Providing employees with company vehicles can make business travel easier, but it can also create fringe benefits tax obligations.
Fringe benefits tax, commonly known as FBT, can apply when an employer provides a vehicle that an employee can use privately.
This may include obvious private use, such as using a company car on weekends, but a vehicle can also be considered available for private use simply because it is garaged at an employee’s home.
The Australian Taxation Office treats allowing an employee to use a work car for private purposes as a common example of a fringe benefit. Employers are responsible for determining whether FBT applies, calculating the taxable value of the benefit and paying any FBT liability.
This guide explains:
- when company vehicles can create an FBT liability
- what the ATO considers a car
- business versus private vehicle use
- taking a company vehicle home
- the statutory formula method
- the operating cost method
- vehicle logbook requirements
- employee contributions
- utes, vans and other work vehicles
- electric vehicle FBT exemptions
- reportable fringe benefits
- fleet vehicle considerations
- records employers should maintain
What is fringe benefits tax?
Fringe benefits tax is a tax employers pay on certain benefits provided to employees or their associates in addition to salary or wages.
FBT is separate from income tax.
The employer, rather than the employee, is responsible for paying FBT.
For FBT purposes, an employee can include a:
- current employee
- future employee
- former employee
- company director
- beneficiary of a trust who works in the business
A sole trader or partner in a partnership is not considered their own employee for FBT purposes.
The FBT year runs from:
1 April to 31 March
This differs from the standard Australian income tax year, which runs from 1 July to 30 June.
What is the current FBT rate?
The FBT rate is currently 47%.
However, FBT is not simply calculated by multiplying the cost of a benefit by 47%.
The taxable value of fringe benefits is first grossed up to reflect the gross salary an employee would generally need to earn to purchase the benefit from after-tax income.
The current gross-up rates are:
- Type 1: 2.0802 where the employer is entitled to a GST credit
- Type 2: 1.8868 where the employer is not entitled to a GST credit
The resulting grossed-up amount is then multiplied by the 47% FBT rate.
The exact calculation can depend on the type of benefit, so businesses should ensure they use the appropriate valuation method.
When does a company vehicle create an FBT liability?
A car fringe benefit commonly arises when an employer makes a car available to an employee for private use.
The employer will generally “hold” the vehicle if it:
- owns the car
- leases the car
- has arranged for another party to provide the car to the employee
A car benefit may arise if the vehicle is actually used privately or if it is available for private use, even if the employee does not actually make a private journey.
For example, consider an employee who is provided with a company sedan.
During the day, the employee drives to customers and attends business meetings.
At the end of the day, the employee takes the sedan home and parks it in their garage.
Even if the company’s policy states that the car should not be used for personal trips, the fact that it is garaged at the employee’s home can mean that it is considered available for private use.
That availability can create a car fringe benefit.
What does the ATO consider a car?
For FBT purposes, the definition of a car is important because different rules can apply to different types of vehicles.
The ATO generally defines a car as a motor-powered road vehicle that is:
- designed to carry a load of less than one tonne, and
- designed to carry fewer than nine passengers
This can include:
- sedans
- hatchbacks
- station wagons
- SUVs
- four-wheel drives
- some utilities
- some vans
- petrol vehicles
- diesel vehicles
- hybrid vehicles
- electric vehicles
Vehicles designed to carry a load of one tonne or more are generally not treated as cars for these purposes.
Vehicles designed to carry nine or more passengers are also outside the FBT definition of a car.
This distinction becomes particularly important when considering utes, vans and other commercial vehicles.
Business use versus private use
Whether a journey is business or private can affect the taxable value of a vehicle where the operating cost method is used.
Typical business journeys may include:
- travelling from the workplace to a customer
- travelling between customer locations
- travelling between different work sites
- travelling to collect business supplies
- travelling to perform duties required by the employer
Private use can include:
- weekend recreational trips
- personal shopping
- visiting friends or relatives
- holidays
- other journeys unrelated to employment duties
Travel between an employee’s home and their regular workplace is also generally considered private travel.
This can sometimes surprise businesses because the employee may only be travelling to work.
For FBT purposes, however, ordinary commuting is generally private use.
Different treatment can apply in particular circumstances, so employers should assess travel based on the actual facts rather than assuming every journey involving work is automatically business travel.
What if an employee takes a company vehicle home?
Taking a company vehicle home is one of the most important FBT issues for employers to understand.
A car can generally be considered available for private use when it is garaged at or near an employee’s residence.
