Fringe Benefits Tax 2026 Hot Spots – Are You Ready?

Posted on by Admin

8 May 2026

With the 2026 FBT year now ended and increased scrutiny from the ATO in this area, it is a good time for employers to review the FBT treatment of employee benefits and ensure appropriate records are in place to maximise available exemptions and concessions. We provide you with the latest updates and tips to assist you in managing FBT compliance obligations and completing 2026 FBT returns.

At a glance – the 2026 FBT hot spots

Employers are facing closer ATO scrutiny in several key areas this FBT year. In particular:

  • Electric Vehicles (EVs) & Plug-in Hybrid Electric Vehicles (PHEV) changes – EV salary packaging remains attractive, but the PHEV sunset date now applies for new arrangements and changes to the full EV exemption to be announced in the 2026 Federal Budget will see the full EV exemption begin to be phased out from 1 April 2027. Separately, Employers should also consider the updated ATO shortcut method for home‑charging costs and remember that exempt electric car benefits can still be reportable for employees.
  • Owner‑managers and non‑cash benefits (SEPL decision) – The Full Federal Court decision in SEPL confirms that non‑cash benefits provided to business owners are not automatically outside the FBT net. You still need to consider whether benefits are provided “in respect of employment”, and maintain strong documentation to support the capacity in which benefits are received.
  • Motor vehicles – exemptions, private use and logbooks – The ATO is actively reviewing car benefits, focusing on misclassification of “work vehicles” as exempt, under‑stated private use and invalid or incomplete logbooks. Reviewing vehicle types, private‑use policies and the quality of employees’ logbooks is critical to managing FBT exposure.

2026 FBT Rates & Thresholds 

Key dates

Do you need to lodge a FBT return?

Amid a heightened focus on revenue collection, the ATO has significantly expanded its FBT data-matching capabilities, allowing it to more effectively identify and target employers at higher risk of non-compliance. In particular, this includes:

  • Employers who provide benefits to employees but do not lodge an FBT return (e.g. on the basis that benefits provided do not have a taxable value) are at high risk of scrutiny.
  •  Employers who lodge a ‘nil’ FBT return without adequately reviewing the FBT treatment of benefits provided to employees.

If an employer provides benefits to employees and is not registered for FBT, it is essential to review the application of any available exemptions or concessions for accuracy, ensure they are properly documented, and maintain all relevant declarations.

As a reminder:

  •  Employers with an FBT liability must lodge an FBT return.
  •  If FBT instalments were paid during the year but no FBT liability arises, an FBT return must still be lodged to claim a refund of those instalments.

TIP

If an employer has determined that they do not have a FBT liability during an FBT year, we recommend that a ‘nil’ FBT return is lodged to ensure commencement of the three-year amendment period during which the Commissioner can generally amend returns.

Recent Developments and Focus Areas

1.     Electric Vehicles – Updates and Reminders

We have observed a steady and continuing increase in the uptake of electric vehicles among our clients since the introduction of the FBT exemption for electric vehicles on 1 July 2022. In particular, salary packaging an electric vehicle through a novated lease arrangement is becoming increasingly popular and can deliver significantly greater tax savings than doing the same with a non-electric vehicle of equivalent value.

We have summarised below some recent updates in the electric vehicle space:

  • This week, the government has released a joint media statement regarding changes to be included in the 2026 Federal Budget, whereby a phased decrease to the FBT subsidy on EVs will be introduced from 1 April 2027.
    • Phase 1 – Until 31 March 2027:  The existing FBT exemption in relation to EVs will continue in full. 
    • Phase 2 – Between 1 April 2027 and 31 March 2029:
      • For EVs costing $75,000 or less – The existing FBT exemption in relation to EVs will continue in full. 
      • For EVs costing more than $75,000 but below the luxury car tax (LCT) threshold – a 25% discount will apply to FBT payable.
    • Phase 3 – From 1 April 2029 onwards: All EVs below the LCT will receive the 25% discount on FBT payable.  
  • Under the Free Trade Agreement Australia has with the European Union, it is expected that the Luxury Car Threshold (LCT) for electric vehicles will be raised to $120,000 (up from $91,387 for fuel-efficient vehicles). This will exempt most European cars sold in Australia from LCT.
  • The sunset clause for PHEVs is now in effect. From 1 April 2025, any new arrangements providing a PHEV car benefit to an employee will no longer qualify for the electric vehicle FBT exemption. For existing financial arrangements entered into before 1 April 2025, it is important to note that any changes to the arrangement – such as an optional extension or a change of employer under a novated lease – may result in an employer no longer qualifying for the FBT exemption.
  • The ATO has updated PCG 2024/2 to allow the shortcut method to be utilised to calculate the taxable value of PHEV electricity costs where the vehicle is charged at an employee’s home. Alternatively, an employer can continue to calculate actual electricity costs used instead of using the new shortcut method.

