Cars are the benefit most employers provide, whether as company cars, a fleet or novated leases offered through salary packaging. This guide sets out how FBT applies to them for the FBT year running from 1 April 2026 to 31 March 2027, with the two valuation methods, the 2026-27 rates and thresholds and the electric car exemption.
The return for the year ending 31 March 2027 is due to be lodged and paid by 21 May 2027, or generally by 25 June 2027 where a tax agent lodges it electronically and the business is on the agent's FBT client list by 21 May.
When FBT applies to a car
FBT applies when an employer makes a car available for the private use of an employee or an associate of the employee, such as a spouse. That covers company cars used for commuting or weekends, novated lease cars, pool cars taken home and cars provided to directors of the company, including in a family business.
The test is availability for private use as well as actual private use. A car garaged at the employee's home overnight is generally treated as available for private use on those days, even where it was not driven privately.
The two valuation methods
The taxable value of a car fringe benefit is worked out using either the statutory formula method or the operating cost method. You can choose a different method for each car and change methods from one FBT year to the next.
The statutory formula method
The statutory formula method applies a flat 20 per cent to the car's base value, whatever the split between business and private use. The base value is generally the cost of the car including GST and dealer delivery, but excluding registration and stamp duty.
Taxable value = base value x 20% x days available for private use / days in the FBT year, less any employee contribution.
For a car with a base value of $50,000, available all year with no employee contribution, the taxable value is $10,000. With the Type 1 gross-up of 2.0802 and the 47 per cent FBT rate, the FBT payable is $9,777.
The method needs only odometer readings at the start and end of the year, which makes it simple to administer, although it produces the same FBT whether the car is used 10 per cent or 90 per cent for work.
The operating cost method
The operating cost method taxes the private use percentage of the car's actual running costs, which include fuel and oil, registration and insurance, repairs and servicing, and deemed depreciation and deemed interest where the employer owns the car. Deemed interest uses the benchmark rate, which is 8.27 per cent for the year ending 31 March 2027, down from 8.62 per cent.
Taxable value = total operating costs x private use percentage, less any employee contribution.
For a car with operating costs of $18,000 and a logbook showing 75 per cent business use, the taxable value is $4,500 and the FBT payable is $4,400, which is less than half the statutory formula result for a similar car.
The private use percentage comes from a logbook kept for at least 12 continuous weeks that reflects the car's normal pattern of use, recording each journey's date, odometer readings, distance and purpose. A logbook can generally be relied on for five years while the pattern of use holds, and it has to be kept at the time, which means a logbook needed for 2026-27 has to be under way before 31 March 2027.
| Factor | Statutory formula | Operating cost |
|---|---|---|
| Suits | Low business use, or where simplicity matters most | High business use |
| Records | Odometer readings | Logbook, odometer readings and all running costs |
| Basis | 20% of base value | Actual private use |
FBT rates and thresholds for 2026-27
| Item | Year ending 31 March 2026 | Year ending 31 March 2027 |
|---|---|---|
| FBT rate | 47% | 47% |
| Type 1 gross-up rate (GST credit available) | 2.0802 | 2.0802 |
| Type 2 gross-up rate (no GST credit) | 1.8868 | 1.8868 |
| Statutory formula rate | 20% | 20% |
| Benchmark interest rate | 8.62% | 8.27% |
| Car parking threshold, per day | $11.03 | $11.48 |
| Record keeping exemption threshold | $10,664 | $10,962 |
| Reportable fringe benefits threshold (taxable value) | $2,000 | $2,000 |
| EV home charging rate | 4.20 cents per km | 5.47 cents per km |
Luxury car tax thresholds are set by financial year. For cars acquired in 2026-27 the threshold is $91,661 for fuel-efficient vehicles and $80,809 for other vehicles, up from $91,387 and $80,567 in 2025-26.
Electric cars and the FBT exemption
Private use of an eligible zero or low emissions car is exempt from FBT. Battery electric and hydrogen fuel cell cars qualify where the car was first held and used on or after 1 July 2022 and its value at first retail sale was below the luxury car tax threshold for fuel-efficient vehicles, which means it has never been subject to luxury car tax. For a car first sold in 2026-27 that threshold is $91,661.
From 1 April 2025 a plug-in hybrid is no longer a zero or low emissions vehicle for FBT purposes. The exemption can continue for a plug-in hybrid that was exempt before that date, where it was held and used before 1 April 2025 under a financially binding commitment entered into before then. Changes such as refinancing or extending a lease can end that continued exemption, so existing plug-in hybrid arrangements are worth checking before any change is made.
