Fringe Benefits Tax (FBT) update in Australia: What employers need to know in 2026.

This is the most significant FBT change in recent years.

From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) no longer qualify for the electric car FBT exemption. Any new PHEV arrangement entered into from that date is fully subject to FBT.

There is limited transitional relief, but only where:

• The PHEV was in use (or available for private use) before 1 April 2025 under an exempt arrangement
• A financially binding commitment to provide the vehicle after that date was in place before 1 April 2025

Any variation, refinance, extension or new commitment after 1 April 2025 will generally result in the exemption being lost. Employers with novated lease programmes should review all existing PHEV arrangements immediately.

Fully electric and hydrogen fuel cell vehicles remain eligible for the exemption, provided all other conditions are met.

The FBT exemption for zero-emission vehicles remains in place. However, employers must still:

• Calculate the taxable value as if the exemption did not apply
• Include that amount when assessing whether an employee has a reportable fringe benefits amount (RFBA)

RFBAs can affect employees' Medicare levy surcharge, private health insurance rebates and eligibility for government benefits, creating downstream complexity for HR and payroll teams.

On home charging, the ATO's PCG 2024/2 shortcut rate remains available for fully electric vehicles. It does not apply to PHEVs, and further ATO guidance is expected.

From the FBT year ended 31 March 2025, employers can rely on existing corporate records – rather than traditional statutory documents such as travel diaries or employee declarations – where the ATO Commissioner has issued a determination permitting this.

This is a practical improvement. But it does not reduce the standard of evidence required. Records must still clearly demonstrate the split between business and private use and must be available at the time of lodgement. Poor documentation remains one of the leading causes of adverse audit outcomes.

Motor vehicles continue to be a primary ATO audit focus. Common issues include:

• Incorrectly classifying vehicles as exempt work vehicles
• Inadequate logbooks or inconsistent business use claims
• Misunderstanding what constitutes a commercial car parking station

Recent ATO guidance confirms that access, pricing, signage and public availability are all relevant factors in determining car parking FBT liability. If your organisation provides parking, it is worth revisiting your position.

The ATO estimates an FBT revenue gap of approximately $2 billion. In response, it has significantly stepped up compliance activity, with a particular focus on:

• Random compliance reviews and data-matching
• Employers lodging nil returns
• SMEs and privately owned groups with weak tax governance

FBT is no longer reviewed in isolation. The ATO is now examining FBT returns alongside PAYG withholding, superannuation and GST as part of a whole-of-employer compliance approach.

The combination of legislative change and heightened enforcement makes this a critical time to review your FBT position. We recommend:

1. Review all vehicle arrangements: particularly any PHEVs with changes made after April 2025
2. Assess FBT exposure annually: even where benefits appear minor or exempt
3. Strengthen recordkeeping systems: ensure they support the new ATO flexibility while remaining audit-ready
4. Revisit entertainment, car parking and expense reimbursement policies
5. Lodge FBT returns on time: including nil returns, to minimise ATO attention

FBT is often overlooked until it becomes a problem. Our team works with employers across Australia to stay ahead of their obligations, including:

• FBT risk reviews and health checks
• Audit support and ATO review management
• Practical compliance systems and documentation frameworks

If you would like to discuss how these changes affect your organisation, get in touch with our team.