TIP

If you are an employer considering implementing a policy to enable employees to salary sacrifice a vehicle (electric or otherwise) under a novated lease arrangement, Cooper Partners can assist in helping you understand the FBT implications and key considerations.

Reminder

Electric cars which are exempt from FBT must still be disclosed as a reportable fringe benefit if the taxable value of an employee’s fringe benefits amount for the FBT year (including the exempt car benefit) exceeds $2,000.

2.   Taxpayer wins appeal – non-cash benefits not subject to FBT as not in relation to employment

The Full Federal Court (FCT v SEPL Pty Ltd ATF SFT Trust [2026] FCAFC 36) has provided welcome clarity that non-cash benefits provided to business owners are not subject to FBT where those benefits are not received in respect of employment.

SEPL involved a discretionary family trust with a corporate trustee operating a successful intergenerational family business (the taxpayer).

  •  Three brothers (the ‘brothers’) were the only directors of the taxpayer.
  • The brothers were involved in the business but were not paid a salary from the trust and did not receive any director fees.
  • The brothers were among many eligible beneficiaries of the family trust but were the only beneficiaries who were actively involved in the day-to-day running of the business.
  • The family trust purchased multiple luxury, high-performance vehicles which were provided to the brothers for both business and private use.
  • The vehicle-related expenses were charged to the beneficiary loan account of the brothers’ mother.

The ATO issued an amended FBT assessment to SEPL on the basis that the taxpayer had provided car benefits to the brothers that were subject to FBT. When applying for a review with the Administrative Appeals Review Tribunal (the AAT), SEPL argued that the brothers were not employees of the family trust and that the vehicles were provided to them in their capacity as owners/beneficiaries, and not ‘in respect of employment’.

While the AAT initially found in favour of SEPL and set aside the Commissioner’s assessments, the Commissioner appealed to the Federal Court, which subsequently overturned the AAT’s decision, instead finding that SEPL was liable for FBT on the car benefits on the basis that the brothers were in fact ‘employees’ of the family trust for FBT purposes and that the benefits were provided ‘in respect of employment’.

SEPL subsequently appealed to the Full Federal Court which has recently found in favour of the taxpayer, reinstating the AAT’s original decision that the non-cash benefits – namely the cars – were provided to the brothers in their capacity as owners and beneficiaries of the family trust, and not in respect of employment.

The decision of the Full Federal Court highlighted the following:

  • The definition of an ‘employee’ contained in section 137 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is limited and cannot automatically convert non-cash benefits into ‘salary or wages’. A benefit is only relevant for FBT purposes if it is provided ‘in respect of employment’ and not in relation to benefits provided in an individual’s capacity as an owner.

Section 137 relies on whether a ‘hypothetical’ cash payment would constitute salary or wages paid to an individual (i.e. is it not a free-standing deeming provision) and requires consideration of the common law meaning of ‘employee’.  

Key takeaway:

SEPL provides valuable guidance on the application of the FBT rules in family business settings and illustrates how fact-sensitive these matters can be, highlighting the importance of maintaining thorough documentation (including formal resolutions). It is also important to note that the common law definition of ‘employee’ remains relevant when considering provisions in the FBTAA and that non-cash benefits provided to owner-beneficiaries are not automatically excluded from FBT.

Early expert advice and careful record-keeping can reduce FBT exposure and avoid prolonged disputes.

3.    Crackdown on Motor vehicles

The ATO has announced increased scrutiny of motor vehicle benefits which remain one of the most popular ways for employers to provide non-cash benefits to employees.

