FBT 2025–26: What Every Business Owner Needs to Know Now

The FBT year ended 31 March 2026. Here’s what’s changed, what to watch out for, and what to do next.

Every year, 31 March signals the end of the FBT year — and every year, business owners tell us they didn’t realise how much had changed since the last time they looked at this. The 2025–26 FBT year (1 April 2025 to 31 March 2026) brings some of the most significant updates in several years. There are new rules, updated court decisions, fresh ATO enforcement priorities, and a couple of changes that will directly affect businesses running cars or salary packaging arrangements.

We’ve written this article in plain English, not tax-speak. Read through the topics that apply to your business, and reach out to us if you’d like to discuss your specific situation.

Battery electric vehicles — still exempt, but check the price

The good news first. The FBT exemption for fully electric vehicles — battery electric vehicles (BEVs) and hydrogen fuel cell vehicles — continues to apply in 2025–26. To qualify, the car must:

Be a battery electric or hydrogen fuel cell vehicle — not a plug-in hybrid (see below);
Have been first held and used on or after 1 July 2022; and
Not have been subject to luxury car tax (LCT) at the time of first retail sale.

Watch out — home charging stations are NOT exempt
The FBT exemption covers the car itself — not the accessories that go with it. If your business has paid for or reimbursed the cost of an electric vehicle charging station installed at an employee’s home, that’s a separate fringe benefit and may be subject to FBT.
Keep this cost clearly separated from the vehicle arrangement. Talk to us if you’ve done this.

Plug-in hybrids — the exemption is gone (with one exception)

This is the biggest change for businesses running plug-in hybrid electric vehicles (PHEVs) under salary packaging or novated lease arrangements.

From 1 April 2025 — the start of this FBT year — plug-in hybrid vehicles no longer qualify for the FBT exemption. If you have an employee driving a PHEV under a novated lease that started this year, FBT applies to that vehicle from day one.

There is one narrow exception. If all of the following are true, the exemption may continue:

The vehicle was already FBT-exempt as a PHEV before 1 April 2025;
There was a financially binding commitment — such as a novated lease agreement signed before 1 April 2025 — to continue providing private use of that vehicle; and
That binding arrangement has not been varied, broken, renewed, or replaced with a different vehicle since 1 April 2025.

If any one of those conditions fails — for example, the lease was renewed, extended, or the employee switched to a different PHEV — the exemption is gone from the date of the change.

Fully electric is still the smart choice
Battery electric vehicles (BEVs) remain fully exempt from FBT. If your business is considering a new vehicle under salary packaging, choosing a BEV over a PHEV will deliver meaningful savings for both the business and the employee.
Ask us to run the numbers for your specific situation before committing to a vehicle.

Calculating home charging costs for plug-in hybrids

Whether your PHEV is still exempt under the transitional rules or is now fully taxable, there’s a calculation you need to do. The ATO requires employers to work out the employee’s home electricity cost for charging the vehicle — this figure either reduces the taxable value of the benefit as an employee contribution, or is needed to calculate the reportable fringe benefits amount even where the car is exempt.

The ATO has released a shortcut method (PCG 2024/2) specifically for this calculation. To use it, you’ll need:

Actual petrol receipts for the 2025–26 FBT year (estimates are no longer acceptable — the transitional relief that applied in 2024–25 has ended);
The average price of petrol per litre over the year;
The vehicle’s fuel consumption figure from the manufacturer; and
Odometer readings at 1 April 2025 and 31 March 2026.

If you haven’t been collecting petrol receipts for your PHEV employee, flag this to us as soon as possible so we can work out the best approach.

Car parking — a court win that could save you money

Car parking is one of those FBT obligations that many business owners don’t realise applies to them. If you provide employees with a car park at or near your business premises, and there’s a commercial car park within one kilometre that charges more than a certain daily rate, you may have a car parking fringe benefit.

The threshold has increased

A significant court decision in your favour

Here’s something genuinely useful to know: a landmark court case decided this year has narrowed the definition of what counts as a ‘commercial parking station’ for FBT purposes — and for many businesses, the outcome is favourable.

