FBT on Cars 2026: Rates, Calculation Methods and EV Exemptions

Fringe Benefits Tax on motor vehicles is one of the most common – and most misunderstood – areas of FBT compliance for Australian businesses. Whether you provide company cars, operate a fleet, or offer novated leases to employees, understanding how FBT applies to vehicles is essential to managing your tax obligations and avoiding costly mistakes.

The FBT year runs from 1 April to 31 March, and the 2025-26 FBT year ends on 31 March 2026. FBT returns and payment are due by 21 May 2026 (or a later date if lodged through a tax agent).

This guide covers everything you need to know about FBT on cars for the current year, including calculation methods, rates, electric vehicle exemptions, and what you should be doing before the year-end deadline.

Understanding When FBT Applies to a Car

FBT applies when an employer makes a car available for the private use of an employee (or their associate, such as a spouse or family member). This includes:

• Company cars used for personal errands, commuting, or weekend trips
• Novated lease vehicles provided through salary packaging
• Pool cars if taken home or used for private purposes
• Cars provided to directors of companies, including family businesses

The key trigger is private use or availability for private use. Even if an employee rarely uses the car privately, if it is garaged at their home overnight, the ATO generally considers it available for private use.

The Two Calculation Methods

There are two methods for calculating the taxable value of a car fringe benefit. The method you choose can significantly affect the amount of FBT payable.

1. Statutory Formula Method

This is the simpler approach. It applies a flat 20% rate to the base value of the car, regardless of how much it is actually used for business versus private purposes.

Formula:

Taxable Value = (Base Value x 20% x Days Available / Days in FBT Year) – Employee Contribution

Example: A car with a base value of $50,000, available for the full year with no employee contributions:

• Taxable value = $50,000 x 20% x 365/365 = $10,000
• FBT payable = $10,000 x 2.0802 (Type 1 gross-up) x 47% = $9,777

The statutory formula method is straightforward and requires minimal record-keeping. However, it does not reward high business use – you pay the same FBT whether the car is used 10% or 90% for business.

2. Operating Cost Method (Logbook Method)

The operating cost method calculates FBT based on the actual percentage of private use, determined by logbook records. This method can significantly reduce FBT where business use is high.

Formula:

Taxable Value = (Total Operating Costs x Private Use %) – Employee Contribution

Total operating costs include:

• Fuel and oil
• Registration and insurance
• Repairs, servicing, and maintenance
• Deemed depreciation (calculated using ATO formula)
• Deemed interest (using the benchmark rate of 8.62% for 2025-26)

Logbook requirements:

• Must cover a minimum continuous 12-week period
• Must be representative of typical vehicle usage patterns
• Valid for five years, provided there is no significant change in use
• Must record date, odometer readings, kilometres travelled, purpose of each trip, and business percentage

Example: A car with total operating costs of $18,000, where the logbook shows 75% business use:

• Private use = 25%
• Taxable value = $18,000 x 25% = $4,500
• FBT payable = $4,500 x 2.0802 x 47% = $4,399

This is less than half the FBT calculated under the statutory formula for the same vehicle.

Which Method Should You Choose?

You can choose a different method for each car, and you can change methods between FBT years. However, once you start using a method for a particular car in an FBT year, you must continue with that method for the entire year.

FBT Rates and Thresholds for 2025-26

Electric Vehicles: FBT Exemption Rules for 2025-26

The FBT exemption for eligible zero and low-emission vehicles remains one of the most significant concessions available. However, the rules have tightened from 1 April 2025.

Vehicles That Still Qualify

• Battery electric vehicles (BEVs) – fully electric, no combustion engine
• Hydrogen fuel cell vehicles

These vehicles are exempt from FBT provided they:

• Were first held and used on or after 1 July 2022
• Have a value below the $91,387 LCT threshold for fuel-efficient vehicles
• Have never been subject to luxury car tax
• Are designed to carry fewer than 9 passengers and a load under one tonne

Plug-in Hybrids: No Longer Exempt

From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer considered zero or low-emission vehicles for FBT purposes. New PHEV arrangements entered into after this date attract full FBT, calculated using the statutory formula or operating cost method like any conventional vehicle.

