Petrol prices are rising. Is your fringe benefit tax strategy ready?

If you’ve noticed the price board at your local petrol station creeping past numbers you’d once have considered unthinkable, you already know fuel costs are biting. Petrol prices are approaching $4 per litre, driven by the ongoing conflict in the Middle East, and the pressure on both households and businesses shows no sign of easing.

For business owners, rising fuel costs create a direct hit to operating expenses. But there’s a second-order effect that’s easy to overlook: your fringe benefit tax obligations.

FBT is your liability, not your employee’s

Fringe benefit tax (FBT) is a tax on non-cash benefits that employers provide to their employees. Think company cars, fuel cards, laptops, or subsidised goods and services. Anything that has value and goes to an employee outside of their regular pay can potentially be a fringe benefit, and as the employer, the tax obligation falls on you, not them.

The logic behind this is straightforward. A company car or a fuel card is effectively worth money to an employee. It reduces what they have to spend out of their own pocket, which is no different in practice to paying them more. Without FBT, there would be nothing stopping employers from replacing taxable wages with non-cash perks, allowing employees to receive remuneration without paying income tax on it. FBT closes that loophole by taxing the benefit at your level instead.

Fuel prices are surging. Your FBT bill isn’t — yet.

Many business owners assume that because fuel costs more, their FBT bill on company vehicles must be higher too. It doesn’t work that way. FBT on motor vehicles is calculated based on the vehicle’s cost price or tax book value, not on how much fuel it consumes. What rising prices will do is increase your overall running costs, which makes it a good time to check whether your current arrangements are as tax efficient as they could be.

There are several legitimate ways to reduce your FBT exposure on motor vehicles. These include reviewing which FBT calculation option you’re using or, for eligible close companies, opting out of the FBT rules for vehicles entirely in favour of income tax rules for vehicle expenditure. You should also consider whether any of your vehicles qualify for the work-related vehicle exemption, which requires permanent business signage on the exterior, written notice to employees restricting private use, and documented three-monthly compliance checks. Limiting the availability of vehicles for private use or replacing some vehicle benefits with subsidised public transport for home-to-work travel, which is exempt from FBT, are also worth exploring.

Fuel cards aren’t FBT-free. Know your limits.

Fuel cards provided to employees are subject to FBT, but there are exemption thresholds that mean you may not owe anything at all. If you file quarterly, no FBT is payable on fuel cards as long as the total value of all unclassified benefits given to any single employee stays under $300 for that quarter. If you file annually, the limit is $1,200 per employee. There is also a combined cap of $22,500 across all employees per year. If your fuel card spend sits comfortably within these numbers, your FBT liability could be zero. But you need to be tracking it to know for certain.

The FBT exemptions most businesses miss

Beyond vehicles and fuel cards, there are several other FBT exemptions that businesses commonly overlook. The emergency call-out exemption removes FBT liability for any day an employee uses a company vehicle to travel from home to attend an emergency relating to health, safety, or essential services, provided the call-out actually occurs within the specified hours. The tools of trade exemption cover items provided mainly for business purposes where each tool costs no more than $5,000 (GST-inclusive), including laptops and mobile phones, even if employees use them privately.

It’s also worth knowing that motor vehicles and fuel cards are far from the only benefits that trigger FBT obligations. Employer contributions to insurance policies, low-interest or interest-free loans to employees, and subsidised goods or services can all create an FBT liability. Non-compliance among small and medium businesses is common, and more often than not it comes down to simply not knowing these obligations exist.

Don’t wait until May to find out what you owe

Engaging a professional to review your FBT obligations shouldn’t be something you leave until the end of the financial year. With the quarter four filing deadline of 31 May approaching, and fuel costs adding fresh pressure to business budgets, a proactive review of your vehicle policies, documentation, exemption eligibility, and FBT calculations now can prevent costly surprises later.

FBT has always rewarded those who pay attention to it. Right now, with petrol prices high and climbing, that attention is more valuable than ever.

If you’re unsure about your FBT obligations or want to make sure your business is set up correctly, Gilligan Sheppard can help. FBT is one of the many tax services we provide, and our team can walk you through your specific situation, identify any exemptions you may be missing, and make sure you’re meeting your obligations without overpaying. Get in touch to find out more.