The case involved the Toowoomba Regional Council, which was near a shopping centre car park. The ATO had argued that the shopping centre car park qualified as a ‘commercial parking station’, which would have triggered an FBT liability for the Council. The Full Federal Court disagreed.

The Court found that a car park whose primary purpose is to serve shoppers or visitors — and which uses its pricing specifically to discourage all-day parking — is not necessarily a ‘commercial parking station’ for FBT purposes. This distinction matters enormously for businesses located near shopping centres, hospitals, airports, or similar facilities, where the only nearby parking may be this kind of special-purpose car park.

What this means for your business
If the only car parks within one kilometre of your premises are a shopping centre, hospital, or airport car park — and those facilities charge penalty rates to discourage all-day parking — you may not have a car parking fringe benefit at all.
This is worth reviewing, particularly if you’ve been paying FBT on car parking based on the assumption that nearby shopping centre parking counted.
Talk to us and we’ll assess your specific location.

Running a family business through a trust? Read this carefully.

If your business operates through a discretionary trust — as many family businesses in Australia do — there’s a landmark court decision from this year that you need to be aware of. It has serious FBT implications for directors and family members who receive benefits from the business.

The case that changed things

The Federal Court handed down a decision this year involving a family trust that ran petrol stations, convenience stores, and fast food outlets. Three brothers ran the business as directors but didn’t receive a salary from the trust. Instead, the trust provided them with luxury cars for business and personal use.

The trust argued that the cars weren’t subject to FBT because the brothers weren’t really ’employees’ — they were the controllers and beneficial owners of the business, so the cars were provided in that capacity, not as employment income.

The Federal Court rejected this argument entirely. It found that:

The brothers were employees for FBT purposes — and this can be the case even if no salary is paid;
The cars were provided in connection with their employment as directors, not merely because of their status as family members or beneficiaries; and
The fact that the trust didn’t claim a tax deduction for the private use of the cars made no difference to whether FBT applied.

This affects far more businesses than you might think
If your trust or company provides a vehicle, accommodation, or other benefits to a director or family member who works in the business — even if they don’t receive a formal salary — FBT may apply.
The mere fact that someone is a family member, a beneficiary of the trust, or an ‘owner’ of the business does not automatically put the benefit outside FBT. The courts look at whether there is a connection between the benefit and the person’s role in the business.
This is particularly relevant for restaurants, construction businesses, property companies, and any other family-run enterprise where working directors or family members receive benefits in kind.
Please speak to us before assuming these arrangements are outside FBT.

Equipment and working from home

Many businesses continue to support employees working from home by providing or funding equipment. The good news is that the rules here are relatively straightforward — but there are a couple of traps.

Laptops, phones, and work tools — generally FBT-free

Portable electronic devices like laptops, tablets, and mobile phones provided to employees for primary work use are generally exempt from FBT. The same applies to protective clothing, tools of trade, and similar work-related items.

Businesses with a combined annual turnover under $50 million can provide multiple similar devices to an employee in the same FBT year where there is a genuine work need — for example, two laptops if one breaks down and a replacement is required mid-year. For larger businesses, only one such device per category per employee per year qualifies for the exemption.

The one trap that catches businesses out

If an employee is using business-provided equipment for private purposes — streaming, gaming, personal browsing — FBT may apply to that private use. The liability can be reduced proportionally based on actual work use, but only if you have records to support the percentage claimed.

The ATO has been actively reviewing laptop and device exemptions, particularly where multiple devices have been provided to employees under salary packaging arrangements. If your business has provided devices under salary packaging, make sure we’ve reviewed those arrangements.

The odometer equivalent for equipment
Just as you need an odometer reading for cars, it’s good practice to maintain a simple record of who has what equipment, when it was provided, and what it’s primarily used for. This takes minutes to set up and can save a lot of difficulty if the ATO comes asking.

Contractors — are they really contractors?

FBT applies to benefits provided to employees and to certain officeholders like directors. It generally doesn’t apply to genuine independent contractors. But ‘genuine’ is the key word — and the ATO’s scrutiny of contractor classification hasn’t eased.

