As the FBT year has just concluded (31 March 2025), it’s a great time for businesses to review their fringe benefits arrangements. With the ATO keeping a close eye on FBT compliance, especially following a year of legislative updates, we want to make sure you’re fully across what matters most for your business.
Here’s a practical guide to what employers need to know for 2025.
Contractor or Employee?
Correctly classifying workers as employees or contractors is essential to determine FBT obligations. Specific federal court cases, such as Bechtel’s case and John Holland’s case, illustrate the complexities of travel cost deductions for FIFO (Fly-In Fly-Out) employees. Misclassification can lead to significant tax implications, so employers must carefully assess each worker’s status.
Electric Vehicles
Electric vehicles (EVs) are becoming increasingly popular, and the Australian Taxation Office (ATO) has introduced an FBT exemption for electric cars. To qualify, the vehicle must be a zero or low emissions vehicle first held and used on or after 1 July 2022 and not subject to luxury car tax. However, it’s important to note that hybrid vehicles will no longer qualify for this exemption from 1 April 2025 unless there was a financially binding commitment before this date.
Entertainment
Entertainment remains a common area for mistakes. If you’re claiming deductions for entertainment — like client lunches or staff events — but not recognising them as fringe benefits, this raises red flags with the ATO.
The ATO’s updated guidance on the $300 minor benefit exemption emphasises the importance of frequency, regularity, and aggregated value of benefits. Employers must maintain detailed records to apply the correct FBT treatment and take advantage of available exemptions.
Reduced Record-Keeping by Using Electronic Methods
The introduction of LI 2024/6 allows employers to rely on certain business records instead of employee declarations for otherwise deductible benefits, effective from 1 April 2024. This change simplifies the record-keeping process and reduces the administrative burden on employers. By using electronic methods, employers can maintain accurate and efficient records, ensuring compliance with FBT regulations.
Work-from-Home
With the rise of remote work, understanding the FBT implications of work-from-home equipment is crucial. It is important to classify the home as a ‘sole base of operations’ and consider the deductibility of travel between home and the employer’s office. Employers must ensure that work-related items such as laptops and mobile phones are primarily used for employment to qualify for FBT exemptions.
Consequences of Not Lodging an FBT Return
Failing to lodge an FBT return can lead to increased audit risks and potential penalties. The ATO focuses on documentation and declaration requirements, and employers who do not lodge returns are at higher risk of audits. Lodging a ‘nil’ FBT return can reduce audit risk and trigger a three-year amendment period. Employers must demonstrate compliance with FBT obligations to avoid additional FBT payable and penalties.
Understanding and managing FBT obligations is essential for employers to ensure compliance and optimise tax benefits. By staying informed and maintaining accurate records, employers can effectively manage their FBT liabilities and avoid potential pitfalls.
Let’s Get Your FBT Sorted
The FBT year ended on 31 March 2025. Now is the perfect time to review your benefits, tidy up records, and ensure your systems are in order. If you need help navigating the updates or would like a review of your FBT position, our team at q4 financial is ready to assist.
