FBT can apply to things like vehicles, entertainment, reimbursements and other employee perks. The rules are not always straightforward, and the ATO has highlighted a number of areas where businesses commonly get it wrong.
Electric cars and the FBT exemption
There is a valuable FBT exemption available for certain electric vehicles.
Employers may qualify where:
- The vehicle is owned or leased by the business
- It is provided to a current employee
- It is a low or zero emissions vehicle
- It was first used on or after 1 July 2022
- It is below the luxury car tax threshold ($91,387 for 2025–26)
Important change to note
From 1 April 2025, plug-in hybrid vehicles generally no longer qualify for the exemption unless there is an existing arrangement already in place.
Work vehicles and private use
One of the most common FBT issues is around work vehicles.
A key point many businesses miss is this:
A vehicle is considered available for private use if it is kept at or near an employee’s home, even if it is not actively being used privately.
The ATO is focusing on businesses that:
- Do not lodge FBT returns when required
- Assume certain vehicles are automatically exempt
- Do not keep proper records like logbooks
- Treat private travel as business use
The cost of getting it wrong
The ATO uses data and analytics to identify FBT issues.
In one example, a business that failed to keep proper records and lodge returns ended up with a liability of $938,000, including penalties and interest.
It is a clear reminder that FBT needs to be managed carefully.
Do FBT rules apply to contractors?
FBT generally applies to employees, not genuine independent contractors.
However, working out whether someone is truly a contractor is not always straightforward.
Even if someone is labelled as a contractor, the ATO looks at the terms of the agreement to determine the relationship.
If your business engages contractors, it is important to ensure the arrangement is correctly classified and documented.
Record keeping matters
FBT record keeping can feel like a burden, but it is a key part of meeting your obligations.
There are now more flexible options in some cases, allowing businesses to rely on existing records if they meet certain requirements.
A simple tip:
If your business provides vehicles, make sure odometer readings were captured at the right time. A quick photo can save a lot of stress later.
Common FBT risk areas
Entertainment expenses
A common issue is claiming deductions for meals and entertainment without considering the FBT implications.
In many cases:
- If no FBT is applied, the expense may not be deductible
- GST credits may also not be available
Employee contributions
Using after-tax employee contributions can reduce FBT, but the setup needs to be correct.
If contributions are only recorded through journal entries, strict conditions must be met. If not, the ATO may not accept them.
Not reviewing your FBT position
Some businesses assume they do not need to worry about FBT, but this can create risk.
If your business provides:
- Vehicles
- Reimbursements for private expenses
- Entertainment
- Discounts or perks
FBT may need to be considered.
The bottom line
FBT applies to a wide range of employee benefits, and the ATO has highlighted several key risk areas including vehicles, contractor arrangements, entertainment and record keeping.
Taking the time to review how these apply to your business can help ensure everything is being handled correctly.
Need help navigating FBT?
If you are unsure whether FBT applies to your business, or want to make sure everything has been handled correctly, it is worth having a conversation.
The team at Lead Advisory Group can help you understand your obligations and review your position.
Get in touch with Lead Advisory Group to chat through your situation.
