Fringe benefits tax (FBT) applies to work cars that foreign-owned businesses provide to their Australian employees. Here is when a car fringe benefit arises, what it costs, and what the ATO expects you to document.
What is FBT in Australia?
FBT is an Australian tax on non-cash benefits an employer gives to employees, or to their families and associates. The ATO assesses it on the taxable value of each benefit rather than on company profit.
A fringe benefit takes the place of salary or wages in another form. Other examples include car parking, gym memberships, concert tickets, reimbursed school fees, discounted loans and benefits provided under a salary sacrifice arrangement.
The following are not fringe benefits: salary and wages, employer contributions to complying superannuation funds, shares or rights under approved employee share acquisition schemes, employment termination payments, amounts deemed to be dividends under Division 7A, and benefits provided to volunteers and contractors.
For FBT purposes, an employee includes a current, future or past employee, a company director, and a beneficiary of a trust who works in the business. Sole traders and partners in a partnership are not employees, so benefits they provide to themselves are not subject to FBT. Clients are not employees either, so benefits provided to them, such as entertainment, are not subject to FBT.
Does your vehicle count as a 'car' for FBT purposes?
Car fringe benefit rules apply only where the vehicle meets the FBT definition of a car, which covers:
Sedans and station wagons
Panel vans, utes and many four-wheel drives, where the vehicle is built to carry goods weighing under one tonne
Passenger vehicles built to seat eight people or fewer
What counts as private use of a work car?
FBT applies when a work car is used, or made available, for private use. Private use covers travel or activities unrelated to the employee's job. Ask whether your employees are:
Taking children to or from school, including trips that also involve travelling to or from the workplace
Personal shopping, appointments and other private trips
Transporting family members or friends
Keeping the vehicle at or near the employee’s home overnight, including for security reasons
Taking the vehicle on weekend trips
How much FBT will you pay on a car fringe benefit?
You pay 47% of the grossed-up taxable value of the benefit. The 47% matches the top marginal income tax rate plus the Medicare levy, and grossing up reproduces the pre-tax income an employee would need to earn to buy the car's private use themselves.
Work out the taxable value using one of the two valuation methods, gross it up, then apply the 47%. On a taxable value of $8,000, grossed up at 2.0802, that comes to $7,821.55.
The figure for your own vehicles will depend on the method you use and how the car is held. Talk to our team for a calculation based on your circumstances.
What records does the ATO expect you to keep?
Keep accurate records whether or not your employees use the work car privately. Records support your FBT position and show how you calculate the taxable value of a car fringe benefit.
The records you need depend on the valuation method you choose:
Choosing the operating cost method means tracking how the car is driven, through a logbook and odometer readings.
Choosing the statutory formula method means documenting what the car cost you, so keep the paperwork from buying or leasing it along with the invoices and receipts.
Some circumstances also require signed employee declarations. Records must cover the full FBT year ending 31 March.
Which FBT exemptions apply to work vehicles?
Two exemptions can apply. The first covers eligible vehicles where private use is limited, typically utes, panel vans and similar vehicles not built mainly to carry passengers. Private use must stay confined to travel between home and work, travel incidental to work duties, and non-work use that is minor, infrequent and irregular.
The second is the electric cars exemption. A car qualifies where it is a zero or low emissions vehicle, it was first both held and used on or after 1 July 2022, a current employee or their associate uses it, and luxury car tax has never been payable on it. A car that exceeded the threshold at its first retail sale stays disqualified, even if you buy it second-hand later. From 1 April 2025, plug-in hybrids no longer count as low emissions vehicles.
How ABN Australia can help
Most of our clients did not come to us looking for FBT advice. They came to set up an Australian entity, got trading, put a ute or two on the road, and then found out the hard way that parking a work car in an employee's driveway is a taxable event here. It catches out plenty of overseas businesses, because very few countries tax it this way.
That is the kind of thing we pick up before it becomes a problem. We will look at the vehicles your Australian entity provides and tell you which ones create a car fringe benefit, work out the taxable value under both valuation methods, and prepare and lodge your FBT return. If your business is not registered for FBT yet, we will sort that too.
You will not be handed off to someone different every time you call. You get the person doing your work, and you get them answering while your head office is still asleep. We have been helping overseas businesses set up and operate in Australia, so we have seen most of what the ATO can throw at a foreign-owned company.
Not sure whether your work cars attract FBT? Have a chat with our team. We will tell you where you stand, and if there is nothing to worry about, we will tell you that too.
Last updated: 8th Oct 2026
About the Author
Ro Elvinia is ABN Australia's Customer Success and Marketing Manager. She holds a bachelor’s degree in mass communication, majoring in journalism, and also has an academic background in civil engineering. With over a decade of experience in professional writing and a background spanning journalism, Australian immigration, and business services, Ro brings a unique mix of communication and analytical expertise. She works closely with international clients and contributes to ABN Australia's content strategy, helping global businesses stay informed and confident as they navigate the Australian market.
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Ro Elvinia
Marketing Manager