How Small Businesses Can Reduce FBT Liability Through Exemptions and Concessions
Published on June 10, 2025
Fringe Benefits Tax (FBT) is a tax that employers pay on some benefits given to employees or their associates, on top of their salary or wages. Common examples include company cars, entertainment, and private health insurance. For small businesses, FBT can be a significant cost, as the current rate is 47% of the taxable value of these benefits. Some benefits must also be reported on employees’ payment summaries. This article outlines how small businesses can lower their FBT by using available exemptions and concessions.
Understanding FBT and Its Impact on Small Businesses
Fringe Benefits Tax applies when an employer provides non cash benefits to employees, such as a company car, low interest loans, or reimbursing private expenses like gym membership or concert tickets. These benefits are separate from salary and wages, and are taxed to ensure fairness in the tax system. The taxable value of the benefits provided is what determines the amount of FBT you pay, and this is calculated using either the statutory formula method or the operating cost method for car fringe benefits, or by assessing the actual cost for other benefits.
For small businesses, fringe benefits tax FBT can be a significant cost if not managed carefully. If you provide benefits without considering exemptions or concessions, you could end up paying more tax than necessary. For example, if you provide a $5,000 gym membership as a fringe benefit, you may have to pay $2,350 in FBT if you don’t apply any available exemptions or concessions.
The Cost of Overlooking Exemptions
The FBT rate of 47% means that every $1,000 in taxable fringe benefits provided results in $470 in tax. This can quickly reduce your business’s taxable income and increase your overall tax bill. Overlooking FBT exemptions or failing to calculate the taxable value correctly can also affect your GST credit claims and your employees’ reportable fringe benefits, which may impact their personal tax return and even their Medicare levy surcharge.
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Leveraging Exempt Benefits to Minimise FBT
There are several FBT exemptions that small businesses can use to reduce their FBT liability. Understanding which benefits are exempt and how to apply these rules can make a real difference to your bottom line.
Work-Related Items Exemption
If you provide work related items such as laptops, tablets, mobile phones, or protective clothing for work related purposes, these can be exempt from FBT. For small businesses with a turnover under $50 million, you can provide multiple work related items each year without triggering FBT, as long as they are mainly used for work.
Minor Benefits Exemption
Minor benefits are those with a value of less than $300 (including GST) and provided infrequently. For example, if you give your staff a $250 restaurant voucher as a one-off reward, this benefit is likely to be exempt. However, if you provide similar benefits regularly, they may no longer qualify as minor benefits.
Emergency Assistance and Retraining
Certain benefits provided in emergencies, such as temporary accommodation or first aid supplies, are exempt from FBT. If you offer retraining or outplacement support to redundant employees, these benefits can also be exempt if they help the employee find a new job.
Utilising Concessions and Alternative Strategies
In addition to exemptions, there are concessions and strategies that can help you reduce your FBT obligations and manage the value of the benefits provided.
The ‘Otherwise Deductible’ Rule
If an expense would have been tax deductible for the employee if they had paid it themselves, you can reduce the taxable value of the benefit by that amount. For example, if you reimburse an employee for 60% of their home internet bill and it’s used for work, you can reduce the taxable value by 60%. It’s important to keep records and employee declarations to support these claims.
Employee Contributions
If your employee makes a contribution towards the cost of a benefit (such as paying part of the cost of a company car for private use), this reduces the taxable value and the FBT you pay. Contributions must be made from after-tax income and properly documented.
Cash Bonuses Instead of Benefits
Sometimes, it can be more tax-effective to provide a cash bonus instead of a non cash benefit. While the employee will pay income tax on the bonus, the employer won’t have to pay FBT. For example, instead of providing a $1,000 gym membership as a fringe benefit, you could give a cash bonus of $1,221 (so the employee receives $1,000 after tax), saving the business $470 in FBT.
Navigating Vehicle-Related FBT Exemptions
Car fringe benefits are common and can be costly if not managed well. Understanding the rules can help you reduce your FBT liability.
Electric Vehicle Concessions
If you provide an eligible Electric Vehicle (EV) valued below the luxury car tax threshold, you may be able to claim an FBT exemption. This applies to battery electric and hydrogen fuel cell vehicles first held and used after 1 July 2022. Plug-in hybrids will only be exempt until 1 April 2025 unless under a binding contract.
Work Vehicle Exemptions
If you provide a work vehicle such as a ute, van, or truck with a carrying capacity of at least one tonne, and private use is limited, these may be exempt from FBT. The Australian Taxation Office allows incidental private use up to 1,000km per year, with no single return journey over 200km.
Maintaining Compliance Through Proper Documentation
To claim FBT exemptions and concessions, you need to keep good records. This includes logbooks for vehicles, employee declarations for otherwise deductible expenses, and evidence of the value of the benefits provided.
The FBT year runs from 1 April to 31 March, and FBT returns are due by 21 May. It’s important to review your salary packaging and salary sacrifice arrangements each year to ensure you’re not paying more FBT than necessary.
Implementing a Proactive FBT Strategy
A proactive approach to FBT can save your business money and reduce stress at tax time. Review all fringe benefits provided, consider which FBT exemptions and concessions apply, and educate your employees about their responsibilities. By doing this, you can keep your FBT liability in check and make the most of the benefits you offer your team.
Next Steps for Business Owners
Take time to review your current salary packaging and fringe benefits arrangements. Could you restructure certain benefits or use minor benefits exemptions to improve your tax position? Our team can help you calculate the taxable value of your benefits and ensure you’re claiming all available FBT exemptions.
Lukasz Klekowski