Following the High Court decisions and the ATO’s finalised ruling on the topic (TR 2023/4), the classification of a worker is determined primarily by the terms of the written contract, not just by the conduct of the parties or what you call them. Labelling someone a ‘contractor’ in the paperwork doesn’t make them one if the substance of the arrangement looks like employment.

The ATO risk-rates these arrangements. Factors that indicate lower risk include having a clear written contract, evidence that both parties understood and agreed to the classification, and conduct that consistently matches the contract. Arrangements that drift away from the written terms over time are higher risk.

Even where someone genuinely is an independent contractor for FBT purposes, they may still be treated as an employee for superannuation guarantee and payroll tax purposes. These are separate tests with different rules, and it’s possible to be a contractor under one regime and an employee under another.

The ATO is coming after businesses that haven’t been lodging

This section is for business owners who may have been ‘managing’ their FBT without formally lodging a return — either by doing nothing, or by assuming that a journal entry in the accounts was enough. The ATO’s position on this has hardened significantly, and 2025–26 is a year where the consequences of not lodging are very real.

What the ATO is actually doing

The ATO operates an extensive data-matching program that cross-references business vehicle registrations, ABN data, BAS lodgements, and other third-party information with FBT return records. If your business has vehicles registered in its name but has not lodged an FBT return — or has been lodging nil returns without adequate supporting records — you are likely to be on a watch list.

The ATO has publicly announced a crackdown specifically targeting businesses that lodge nil FBT returns without proper substantiation, and those that have never lodged at all despite having vehicles or other benefits. Audit notices are going out across a wide range of industries — including restaurants, construction, manufacturing, and professional services — which happen to be the same industries where employer-provided cars are most common.

What happens if you don’t lodge

The consequences of not lodging an FBT return are significant:

There is no statute of limitations protection. If you have never lodged, the ATO can go back and assess FBT across any year they choose — potentially many years of exposure at once.
The ATO can issue an assessment based on their own estimates. Their estimates tend to assume the worst — 100% private use, no exemptions applied, maximum taxable values. It then falls to you to prove otherwise, which is much harder after the fact than doing it correctly upfront.
Penalties and general interest charges are added on top of the tax itself. These can be substantial.

A nil FBT return is not the same as doing nothing

One of the most common misunderstandings we see is the assumption that if no FBT is payable, you don’t need to lodge anything. This is not how it works.

A nil FBT return tells the ATO: ‘We have reviewed our position, we have vehicles or other benefits, and after applying the correct rules and exemptions, our FBT liability is nil.’ It closes the year, protects you with the statute of limitations, and demonstrates that you’ve engaged with your obligations.

Doing nothing tells the ATO nothing — except that you haven’t lodged, which is itself a red flag in their data matching.

What to do if you haven’t been lodging
If you have vehicles registered in your business name and you haven’t been lodging FBT returns, the right move is to come forward proactively — not to wait for an ATO letter.
Voluntary compliance is treated more favourably than being caught. We can help you assess your historical position, quantify any exposure, and determine the best course of action. Call us before the ATO calls you.

Journal entries and employee contributions — the paperwork matters more than ever

Many businesses reduce their FBT liability by having employees make an after-tax contribution towards the value of a benefit — for example, a contribution towards a company car. This is legitimate, effective, and the ATO accepts it. However, there is a specific process for doing it correctly when the contribution is made by journal entry rather than a cash payment.

The ATO has recently reinforced that a journal entry alone is not sufficient evidence that a valid set-off arrangement exists. For a journal entry contribution to be effective, all of the following must be true:

The employee must have a documented obligation to make the contribution — this needs to be in their salary packaging agreement or employment contract. A verbal understanding or past practice doesn’t cut it.
The employer must have a pre-existing obligation to pay the employee money — for example, a credit balance in a loan account, unpaid salary, or an agreed bonus. The journal entry extinguishes both obligations against each other. If the employer doesn’t already owe the employee money, there’s nothing to set off against.
Both the employee and the employer must sign a set-off agreement before the journal entry is processed. The ATO has specifically flagged this as an audit risk area this year.
The journal entry must be raised no later than when the financial accounts are prepared for income tax purposes — not at any point afterwards.

