to use the same method every year – it can be changed from one year to the next. 

Calculating car FBT

Manually calculating FBT on a car can be quite a complex process, but a car fringe benefits tax calculator can make it easier. 

Let’s consider the following scenario using the statutory method: 

  1. You provided a car for an employee to use with a value of $45,000 (including GST).
  2. The car was acquired on 1 April 2023.
  3. Your business is GST-registered.
  4. There were 150 days in the FBT year when the car was not available to the employee. 
  5. The employee contribution is $500. 

Plugging these numbers into the calculator results in an FBT liability for the car of $4,694.27. 

If you are an employer, you can use the ATO online calculator to get an estimate on the car FBT amount due. 

Keep in mind that this is just a preliminary estimate and should be verified by a tax professional. 

Car parking FBT 

Some employers provide employees with a car parking fringe benefit. In this case, they need to be aware of the rules regarding fringe benefits tax for car parking. 

A parking space may be considered a fringe benefit if: 

  • The employer owns, leases, or controls the business premises 
  • The space is close to the workplace
  • The car park is within 1km of a commercial car park that charges an all-day parking fee that is greater than the current year’s car parking threshold (see here for the current rate)
  • The car is parked in the spot for more than 4 hours a day between 7 am and 7 pm, by an employee who drives between home and work, and
  • The employer is not exempt from FBT.

Car parking FBT exemptions

FBT exemptions may apply in certain circumstances, such as when:

  • The employee has a disability (for the exemption to apply, the employee must have either a valid accessibility parking permit displayed or be legally entitled to use an accessibility-marked parking bay)
  • The enterprise is a small business (gross total income below $10 million) and the car park provided is non-commercial and/or 
  • The enterprise is a registered not-for-profit organisation, a non-profit scientific institution, a public educational institution, a public hospital, or an ambulance service. 

You can find more information on the law regarding car parking fringe benefit tax on the ATO website.

FAQ

Although EVs currently cost more than combustion cars, the FBT exemption can help to reduce the cost for a business and make it more worthwhile entering into a salary sacrifice arrangement.
While there are many brands of EVs to choose from, some requirements must be met for them to be exempt from FBT. It’s required that the vehicle:  was held and used on or after 1 July 2022, is a low or zero emissions vehicle, has a value of less than $89,332, including GST (2023-24), and is used by a current employee (or their associates, such as family members).
Individual models may be subject to the luxury car tax, so you must confirm at the time of purchase that the price is below the LCT threshold of $89,332.

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This material has been prepared for general informational purposes only, and should not be taken as professional advice from Driversnote. You should consider seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances. Relevant laws also change from time to time.