Wolters Kluwer recently hosted the Fringe Benefits Tax 2025 — Annual Compliance Update webinar in which Jennifer Madigan, Director, Risk & Strategy Employer Obligations at the ATO and a panel of experts provided an update on a range of FBT matters. This article provides a broad overview of the main topics of discussion which included law and policy updates, travel, compliance, and what attracts the ATO’s attention.
Table of contents
- Law and policy updates
- Travel
- ATO approach to reducing non-compliance
- What attracts the ATO’s attention
- Four key compliance steps
Law and policy updates
Plug-in hybrid electric vehicles exemption ending
From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) will not be classified as zero or low emissions vehicles under FBT law. This means that PHEVs will no longer qualify for the electric cars exemption (Fringe Benefits Tax Assessment Act 1986 (FBTAA) s 8A). However, an employer can continue to apply the exemption if both of the following requirements are met:
- The PHEV was used, or available for use, before 1 April 2025 (and that use, or availability for use, was exempt).
- There is a financially binding commitment to continue providing private use of the vehicle or making the vehicle available for private use on and after 1 April 2025 (but any optional extension of the agreement is not considered binding).
The ATO is advising employers who provide PHEVs to be aware that their FBT obligations may change from 1 April 2025 and that they should seek professional advice if they are having difficulties understanding the changes.
For more information, see FBT on plug-in hybrid electric vehicles on the ATO’s website.
PHEVs – valuing fuel
The ATO has completed consultation on valuation methodologies for both electricity and petrol expenses of a PHEV. Previously released Practical Compliance Guideline PCG 2024/2 provides a methodology for calculating electric vehicle home charging expenses. However, the guideline does not apply to PHEVs which use a mix of fuels (electricity and petrol) to power the vehicle. New ATO guidance will be available later in 2025 that offers a straightforward solution to calculate the cost of petrol and electricity for PHEVs. The guidance will apply for both FBT and income tax purposes.
Key reminder – electric vehicles FBT exemption
Although the private use of an eligible electric car is exempt from FBT, the value of the benefit must be included when working out whether an employee has a reportable fringe benefits amount. Two key steps that employers should follow are:
- Calculate the notional taxable value of the benefits associated with the private use of the exempt electric car for reportable fringe benefits purposes.
- Report the amount on the employee’s income statement if the taxable value of the employee’s aggregated reportable fringe benefits is more than $2,000 in an FBT year.
Although the reportable fringe benefits amount is not part of the employee’s assessable income, it must be reported because it is included in the income tests for some government benefits and obligations.
For more information, see Electric cars exemption on the ATO’s website and their Electric vehicles and fringe benefits tax fact sheet for employers.
Alternative records for FBT returns
For the 2025 FBT year and following FBT years, employers may choose to use existing corporate records (alternative records) in place of travel diaries or employee declarations for certain benefits (FBTAA s 123AA). Employers may also choose to keep and retain the records in the current approved forms or use a combination of both methods for each employee for each benefit.
Using the alternative records method does not change the information that employers are required to hold to support their FBT return under the FBT law. It changes the prescriptive format and process for obtaining and holding that information.
Importantly, where employers choose to use the alternative records method, they must have the minimum information required at the time of lodging their FBT return for the FBT year (or by 21 May if they do not have to lodge a return).
An alternative record option is available for the following records:
- Living-away-from-home-allowance – fly-in fly-out/drive-in drive-out declaration (see LI 2024/4)
- Living-away-from-home – maintaining an Australian home declaration (see LI 2024/5)
- Otherwise deductible rule – expense payment, property or residual benefit declaration (see LI 2024/6)
- Otherwise deductible rule – private use of a vehicle other than a car declaration (see LI 2024/7)
- Temporary accommodation relating to relocation declaration (see LI 2024/8)
- Car travel to certain work-related activities declaration (see LI 2024/9)
- Remote area holiday transport declaration (see LI 2024/10)
- Travel diaries (see LI 2024/11)
- Relocation transport declaration (see LI 2024/12)
- Overseas employment holiday transport declaration (see LI 2024/13), and
- Car travel to an employment interview or selection test declaration (see LI 2024/14).
For more information, see Fringe benefits tax alternative record keeping on the ATO’s website.
Travel
Employee travel is one of the most common topics on which employers seek guidance from the ATO. The ATO recognises that employee travel is a difficult topic to understand and is an area of the law that requires employers to weigh up facts and circumstances specific to their situation.
Key ATO guidance relating to the income tax and FBT treatment of employee travel expenses and employee living-away-from-home expenses and allowances includes:
- TR 2021/1 — Income tax: when are deductions allowed for employees’ transport expenses?