Under Practical Compliance Guideline PCG 2024/2, the cost of charging an electric car at the employee's home can be worked out at 5.47 cents per kilometre for the year ending 31 March 2027, up from 4.20 cents in earlier years. The rate is optional, and actual costs can be used where they can be identified.
An exempt car benefit is still taken into account in working out the employee's reportable fringe benefits amount, which appears on their income statement and is used in income tests such as the Medicare levy surcharge, study loan repayments and family tax benefit.
Dual cab utes
A dual cab ute is exempt only where it is not designed principally to carry passengers, which turns on its load capacity and design, and where private use is limited to travel between home and work, incidental travel in the course of work and other private use that is minor, infrequent and irregular. A ute used for school runs, weekend trips or regular errands falls outside the exemption, and the ATO's car calculator and guidance on eligible vehicles are the place to start when assessing a particular model.
Other vehicle benefits
Several car-related costs create a fringe benefit of their own. A fuel card used for private travel is a car expense benefit where the car is not otherwise taxed under the car rules, tolls paid for private travel can be a fringe benefit, and parking provided on the employer's premises can be a car parking benefit where a commercial parking station within one kilometre charges more than $11.48 for all-day parking. Accessories fitted after purchase, such as tinting or a tow bar, are added to the base value under the statutory formula method.
What to do before 31 March 2027
- Record odometer readings for every car on 31 March 2027.
- Check each logbook is less than five years old and still reflects how the car is used, and start a new one where it does not.
- Arrange employee contributions within the year, since they reduce the taxable value.
- Confirm the electric car exemption for each car relying on it, including its first retail sale value.
- Compare the two methods for cars with high business use.
- Check plug-in hybrid arrangements for any change that would end a continued exemption.
How we can help
We work through each car in your fleet, compare the two valuation methods, confirm which exemptions apply, review logbooks and prepare and lodge the FBT return. Where cars are provided through salary packaging, we also look at how the arrangement is structured. Contact our team to arrange a review before 31 March 2027.
For the wider FBT picture, including entertainment, loans and year-end planning, see FBT 2026-27: What You Need to Know Before 31 March 2027, and for salary packaging an electric car, see our guide to EV salary packaging and the FBT exemption.
Frequently Asked Questions
What is the FBT rate on cars for 2026-27?
The FBT rate for the year ending 31 March 2027 is 47 per cent, the same rate that applies to all fringe benefits. The gross-up rate is 2.0802 for Type 1 benefits, where the employer can claim a GST credit, and 1.8868 for Type 2 benefits.
What is the statutory formula rate for car FBT?
A flat 20 per cent of the car's base value, regardless of the distance travelled or the split between business and private use. The base value is generally the cost of the car including GST and dealer delivery, but excluding registration and stamp duty.
How do I choose between the statutory formula and operating cost method?
The operating cost method usually gives a lower result where business use is high, because it taxes only the private use share of actual costs, although it needs a logbook and full cost records. The statutory formula method is simpler and taxes 20 per cent of the car's value whatever the use. You can choose a different method for each car.
Are electric cars exempt from FBT in 2026-27?
Yes. Battery electric and hydrogen fuel cell cars remain exempt where they were first held and used on or after 1 July 2022 and their value at first retail sale was below the luxury car tax threshold for fuel-efficient vehicles, which is $91,661 for cars first sold in 2026-27.
Are plug-in hybrid vehicles still FBT exempt?
Not for new arrangements. From 1 April 2025 plug-in hybrids are no longer zero or low emissions vehicles for FBT purposes. One that was exempt before then can continue to be exempt where it was held and used under a financially binding commitment entered into before 1 April 2025.
What is the EV home charging rate for 2026-27?
5.47 cents per kilometre for the FBT year starting 1 April 2026, under PCG 2024/2. Earlier years used 4.20 cents per kilometre.
What odometer records do I need for FBT on cars?
Odometer readings at the start and end of each FBT year for every car. Under the operating cost method you also need a logbook covering at least 12 continuous weeks, recording each journey's date, odometer readings, distance and purpose.
What is the FBT car parking threshold for 2026-27?
$11.48 per day for the year ending 31 March 2027, up from $11.03. A car parking benefit can arise where a commercial parking station within one kilometre charges more than that for all-day parking.