The ATO is now utilising sophisticated data analytics to detect non-compliance and is actively reviewing businesses in this area, specifically in relation to the following:

  • Incorrectly treating “work vehicles” as exempt from FBT;
  • Misclassifying private use of vehicles as business use; and
  • Employees not maintaining valid logbooks.

Misclassification of “work vehicles” as exempt

Where employers treat work vehicles as exempt from FBT (such as utility vehicles and other commercial vehicles), it is important to review the vehicle specifications to confirm they meet the exemption criteria and to also ensure any private use by employees remains minor, infrequent and irregular. This is particularly important in relation to dual cab vehicles which do not automatically qualify for an FBT exemption.

If you are considering purchasing a new vehicle for your business, Cooper Partners can assist in assessing any potential FBT implications and identifying practical steps to help minimise your FBT exposure.

TIP

We recommend that employers implement a Motor Vehicle Use Policy to ensure that private use of a vehicle by an employee complies with the requirements to qualify for FBT exemption.

Private Use of Vehicles & Logbooks

A common issue identified by the ATO is employers incorrectly treating an employee’s private use of a motor vehicle as business use.

Private use includes home-to-work travel as well as any travel not related to performing employment duties – for example, using a motor vehicle for personal errands or leisure activities.

As a timely reminder, employers make a motor vehicle available for the private use of an employee on any day that the motor vehicle:

  • is actually used for private purposes by the employee, or
  • is ‘taken to be available’ for the private use of the employee.

Employers should ensure employees maintain valid logbooks, enabling the use of the operating cost method to calculate the taxable value of car fringe benefits based on the vehicle’s private use.

A key risk is that without a valid logbook (and a 0% business use percentage recorded), the operating cost method may result in a higher taxable value and by default the statutory method may apply – often leading to a higher FBT liability.

This was recently tested by the ATO in a hearing before the Administrative Review Tribunal (Prestige Form Group NSW Pty Ltd and FCT [2026] ARTA 627) where the taxpayer was unable to demonstrate that valid operating cost method elections were made within the required timeframe and failed to maintain adequate substantiation to support the business use percentage. In particular, the logbook and odometer records were either unreliable or not maintained, resulting in the Commissioner denying access to the operating cost method.

Practical considerations when applying the logbook method:

We have outlined below some of the key risk areas faced by employers when applying the logbook method:

  • Incorrect business use: Can occur where an employee’s vehicle usage changes from the initial business use established by a logbook, requiring the employer to adjust the business use percentage in a subsequent (non-logbook year) to reflect the change in business use. As a conservative approach, we recommend maintaining a new logbook during an FBT year where the existing logbook no longer accurately reflects the vehicle’s current business use.
  • Incomplete logbook entries: There is a risk that business journeys recorded in a logbook may be disregarded by the ATO when the logbook is deemed to be incomplete, resulting in a reduced business use %. We recommend that employers review logbooks prepared by employees to ensure they meet the ATO’s requirements to be considered a valid logbook.

What is a valid logbook?

Logbooks are valid for up to 5 years. At a minimum, a valid logbook should contain the following information:

  •  Start and end dates of each journey.
  •  Odometer readings at the beginning and end of each trip.
  •  Total kilometres travelled.
  •  Purpose of the journey – description should be detailed, noting that purpose of the trip was “business” related is not sufficient.
  • Odometer records at the start and at the end of FBT year should also be recorded.

When recording entries, employees should be careful to not combine business and private trips in a single entry. E.g. Home to work travel should always be recorded separately.

TIP

Odometer readings at the start and end of an FBT year should still be recorded during a non-logbook year to enable the use of the operating cost method for calculating the taxable value of car fringe benefits.

Next Steps

If you would like further information on FBT, assistance with your FBT obligations or with employment taxes in general, please reach out to a member of our employment taxes team.

Authors:
Rachel Pritchard, Associate Director

Annie Barrett, Senior ManagerMikaella Alfaro, Manager- Business Development Support

This newsletter is current as of 8 May 2026, however, please note that announcements and changes are being made by the Government and the ATO regularly, and we expect that the tax and business-related responses will continue to evolve.  Before acting upon the content of this newsletter, please contact us to discuss how the above applies to your specific circumstances.

This information is general advice only and neither purports, nor is intended to be advice on any particular matter.
No responsibility can be accepted for those who act on the contents of this publication without first contacting us and obtaining specific advice.
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