If your business has been using journal entries to manage FBT without signed documentation in place, we need to review this. The risk of losing the contribution entirely — and having the full FBT assessed — is real.

Don’t make the journal entry without the paperwork
We prepare specific letters for both the employee and the employer to sign as part of this process. These need to be completed and returned before we process the journal entry in your accounts.
If you received a request for signed documents from us and haven’t returned them yet — please do so as a priority.

Entertainment — the deduction trap that catches businesses every year

Entertainment is one of the most common areas where businesses get caught out — not because they’re doing something illegal, but because they claim a tax deduction for entertainment in a way that doesn’t line up with how they’ve treated it for FBT purposes.

The basic rule

Expenses related to meal entertainment — taking employees or clients to a restaurant, for example — are generally not tax-deductible and don’t attract GST credits unless the expense is subject to FBT. If you’re not paying FBT on it, you generally can’t claim the deduction.

How it plays out in practice

Say your business takes a client and several employees to a lunch, and the cost per head comes to less than $300. If you’re using the ‘actual method’ for FBT purposes, the ATO accepts that minor benefits (under $300 per person, provided infrequently) are exempt from FBT. That’s fair enough — but it also means you can’t claim a deduction for the lunch or the GST, because if it’s not subject to FBT, it’s not deductible entertainment.

If your business uses the ’50/50 method’, 50% of all meal entertainment is subject to FBT — and therefore 50% is deductible and you can claim 50% of the GST credits. The minor benefit exemption doesn’t apply under this method.

The ATO spots mismatches between entertainment deductions and FBT treatment very easily — it’s one of the first things their analytics flags. Getting the consistency right between your tax return and your FBT return is important.

A new trap — who pays the dinner bill?

This year the ATO released guidance on a specific scenario that many business owners haven’t considered. If a director or senior employee pays for a work dinner using their personal credit card — rather than the business paying directly — the employer can still have an FBT liability when the director is later reimbursed.

Essentially, the reimbursement is treated as the employer paying for the entertainment. This means the benefit flows through the business and may be subject to FBT. Don’t assume that because a director paid out of their own pocket, the business is off the hook.

Practical tips — simple habits that protect you

FBT compliance doesn’t have to be complicated or stressful. Most of the audit risk comes down to missing records or inconsistent treatment — both of which are preventable. Here are a few simple habits worth adopting:

Odometer readings — take a photo, right now

If your business has company vehicles, odometer readings are required at the start and end of the FBT year — 1 April and 31 March. The easiest way to make sure this happens is to have the person who drives the car take a photo of the odometer on their phone and send it to a central contact (your bookkeeper, office manager, or us directly).

This takes thirty seconds and eliminates one of the most common record-keeping failures we see. If you didn’t capture the 31 March 2026 reading in time — contact us immediately and we’ll work out the best approach.

Use business records where you can

From 1 July 2024, the ATO allows employers to use existing business records to satisfy some FBT record-keeping requirements, rather than maintaining separate FBT-specific records. This applies to a range of declarations and diary requirements. If your business already keeps good employment records, payroll files, and expense documentation, some of this record-keeping burden may be lighter than you think. Ask us which records you’re already keeping that count.

Ask before you provide a benefit — not after

The most expensive FBT problems we see are the ones that arise from benefits that have already been provided for a year or more without anyone checking whether FBT applied. A quick call before your business starts providing a new benefit — a new vehicle, a salary packaging arrangement, accommodation for a relocated employee — takes five minutes and can avoid a significant retrospective liability.

Ready to get your 2025–26 FBT sorted?

If you’ve received our FBT questionnaire, please complete it and return it as soon as possible — the sooner we receive it, the more time we have to review your position and identify any savings before lodgement.
If you haven’t heard from us yet and you think FBT may apply to your business, please reach out. Don’t assume someone else is handling it.

Vision Consulting Group | Carlton VIC & Maroochydore QLD | visions.com.au

This article is intended as general information only and does not constitute taxation advice. Every business situation is different. Please contact Vision Consulting Group before acting on any information in this article.