This can apply even where:
- the employee has been instructed not to drive the vehicle privately
- the vehicle is primarily used for work
- the employee does not actually make private trips
The ATO provides an example where an employee is allowed to take a company car home but is prohibited by company policy from using it privately.
Because the vehicle is garaged at the employee’s home, it is nevertheless treated as available for private use.
This makes home garaging an important consideration when businesses establish vehicle policies.
Different exemptions can apply to certain eligible commercial vehicles where private use is sufficiently limited.
How is the taxable value of a company car calculated?
Employers generally have two methods available to calculate the taxable value of a car fringe benefit:
- statutory formula method
- operating cost method
The methods work differently.
The statutory formula method is primarily based on the car’s value and the number of days it is available for private use.
The operating cost method considers the actual cost of operating the vehicle and the proportion of private use.
The ATO allows employers to choose whichever method produces the lower taxable value, provided the requirements for that method have been satisfied.
The statutory formula method
The statutory formula method is generally the simpler method because it does not require a business-use percentage to be established through a logbook.
The basic formula is:
Taxable value = (Car base value × Statutory percentage × Days available for private use ÷ Days in the FBT year) − Employee contributions
For most current vehicle arrangements, the statutory percentage is:
20%
The 20% rate generally applies regardless of the number of kilometres travelled.
For example:
A company purchases a car with an FBT base value of $50,000.
The employee has private access to the vehicle for the entire FBT year.
There are no employee contributions.
The approximate taxable value would be:
$50,000 × 20% = $10,000
This $10,000 is the taxable value of the car fringe benefit before the relevant FBT gross-up calculation is performed.
It is not necessarily the amount of FBT the employer pays.
What is the base value of a car?
For a purchased car, the base value is generally based on the car’s cost price, including relevant GST and certain accessories.
Different rules apply to leased vehicles.
The vehicle’s base value can also be reduced after it has been held for a sufficient period.
Where an employer or its associate has owned or leased a car for at least four years, the base value can generally be reduced by one-third from the FBT year beginning after the fourth anniversary of when the vehicle was first held.
The reduction applies once and the reduced base value can then continue to be used in subsequent years.
The operating cost method
The operating cost method takes the vehicle’s actual operating costs and private-use percentage into account.
In simplified terms:
Taxable value = Total operating costs × Private-use percentage − Employee contributions
Operating costs can include actual costs such as:
- fuel
- repairs
- maintenance
- registration
- insurance
- leasing costs
There are also deemed operating costs that can apply, including depreciation and interest for owned vehicles.
The lower the proportion of private travel, the lower the taxable value may become under this method.
This means the operating cost method can be particularly useful for company vehicles that are used extensively for business.
Example of the operating cost method
Assume a company car has total operating costs of:
$18,000
A valid logbook and supporting records establish that the vehicle is:
- 80% business use
- 20% private use
There are no employee contributions.
The taxable value would broadly be:
$18,000 × 20% = $3,600
Compare this with a car that may have a statutory formula taxable value of $10,000.
In that situation, the operating cost method could produce a significantly lower taxable value.
However, the employer needs appropriate records to support the business-use percentage.
Vehicle logbooks and the operating cost method
The operating cost method requires considerably more record keeping than the statutory formula method.
In a logbook year, an employer will generally need a vehicle logbook covering a continuous period of at least 12 weeks.
The period should be representative of the normal pattern of vehicle use.
The employer also needs appropriate odometer records.
Business journeys recorded in a logbook should include information such as:
- date the journey started
- date the journey ended
- starting odometer reading
- ending odometer reading
- kilometres travelled
- purpose of the journey
Descriptions should make the business purpose clear.
Simply recording a purpose such as:
“Business”
may not adequately identify why the journey was undertaken.
How is business-use percentage calculated?
The business-use percentage broadly compares estimated business kilometres with the total kilometres travelled during the FBT year.
The calculation is:
Business kilometres ÷ Total kilometres × 100
For example:
A vehicle travels:
24,000 km in total
Of those kilometres:
18,000 km are business travel
The calculated business-use percentage is:
18,000 ÷ 24,000 × 100 = 75%
The private-use percentage would therefore be:
25%
The employer should not necessarily apply the percentage from the 12-week logbook mechanically to the entire year.
The ATO requires employers to consider:
- logbook records
- odometer records
- actual patterns of use
- significant changes in business or private travel
The final percentage used should reasonably represent vehicle use during the relevant FBT year.
How long does a vehicle logbook remain valid?
A valid logbook can generally be used for up to five years.
A new 12-week logbook does not necessarily need to be completed every FBT year.
