Fringe Benefits Tax Australia: Novated Leases, FBT Calculator & Rules

What Is Fringe Benefits Tax?

FBT applies when an employer provides benefits to employees (or associates) in place of, or in addition to, salary. The FBT year runs 1 April to 31 March — not aligned with the income tax year. Employers lodge an FBT return and pay FBT to the ATO. See ATO FBT rates.

What Are Fringe Benefits?

FBT and Novated Leases

A novated lease involves the employee, employer and finance provider. The employer provides the car fringe benefitwhen the vehicle is available for the employee's private use. Salary packaging lets the employee pay lease and running costs from pre-tax income, which can be tax-effective — but it does not automatically eliminate FBT.

Employer FBT liability is separate from employee salary deductions. Confusing these is one of the most common novated lease mistakes.

How FBT Works on a Novated Lease

1. Employee enters novated lease arrangement
2. Employer provides car benefit (private use assessed)
3. Taxable value calculated (statutory or operating cost method)
4. Value grossed up (Type 1 or Type 2)
5. Employer pays FBT at 47%
6. Employee salary-packages lease/running costs from pre-tax pay

Statutory Formula Method

Taxable value = (A × B × C ÷ D) − E where A is base value, B is the statutory percentage (20%), C is days available for private use, D is days in the FBT year, and E is employee contributions. See the ATO car fringe benefit guide.

Base value (A)is generally the cost price including GST and dealer delivery, plus fitted non-business accessories. Registration, stamp duty and compulsory third-party insurance are typically excluded. In a novated lease, the base value is tied to the vehicle's cost — not your monthly lease payment alone.

Operating Cost Method vs Statutory Formula

Employers can use the operating cost method only if they keep adequate records — logbook, odometer readings, and car expense records. The taxable value is based on actual operating costs multiplied by the percentage of private use. Where records are insufficient, the statutory formula method must be used.

Novated lease providers often default to the statutory method because it does not require ongoing logbooks. If private use is low and records are strong, the operating cost method can sometimes produce a lower taxable value — but this is employer-specific and must be assessed case by case.

Type 1 vs Type 2 Gross-Up

Before applying the 47% FBT rate, the taxable value is grossed up to reflect that fringe benefits are paid from pre-tax profits:

Reportable fringe benefits on income statements always use the Type 2 gross-up rate (1.8868), even when FBT was calculated with Type 1. See ATO reportable fringe benefits.

Employer FBT Obligations

If you provide fringe benefits, you generally need to register for FBT, keep records, lodge an annual FBT return for the FBT year (1 April – 31 March), and pay FBT by the due date (typically 21 May for electronic lodgment). Even when FBT is nil — for example under an EV exemption — record-keeping and lodgment may still be required depending on benefits provided.

Salary Packaging and Novated Leases

In a typical novated lease, the employee's pre-tax salary is reduced by packaged amounts (lease, fuel, insurance, servicing). That lowers income tax on the sacrificed portion. Separately, the employer may owe FBT on the car fringe benefit unless exempt or reduced by employee contributions.

Packaging providers and employers may pass FBT cost back through the package structure. That is why a novated lease is not automatically cheaper — you need to compare total cost after tax, FBT or packaging fees, and any reportable fringe benefit impacts.

Public sector employees in health and some not-for-profit roles may access additional FBT concessions (for example hospital exemptions). See our Queensland state hub for QLD Health salary packaging context.

Minor Benefits and Other Exemptions

Benefits under $300 may qualify for the minor benefits exemption if provided infrequently and irregularly — not as a standing novated lease benefit. Otherwise deductible benefits (work tools, protective clothing where deductible) may have no FBT if the employee could have claimed a once-only income tax deduction. Cars and novated leases do not fall into these exemptions.

How the FBT Calculator Works

The calculator on this page uses the statutory formula with your inputs: car base value, days available for private use, employee contribution, and gross-up type. It computes taxable value, grossed-up value, and estimated FBT at 47%. Toggle EV exemption only when the vehicle meets all current ATO zero/low-emission conditions — the checkbox assumes full exemption and zeros FBT for illustration.

Impact on HECS and Income Tests

Reportable fringe benefits are included in repayment income for HELP/HECS, Medicare levy surcharge tests, and some family assistance calculations — even though RFBA is not assessable income. A large novated lease package can therefore increase HECS repayments without increasing your taxable salary. See our HECS repayment guide for how repayment income is calculated.

Is a Novated Lease Worth It?

There is no universal yes or no. Factors include your marginal tax rate, vehicle price, FBT or EV exemption treatment, employer packaging fees, and whether you would buy the same car without packaging. Eligible EVs with full FBT exemption can be highly tax-effective; a petrol car with full-year private use and no employee contribution may attract substantial employer FBT that flows into package cost.

Use the calculator above with realistic base value and contribution figures, then compare against paying for the same vehicle with after-tax income. Consider speaking with your employer's packaging provider for a personalised estimate — this guide and calculator are educational, not personal tax advice.

Employee Contributions

Employee contributions paid from after-tax income to the employer reduce the taxable value before gross-up. In novated leases, post-tax contributions can lower FBT — but packaging arrangements vary by employer and provider.

Electric Vehicles and FBT

Eligible zero or low-emission vehicles may qualify for an FBT exemption if:

• First held and used on or after 1 July 2022
• LCT was never payable (fuel-efficient threshold $91,661 for 2026–27)
• Vehicle meets ATO zero/low-emission requirements
• Other ATO conditions satisfied

From 1 April 2025, plug-in hybrids (PHEVs) are generally not eligible for new arrangements unless a pre-existing binding commitment applies. See electric car exemption and PHEV FBT rules.

FBT Calculator

Worked Example — Novated Lease (Statutory Formula)

A $50,000 car available for private use all year (365 days), no employee contribution, Type 1 gross-up:

Reportable Fringe Benefits

If the total taxable value of reportable fringe benefits exceeds $2,000 in an FBT year, the employer must report the grossed-up amount(RFBA) on the employee's income statement. RFBA uses the Type 2 gross-up rate (1.8868) — not Type 1 — even when FBT was calculated with Type 1. Minimum reported RFBA when the threshold is crossed is about $3,773. Reportable fringe benefits are not taxable income but can affect HECS repayment income, Medicare levy surcharge and other means-tested calculations.

Does FBT Affect Your Salary?

FBT is an employer tax. Employees do not pay FBT like income tax. Salary packaging reduces taxable salary, and employers may structure packages to manage FBT cost. Reportable fringe benefits can still affect government income tests.

Novated Lease: Standard Car vs Eligible EV

What Expenses Are Included in a Novated Lease?

Packages vary by employer and provider, but commonly salary-packaged items include lease finance payments, registration, comprehensive insurance, servicing, tyres, fuel or charging, and roadside assistance. The FBT and income tax treatment of each cost depends on the arrangement and whether an EV exemption or employee contribution applies — not every package includes identical items.

FBT vs Income Tax

Common Mistakes

• Assuming employees pay FBT directly
• Assuming every novated lease is FBT-free
• Treating all EVs as automatically exempt (PHEV rules changed from 1 April 2025)
• Using outdated FBT rates or statutory percentages
• Ignoring employee contributions in the calculation
• Confusing FBT with income tax on salary
• Treating calculator results as tax advice

Related: Salary sacrifice super · Concessional contributions cap · WFH tax deductions · PAYG withholding variation