What is Fringe Benefits Tax?

How FBT actually works

FBT runs on its own calendar. The FBT year runs from 1 April to 31 March, so the 2026-27 FBT year covers 1 April 2026 to 31 March 2027, not the usual financial year. That trips a lot of people up, especially when working out novated lease numbers.

The ATO taxes the taxable value of a benefit, then grosses it up before applying the FBT rate. The gross-up step exists so a non-cash benefit is compared fairly against what you'd have paid for it with already-taxed salary. Two gross-up rates apply for 2026-27: 2.0802 where the employer can claim a GST credit on the benefit, like a car, and 1.8868 where it can't, like health insurance. The FBT rate itself is a flat 47%, applied to the grossed-up amount.

Who actually pays it

The employer pays FBT, not the employee. You won't see it as a line item on your own tax return. But it still touches your finances indirectly: if the taxable value of your fringe benefits goes over $2,000 in an FBT year, your employer has to report a reportable fringe benefits amount on your income statement (the grossed-up threshold for 2026-27 is $3,773). That figure isn't taxed as income, but it's counted in income tests for things like the Medicare Levy Surcharge, HECS-HELP repayments and some family payments.

What counts as a fringe benefit

Cars are the big one, especially through novated leases, but FBT can also apply to car parking, meal entertainment, living-away-from-home allowances, low-interest loans, and personal expenses an employer pays on your behalf, like school fees or a gym membership. Minor benefits under $300, and one work laptop or phone per employee per year, are generally exempt.

FBT and novated leases

This is where most employees run into FBT in practice. Providing a car for private use through a novated lease creates a car fringe benefit. The taxable value is usually worked out with the statutory formula method: 20% of the car's base value, prorated for how many days it was available during the year, less any post-tax contributions you've made.

That's where the Employee Contribution Method (ECM) comes in. By making post-tax contributions toward the car, you can bring the taxable value, and the FBT bill, down to nil. Most novated lease packages are structured this way from the start, splitting your deductions into a pre-tax portion and a post-tax ECM portion so the employer's FBT liability lands at zero.

Eligible electric vehicles are a notable exception. Battery electric and hydrogen fuel cell vehicles priced under the luxury car tax threshold for fuel-efficient vehicles are fully exempt from FBT, so there's no need for ECM contributions at all. Plug-in hybrids lost this exemption for new leases signed from April 2025. Further changes to the EV exemption from April 2027 have been flagged in the Budget but weren't yet law as of publication, so check the current rules with your provider before signing on that basis.

Worked example

Say a novated lease car has a base value of $50,000 and is available for the whole FBT year. The taxable value under the statutory formula is 20% of $50,000, or $10,000. Grossed up at the Type 1 rate (2.0802), that's $20,802, and 47% FBT on that comes to roughly $9,777, payable by the employer. Make $10,000 in post-tax ECM contributions across the year and that taxable value drops to zero, wiping out the FBT bill entirely. That's the mechanic behind almost every petrol or diesel novated lease in Australia.