However, employers still need to keep appropriate odometer records and assess whether the vehicle’s pattern of use has materially changed.
A new logbook may be appropriate if, for example:
- the car is assigned to a different employee
- the employee changes roles
- the work location changes significantly
- business travel increases or decreases substantially
- the vehicle starts being used differently
The ATO’s small business FBT guidance describes a logbook as generally being valid for five years, subject to changes in circumstances.
What if the business does not keep a logbook?
An employer can still use the statutory formula method without a logbook.
However, failing to maintain adequate records can remove one of the major advantages of the operating cost method.
Where the operating cost method is used without the required logbook records, the employer generally cannot reduce operating costs for business journeys.
In practical terms, that can result in all vehicle use effectively being treated as private for the calculation.
Businesses expecting high business-use percentages should therefore consider establishing compliant records before relying on the operating cost method.
Employee contributions can reduce the taxable value
Employees can contribute towards the cost of their company vehicle.
An employee contribution can generally reduce the taxable value of the car fringe benefit.
A contribution might involve:
- paying an amount directly to the employer for use of the vehicle
- paying certain vehicle operating expenses such as fuel
For example, if a vehicle has a taxable value of:
$8,000
and the employee makes qualifying after-tax contributions of:
$3,000
the taxable value may be reduced to:
$5,000
Employee contributions can have income tax and GST implications for the employer, particularly where payments are made directly to the employer. Appropriate supporting records are also required.
Are utes exempt from FBT?
A common misconception is that:
“Utes are exempt from FBT.”
That is too broad.
Whether a ute or similar work vehicle qualifies for an exemption depends on both:
- the type of vehicle
- how the vehicle is privately used
Certain vehicles may qualify for an exemption where private use is restricted.
These can include certain:
- utilities
- panel vans
- taxis
- other commercial vehicles not designed principally to carry passengers
For eligible vehicles, permitted private use can generally include:
- travel between home and work
- travel incidental to performing employment duties
- other private use that is minor, infrequent and irregular
The ATO gives an example of an employee taking a company van home every night where the only additional private use during the year is an occasional trip to transport furniture.
That limited private use may qualify for the exemption.
By contrast, regularly using a company ute for shopping, weekends away or recreational trips could cause the exemption to be unavailable.
What about dual-cab utes?
Dual-cab utes require particular care.
Some are designed principally to carry passengers, while others may satisfy the commercial vehicle requirements.
The fact that a vehicle is marketed as a ute does not automatically determine its FBT treatment.
Factors such as:
- designed load capacity
- passenger capacity
- vehicle design
- actual private use
may all need to be considered.
Businesses should assess the specifications of each model and the way it is provided to employees rather than applying a blanket “ute exemption” across an entire fleet.
Company vans and work vehicles
Similar principles apply to vans and other work vehicles.
An eligible panel van used predominantly for work may qualify for an exemption where private use is sufficiently restricted.
For example:
An electrician takes a work van home each night.
The van carries tools and equipment needed for work.
The employee drives the van:
- between home and work
- between job sites
- to collect work materials
The employee does not ordinarily use it for personal shopping, holidays or recreational trips.
Depending on the vehicle and circumstances, the private use exemption may be available.
Compare this with an employee who regularly uses the same van for family trips and weekend activities.
That level of private use may prevent the exemption from applying.
Written company vehicle policies are important
Where a business restricts private use of company vehicles, having a written policy can help demonstrate those restrictions.
However, simply having a policy is not always enough.
The ATO recommends that restrictions on private use be:
- clear
- written
- communicated
- monitored
- consistently enforced
Employers should also have processes for checking whether the restrictions are actually followed.
The ATO notes that issuing a directive without appropriate monitoring and enforcement may not be sufficient.
A fleet vehicle policy might therefore cover:
- who may drive each vehicle
- whether vehicles may be taken home
- permitted private use
- prohibited private use
- requirements for recording trips
- odometer reporting
- fuel card use
- vehicle allocation
- employee responsibilities
- procedures for reporting exceptions
Electric vehicles and FBT
Certain electric cars can qualify for an FBT exemption.
The exemption can apply to qualifying zero or low emissions vehicles where the relevant legislative requirements are satisfied, including that luxury car tax has not become payable on the vehicle.
Qualifying vehicle types can include:
- battery electric vehicles
- hydrogen fuel cell electric vehicles
The electric vehicle exemption can be particularly significant where a company provides an EV to an employee for private use.
Even though the benefit may be exempt from FBT, employers may still have record-keeping and reportable fringe benefit obligations.
