Fringe Benefits Tax (FBT) 2025: What You Need to Know
It’s that time of year again – the Fringe Benefits Tax (FBT) season is wrapping up. With the ATO continuing its strong focus on FBT compliance and audit activity, getting it right is more important than ever.
To help you stay on track, please review the details below. We’ll also be reaching out to those we know have FBT obligations. In the meantime, if you’re unsure whether FBT applies to you, or if your situation has changed, please get in touch.
What Do You Need to Do?
To prepare your FBT return for the year ending 31 March 2025, make sure to:
- Ensure motor vehicle logbooks are up to date.
- Record closing odometer readings as of 31 March 2025.
Unsure if FBT Applies to You?
Ask yourself the following:
- Do you provide vehicles for private use?
- Have you offered entertainment (food, drinks, recreation) to employees?
- Have any employee debts been forgiven?
- Do you provide loans at reduced interest rates?
- Have you reimbursed private expenses for employees?
- Are you providing housing or living-away-from-home allowances?
- Do employees have salary sacrifice arrangements?
- Are you offering goods at discounted rates to employees?
Motor vehicles remain a key focus for the ATO, particularly where private use is involved (such as commuting). If a business-owned vehicle is available for private use, FBT is likely to apply. Entertainment benefits (such as meals, drinks, or recreational activities) are also often subject to FBT and remain an area of ATO attention.
Does FBT apply to your contractors?
The FBT rules apply when benefits are provided to employees and certain officeholders, such as directors. FBT should not apply when benefits are provided to genuine independent contractors but you need to be sure that your contractors are contractors.
Are your contractors really contractors?
Following two landmark decisions handed down by the High Court, the ATO has now finalised a ruling
TR 2023/4 helps determine whether a worker is an employee or an independent contractor.
If the parties have entered into a written contract, then you need to focus on the terms of that contract to establish the nature of the relationship (rather than looking at the conduct of the parties). However, merely labelling a worker as an independent contractor doesn’t necessarily mean that they won’t be treated as an employee if the terms of the contract suggest that the parties have entered into an employment relationship.
The ATO has also issued PCG 2023/2 which sets out four risk categories. Arrangements will tend to be viewed in a more favourable light where:
- There is evidence to show that you and the worker have agreed on the classification;
- There is a comprehensive written agreement that governs the relationship;
- There is evidence that you and the worker understand the consequences of the classification;
- The performance of the arrangement hasn’t deviated significantly from the terms of the contract;
Specific advice has been sought confirming that the classification is correct; and
Tax, superannuation, and reporting obligations have been met when the worker is classified as an employee or independent contractor (whichever relevant).
If your business employs contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.
Even when a worker is a genuine independent contractor, just remember that this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.
What’s Exempt from FBT?
Certain work-related items remain exempt from FBT if primarily used for employment purposes, including:
- Portable electronic devices (limited to one per employee per FBT year).
- Computer software.
- Protective clothing.
- Briefcases.
- Calculators.
- Tools of the trade.
Electric Vehicles (EVs)
For the 2025 FBT year, EVs continue to be a key area of focus. Eligible electric vehicles remain exempt from FBT if they meet specific criteria, such as falling below the luxury car tax threshold and meeting the FBT definition of a car.
However, a major change is coming for Plug-in Hybrid Electric Vehicles (PHEVs). From 1 April 2025, PHEVs will no longer qualify for the FBT exemption. The only exception applies where there is a financially binding commitment to provide the vehicle made before that date. You can read more about this update here.
Changes to FBT Record Keeping
From 1 April 2024 (for the 2025 FBT year onward), employers have the option to rely on alternative records, as approved by the Commissioner of Taxation. This means that, in some cases, existing business records may be used in place of travel diaries or employee declarations, provided they meet the specified criteria. The information required to support FBT returns remains consistent with FBT law.
If you’d like tailored advice or support, contact us at support@walkerhill.com.au today!