- TR 2021/4 — Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances and living-away-from-home allowances
- PCG 2021/3 — Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location – ATO compliance approach.
Employers experiencing difficulties in determining if benefits or allowances provided to their employees relate to travelling on work or living at a location can contact the ATO for tailored technical assistance, including applying for a private binding ruling based on the employer’s particular arrangement and circumstances.
ATO approach to reducing non-compliance
The ATO’s approach to reducing FBT non-compliance is to help employers comply and correct those who do not comply.
Information on the ATO website, the ATO’s Fringe benefits tax - a guide for employers, learning modules on the ATO’s Essentials for strengthening your small business online learning platform and FBT information sessions are some examples of how the ATO helps employers to comply.
To correct non-compliance, the ATO conducts reviews and audits and is increasingly contacting employers by letter, email or phone about reviewing their records and voluntarily correcting mistakes. Where employers do not respond or where they are not voluntarily complying, the ATO will take firmer action, eg employers may be charged penalties.
What attracts the ATO’s attention
Motor vehicles
Passenger or commercial type vehicle
The ATO often sees employers classify motor vehicles incorrectly which can lead to mistakes in calculating FBT.
For FBT purposes, there are 3 different types of motor vehicles to be aware of:
- cars that are principally designed for carrying fewer than 9 passengers, including the driver (eg sedans, stations wagons and SUVs)
- cars that are not principally designed for carrying passengers, but which have a goods-carrying capacity of less than one tonne (eg most dual cab utes)
- all other vehicles with higher goods carrying capacities (eg one tonner utes), which are not classified as cars but still give rise to a fringe benefit.
Correctly classifying the type of motor vehicle being provided is important as it will affect the method used to calculate FBT and whether certain exemptions can apply.
Private or business use?
The ATO sees employers making mistakes by treating an employee’s private use of a motor vehicle as business use. FBT applies to an employee's private use of an employer’s car, not their business use. A simple way to work this out is to ask: “if the employee had paid for the costs of using the car (such as fuel), could they have claimed an income tax deduction for the whole cost?”. If the answer is “yes”, it is a business use of the car.
Journeys that involve travel between home and work, collecting lunch and picking up children from school are examples of private use. Although there are some exceptions, the default position for all these trips is that they are private and will attract FBT.
Logbooks
The ATO commonly sees mistakes being made with logbooks. In general, logbooks must contain enough detail to clearly demonstrate the usage of the car during the logbook period. Employers must ensure that logbooks include the start and end date of the journey, the start and end odometer readings of the journey, kilometres travelled and reason for the journey.
Logbook problems observed by the ATO include insufficient information about the purpose of the journey, discrepancies and inconsistencies between the logbook entries and other records such as odometer records, and logbooks not representative of the actual usage.
Another common error with logbooks is business and private travel being combined and listed as one entry. If the purpose of a single journey is a mix of business and private travel, they must be listed as separate entries.
Where the ATO does not have confidence in the accuracy of a logbook, it will be deemed invalid. This may result in the percentage of business use being reduced to zero, or the ATO may apply the default statutory formula method to calculate the FBT.
For more information, see FBT on cars, other vehicles, parking and tolls on the ATO’s website.
Employee contributions
Employee contributions are one of the main ways employers can reduce their FBT liability for most fringe benefit categories. What attracts the ATO’s attention is when employers:
- incorrectly apply a blanket employee contribution to reduce their FBT liability to nil, and then lodge a nil return without having first determined their liability, and
- report employee contributions in their FBT return but do not report the corresponding amount in their income tax return, or report at the incorrect label.
Nil or non-lodgments
The ATO is focusing on nil returns and non-lodgments as part of its compliance program. The ATO is advising employers to stop and think about whether benefits have been provided and the value of those benefits before lodging a nil return or sending the ATO a notice of non-lodgment. Employers cannot lodge a nil return by the due date and determine their FBT liability later. Employers found to be lodging an incorrect return may be subject to penalties. Employers may also be subject to penalties for non-lodgment which can be up to 75% of the tax shortfall if the Commissioner raises default assessments.
Employers are encouraged to contact the ATO if they realise that they have made an error and to engage with the ATO if they are contacted about their FBT compliance. This can help to reduce or even completely avoid penalties.
Four key compliance steps
- Identify – if you are providing benefits and their type.
- Determine – the taxable value for each benefit.
- Lodge, Report and Pay – lodge your FBT return, report reportable fringe benefits amounts in the employee’s payment summary or through STP, and pay any FBT liability owed by the due date.
- Keep records – to confirm your FBT position. Employers should think about this step early, ideally at the same time they are considering providing benefits.
If you missed the webinar, you may access the recording here.
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