Are plug-in hybrid vehicles still exempt from FBT?
The rules for plug-in hybrid electric vehicles, or PHEVs, changed from 1 April 2025.
From that date, PHEVs generally stopped being eligible for the electric car FBT exemption.
Transitional treatment can continue where both of the following requirements are satisfied:
- the vehicle’s use or availability for private use was exempt before 1 April 2025
- there was a financially binding pre-existing commitment before 1 April 2025 to continue providing the vehicle
An optional extension entered into later does not generally count as a binding pre-existing commitment for this purpose.
Businesses adding new PHEVs to their fleets should therefore not assume they receive the same FBT treatment as battery electric vehicles.
Exempt electric vehicles may still need to be reported
An FBT exemption does not necessarily mean the benefit can be completely ignored.
Certain exempt electric vehicle benefits can still contribute to an employee’s reportable fringe benefits amount.
This means employers may still need to determine a notional taxable value even though no FBT is payable.
For fleet operators introducing electric vehicles, it is therefore important to distinguish between:
FBT payable
and
FBT reporting obligations
They are not always the same thing.
What are reportable fringe benefits?
If certain fringe benefits provided to an employee have a total taxable value of more than $2,000 during an FBT year, the employer generally needs to report the employee’s grossed-up reportable fringe benefits amount.
The amount can appear on the employee’s income statement.
The employee does not directly pay income tax on the reportable fringe benefits amount.
However, it can affect various income tests and government obligations or entitlements.
Examples can include calculations relating to certain:
- government benefits
- child support obligations
- Medicare-related thresholds
- student loan repayments
Employers therefore need sufficient records to allocate reportable benefits to the correct employees.
Company vehicles used by directors
Company directors are generally treated as employees for FBT purposes.
This means providing a company-owned vehicle to a director for private use can create the same FBT issues as providing a vehicle to another employee.
Businesses should not assume that a company car used by an owner-director falls outside FBT simply because the director controls or owns the company.
Vehicle availability, private use, exemptions and valuation rules should still be considered.
What about pool and fleet vehicles?
A car does not need to be permanently assigned to one employee before FBT becomes relevant.
Pool vehicles and fleet vehicles can also create car fringe benefits.
For example, an employee might collect a pool car at the beginning of the day, use it for business travel and return it to the company’s premises before leaving work.
If it remains under the employer’s control and is not available for private use, the circumstances can be very different from a vehicle an employee takes home overnight.
Where employees are allowed to take pool vehicles home, use them privately or retain custody of them outside working hours, FBT implications should be considered.
Larger fleets and the ATO simplified approach
Businesses with large vehicle fleets should also be aware of the ATO’s simplified approach for calculating business-use percentages.
Under PCG 2016/10, qualifying employers with fleets of 20 or more tool-of-trade cars may be able to calculate an average business-use percentage from logbooks covering at least 75% of the qualifying fleet.
Other eligibility conditions also apply.
The resulting average percentage can generally be used across qualifying cars for the logbook year and following four years, provided the relevant requirements continue to be satisfied.
Importantly:
20 vehicles is not the ATO’s general definition of a fleet.
The 20-car threshold relates specifically to this simplified FBT approach.
A business with fewer vehicles can still operate a fleet.
How long should FBT records be kept?
Employers generally need to retain sufficient records to support their FBT calculations for five years.
Records should allow the employer’s FBT liability to be determined and should be accessible and understandable if reviewed by the ATO.
For company vehicles, relevant records may include:
- vehicle purchase documents
- lease agreements
- vehicle allocation records
- logbooks
- odometer records
- fuel expenses
- insurance
- registration
- maintenance expenses
- employee contributions
- employee declarations
- calculations of taxable value
- business-use percentages
- private-use policies
- supporting documentation for exemptions
Keeping this information organised becomes increasingly important as the number of vehicles and drivers grows.
Common company vehicle FBT mistakes
Businesses can run into problems when company vehicle use is treated too casually.
Common mistakes include:
Assuming a work vehicle automatically has no FBT
A vehicle being purchased for business purposes does not automatically prevent an FBT liability if employees can use it privately.
Ignoring vehicles taken home by employees
Home garaging can cause a car to be considered available for private use.
Assuming all utes are exempt
The vehicle and its actual private use both matter.
Treating home-to-work travel as business travel
Ordinary commuting is generally private.
Using the operating cost method without adequate records
Without appropriate logbooks and odometer records, business use may not be available to reduce the taxable value.
Keeping an outdated business-use percentage
Changes in employees, roles, work locations or vehicle usage may mean an old logbook is no longer representative.
