FBT and Company Cars: What Every Business Owner Needs to Know

What Is FBT on a Company Car?

Fringe Benefits Tax (FBT) applies when a business provides an employee — including a director or business owner — with a benefit that isn't cash wages. A company car is the most common fringe benefit in Australia, and it comes with specific rules that catch many business owners by surprise.

FBT is paid by the employer, not the employee. The FBT year runs from 1 April to 31 March, and the rate is 47% — applied to the taxable value of the benefit. That's a steep number, which is why understanding how to calculate and manage it properly matters.

The Two Calculation Methods

The ATO allows two methods for calculating the FBT value of a car benefit. You can choose whichever results in a lower liability, and you can switch methods each FBT year.

1. Statutory Formula Method

This is the simpler method. The taxable value is 20% of the car's base value (the cost to the employer, including GST and dealer delivery but excluding registration, stamp duty, and CTP insurance).

Formula: Taxable Value = Base Value × 20% × (Days Available / 365)

The statutory rate is 20% regardless of how much — or how little — the car is actually driven. That's the catch: a car sitting in your garage most of the time still generates FBT under this method.

2. Operating Cost Method

This method bases the taxable value on the actual operating costs of the car, multiplied by the percentage of private use. It requires a logbook covering at least 12 continuous weeks, and the logbook must be renewed every five years (or earlier if your travel patterns change significantly).

Formula: Taxable Value = Total Operating Costs × Private Use %

If your car is used predominantly for business — say 80% or more — the operating cost method typically produces a lower FBT liability than the statutory formula. It takes more record-keeping but the savings can be substantial.

Use the FBT Car Calculator to compare both methods with your actual figures before committing to one for the year.

What Counts as 'Private Use'?

Private use includes any travel that isn't in the course of earning income — including:

• Commuting between home and work (this one surprises people)
• Weekends and holidays
• Personal errands
• Time the car is parked at an employee's home overnight

Commuting is the biggest issue for most business owners. The ATO treats the trip from your house to your workplace as private use, not business travel. The exception is if you have a home office that genuinely qualifies as your primary place of business, or if you carry bulky equipment that makes taking a work vehicle necessary.

Employee Contribution — Reducing Your FBT

Both methods allow the taxable value to be reduced by any amount the employee contributes from after-tax income toward the cost of providing the car. This is called an employee contribution or recipient payment.

Every dollar contributed reduces the taxable value by a dollar, which cuts FBT at the 47% rate. If the employee contribution equals the full taxable value, FBT drops to zero — though the employee is then essentially paying for the car themselves.

Electric Vehicles — The Big FBT Exemption

Since 1 July 2022, eligible electric vehicles provided by employers as car benefits are exempt from FBT entirely, provided:

• The car is a battery electric vehicle (BEV), plug-in hybrid electric vehicle (PHEV — only until 1 April 2025), or hydrogen fuel cell vehicle
• The car's value at the time of first retail sale was below the luxury car tax threshold (approximately $89,332 in 2025–26)
• The car is provided in the 2022–23 income year or later

This exemption has made novated leases on EVs extremely attractive for employees in higher tax brackets. Even though the benefit is FBT-exempt, it still counts toward the employee's reportable fringe benefits amount, which can affect means-tested government entitlements.

Luxury Car Tax Interaction

If the car cost more than the luxury car tax (LCT) threshold, the base value for FBT purposes is still the actual cost — there's no cap. A $150,000 Mercedes used as a company car generates FBT based on $150,000, producing a taxable value of $30,000 under the statutory method (20% × $150,000).

GST and FBT

When an employer pays FBT, they can claim a GST credit on the gross-up amount. The interaction is complex — there are two different gross-up rates (Type 1 for GST-creditable benefits, Type 2 for others). The FBT Car Calculator handles this automatically.

Running Cost Benchmarks

For operating cost method calculations, typical annual running costs for a mid-range vehicle in Australia:

• Fuel: $3,000–$6,000 depending on usage and engine size
• Registration and CTP: $800–$1,500
• Insurance: $1,200–$2,500
• Servicing and tyres: $1,000–$2,500
• Depreciation (if applicable): varies

Use the Fuel Cost Calculator to accurately estimate your annual fuel spend as an input to the operating cost method.

Keeping a Proper Logbook

If you're using the operating cost method, your logbook is your defence. A compliant logbook must:

• Cover at least 12 continuous weeks
• Record the odometer at start and end of each journey
• Note the destination and purpose of each trip
• Be signed by the driver

Apps like ATO's myDeductions make this easier — they use GPS to log trips automatically, which you can then categorise as business or private.

If you're navigating FBT as a business owner for the first time, a quality dash cam with GPS logging can double as a business-purpose record tool while also protecting you on the road.

FBT Return Obligations

If your FBT liability for the year exceeds $3,000, you must register for FBT and lodge an annual return by 21 May (or 25 June if lodged by a tax agent). If you're under $3,000, you're still liable — you just don't need to register. Instalments are payable quarterly via your BAS if your annual liability is significant.