Grandfathering exception: The exemption may continue for PHEVs where:

• The vehicle was in use for private purposes before 1 April 2025
• A financially binding commitment existed before that date
• No material changes have been made to the arrangement (refinancing, lease extensions, or vehicle changes cancel the exemption)

If you have employees with grandfathered PHEV arrangements, review the terms carefully to ensure ongoing eligibility.

Home Charging Cost Method

For zero-emission battery EVs, the ATO allows a shortcut method for home charging costs: 4.20 cents per kilometre under Practical Compliance Guideline PCG 2024/2. This avoids the need to separately meter home electricity used for charging.

Reportable Fringe Benefits

Even though the FBT exemption means no tax is payable, the benefit must still be reported on the employee’s income statement. This can affect income-tested obligations including HECS-HELP repayments, Family Tax Benefit, and Medicare levy surcharge assessments.

Dual Cab Utes and the FBT Exemption Myth

A common misconception is that dual cab utes are automatically exempt from FBT. This is not the case.

To qualify for an FBT exemption, a vehicle must be classified as a tool of trade, and private use must be limited to:

• Travel between home and work
• Non-work-related use that is minor, infrequent, and irregular

If employees are using dual cab utes for regular private purposes – school runs, weekend trips, personal errands – FBT will apply. The ATO has been increasingly scrutinising these arrangements, and an exemption should not be assumed without careful analysis.

Entertainment and Vehicle-Related FBT Traps

Several common situations catch employers by surprise:

• Fuel cards used for private travel create a car expense fringe benefit
• Toll charges for private travel are FBT-liable
• Car parking provided in commercial CBD areas may trigger car parking FBT if the daily rate exceeds $11.03 (2025-26 threshold)
• Vehicle accessories added after purchase (such as tinting, bull bars, or sound systems) may increase the base value for statutory formula purposes

What You Should Do Before 31 March 2026

Time is limited. Once the FBT year closes, there is very little that can be changed. Here is what to prioritise:

1. Record odometer readings on 31 March 2026 for every vehicle in your fleet
2. Validate logbooks – ensure they are current (within five years), complete, and representative of actual use
3. Review employee contributions – contributions made before year-end reduce the taxable value
4. Confirm EV exemptions – verify that each vehicle claiming the exemption meets all eligibility criteria
5. Reassess calculation methods – consider switching to the operating cost method for vehicles with high business use
6. Gather documentation – collect all vehicle costs, insurance records, fuel receipts, and lease agreements
7. Check PHEV grandfathering – confirm that no changes have been made to existing PHEV arrangements that would invalidate the exemption

How Prime Partners Can Help

FBT on cars involves complex rules and significant compliance risk. Our team provides:

• FBT return preparation and lodgement
• Vehicle-by-vehicle calculation review (statutory vs operating cost)
• EV exemption eligibility assessment
• Logbook compliance review
• Salary packaging structuring advice

The 31 March deadline is approaching. Contact our team to review your FBT position and ensure you are not paying more than necessary – or missing an obligation.

For a broader overview of all FBT obligations including entertainment, loans and year-end planning, see our FBT 2026: What You Need to Know Before 31 March guide.

For more information on salary packaging EVs specifically, see our guide to EV salary packaging and the FBT exemption.

Frequently Asked Questions

Related Reading

• FBT 2026: What You Need to Know Before 31 March – the complete year-end FBT guide
• Salary Packaging and the EV Opportunity – our Prime Perspectives webinar on EV FBT
• R&D Tax Incentive – if your business is developing new technology

Need help with your FBT obligations? Talk to our team in North Sydney or Orange, or get in touch online.