Assuming an FBT-exempt EV requires no reporting
Some exempt electric vehicle benefits may still need to be considered for reportable fringe benefit purposes.
Failing to monitor vehicle policies
A written restriction on private use may be ineffective if employees regularly ignore it and the business does not enforce it.
A practical FBT process for company vehicles
Businesses can reduce administrative problems by establishing a consistent vehicle process.
A practical workflow could include:
- Record every company vehicle owned or leased by the business.
- Determine whether each vehicle is a “car” for FBT purposes.
- Record which employees have access to each vehicle.
- Determine whether the vehicle is available for private use.
- Identify any possible exemptions.
- Decide whether to use the statutory formula or operating cost method.
- Maintain a compliant logbook where the operating cost method will be used.
- Record opening and closing odometer readings.
- Calculate the business and private use of relevant vehicles.
- Record employee contributions.
- Calculate the taxable value of each benefit.
- Review whether reportable fringe benefit requirements apply.
- Retain supporting records for the required period.
- Review fleet arrangements each year for changes.
Businesses with multiple vehicles should ideally review records throughout the FBT year rather than attempting to reconstruct vehicle use after 31 March.
How Travel Logs can help
Vehicle record keeping becomes significantly more difficult when a business needs information from many employees and vehicles.
Travel Logs can help businesses maintain centralised trip records while allowing drivers to record and classify journeys from the app.
Automatic trip tracking can reduce the need for employees to manually remember every journey.
Drivers can classify trips as business or private and record relevant trip purposes, while fleet-related records can be submitted for central review.
For businesses operating company vehicles, this can help organise information such as:
- trip dates
- start and stop locations
- distance travelled
- business and private classifications
- trip purposes
- vehicle assignments
- driver information
- historical journey records
This can be particularly useful when businesses need to establish or review vehicle business-use percentages. It can help businesses maintain the underlying vehicle records needed by employers and their advisers.
Frequently asked questions
Does a company car automatically create FBT?
No.
FBT generally becomes relevant when a company car is provided or made available to an employee or their associate for private use.
Exemptions may also apply depending on the vehicle and circumstances.
Does taking a company car home create FBT?
It can.
A car garaged at or near an employee’s residence can generally be considered available for private use even if the employee does not actually use it for private trips.
Is travel between home and work business use?
Ordinary travel between home and a regular workplace is generally private travel.
Exceptions can apply depending on the circumstances.
Do I need a logbook for every company vehicle?
Not necessarily.
A logbook is particularly relevant where the employer wants to use the operating cost method and reduce the taxable value based on business use.
The statutory formula method does not rely on a business-use logbook in the same way.
How long does an FBT logbook need to run?
The logbook generally needs to cover a representative continuous period of at least 12 weeks.
How long is a vehicle logbook valid?
A logbook can generally be valid for up to five years, provided vehicle usage has not materially changed.
What is the statutory FBT percentage for a company car?
For most current arrangements, the statutory percentage is 20%, regardless of kilometres travelled.
Are company utes exempt from FBT?
Some may qualify for an exemption, but not all utes are automatically exempt.
Vehicle specifications and the extent of private use need to be considered.
Are electric company cars exempt from FBT?
Certain qualifying battery electric and hydrogen fuel cell vehicles may qualify for the electric car exemption where the relevant conditions are satisfied.
Are plug-in hybrids still FBT exempt?
New PHEV arrangements generally have not qualified for the electric car exemption since 1 April 2025.
Some pre-existing arrangements can continue to qualify under transitional rules.
Who pays FBT on a company car?
The employer is responsible for paying FBT.
The employee may make contributions that reduce the taxable value, but the legal FBT liability remains with the employer.
Keep company vehicle records organised
Company vehicles can provide significant practical benefits to employees and businesses, but their FBT treatment depends heavily on how the vehicles are provided and used.
Employers should pay particular attention to:
- private availability
- vehicles taken home
- business versus private travel
- vehicle type
- exemptions
- employee contributions
- logbook requirements
- odometer records
- electric vehicle rules
- reportable fringe benefits
For businesses with vehicles that are used extensively for work, maintaining accurate journey records can also make it possible to establish a business-use percentage under the operating cost method.
As a fleet grows, having consistent vehicle policies and centralised records becomes increasingly important.
Businesses should seek advice from an accountant, registered tax agent or the ATO where they are uncertain about how FBT applies to their particular vehicle arrangements.
This article provides general information only and does not constitute tax, accounting or legal advice.