Company cars are one of the most common fringe benefits in Australian small business, and one of the most misunderstood. Business owners often assume that because the company owns the car, it's a tax-free perk. It isn't. If anyone who works for the business, including a director-shareholder, can use the car privately, FBT applies unless an exemption fits.
The good news is that the right method, a decent logbook, an employee contribution, or the right vehicle can often bring the FBT down to nothing. This guide explains how car FBT is worked out for the FBT year ending 31 March 2027, the electric car exemption and its limits, the end of the plug-in hybrid exemption, novated leases, and the changes proposed from 1 April 2027.
How does FBT on cars work?
A car fringe benefit arises when an employer makes a car it owns or leases available for an employee's private use. "Available" is enough: a car garaged at the employee's home overnight is treated as available for private use, even if they don't drive it.
The employer pays the FBT, not the employee. The tax is calculated like this:
- Work out the taxable value of the benefit (statutory formula or operating cost method).
- Gross it up, to reflect the income tax the employee would have paid to buy the benefit themselves.
- Multiply by the FBT rate.
| Rate or threshold | FBT year 1 April 2026 to 31 March 2027 |
|---|---|
| FBT rate | 47% |
| Type 1 gross-up rate (employer can claim GST credits on the benefit) | 2.0802 |
| Type 2 gross-up rate (no GST credits) | 1.8868 |
| Statutory interest rate (used in the operating cost method) | 8.27% |
| Reportable fringe benefits threshold | Taxable value over $2,000 |
| Record-keeping exemption threshold | $10,962 |
FBT is deductible to the business, and the business can claim GST credits on car costs as normal. Most car benefits are Type 1, because the employer could claim GST credits on the car.
Statutory formula vs operating cost method: which is better?
You can choose the method for each car, each year, and use whichever gives the lower taxable value (as long as you have the records the operating cost method needs).
| Statutory formula method | Operating cost method | |
|---|---|---|
| Taxable value | Base value of the car × 20% × days available ÷ 365, less employee contributions | Total operating costs × private-use percentage, less employee contributions |
| Base value | Cost including GST and dealer-fitted accessories, excluding registration and stamp duty. Reduced by one-third once you've held the car for four full FBT years | Not used |
| Operating costs | Not used | Fuel, repairs, insurance, registration, lease payments; for owned cars, deemed depreciation (25% diminishing value) and deemed interest at the statutory rate |
| Records | Days the car was available; base value | A valid logbook, odometer readings and all costs |
| Usually better when | High private use, or older cars with a reduced base value | High business use backed by a logbook, or low running costs relative to the car's price |
Logbook rules for FBT
A logbook must be kept for a continuous period of at least 12 weeks that represents the car's normal use, recording each business trip (date, start and end odometer, kilometres, purpose). You also need odometer readings at the start and end of each FBT year. A logbook is valid for five years, unless the pattern of use changes or you replace the car.
Worked example: same car, two methods
Hypothetical, round numbers, FBT year ending 31 March 2027.
A company buys a petrol SUV for $55,000 including GST. It's provided to a director for the full year. The director keeps a 12-week logbook showing 70% business use. Total operating costs for the year, including deemed depreciation and interest, are $18,000.
| Statutory formula | Operating cost | |
|---|---|---|
| Taxable value | $55,000 × 20% = $11,000 | $18,000 × 30% private = $5,400 |
| Grossed up (Type 1, × 2.0802) | $22,882 | $11,233 |
| FBT at 47% | $10,755 | $5,280 |
The logbook halves the FBT. Now suppose the director pays $5,400 to the company from their own after-tax money for private use (an "employee contribution"). Under the operating cost method, the taxable value drops to nil and there's no FBT. The company includes the $5,400 in its income (and GST on it), but that's usually far cheaper than the FBT.
How does the electric car FBT exemption work?
Since 1 July 2022, private use of an eligible electric car by an employee is exempt from FBT. As at 18 October 2026, the full exemption still applies. A car must meet all four conditions:
- It's a zero or low emissions vehicle. A battery electric car or a hydrogen fuel cell car. It must be a "car" for FBT purposes: designed to carry less than one tonne and fewer than nine passengers. Electric motorbikes and scooters don't qualify.
- It was first held and used on or after 1 July 2022. Both, not either.
- It's provided to a current employee (or their associate, such as a spouse). This is why sole traders and partners can't use the exemption on their own car.
- Luxury car tax has never been payable on any sale or import of the car. The car has to have been under the luxury car tax threshold for fuel-efficient vehicles at every retail sale.
Associated costs are exempt too: registration, insurance, repairs, maintenance and the electricity to charge it. For home charging, an employer can use the ATO's shortcut EV home charging rate of 5.47 cents per kilometre for the FBT year ending 31 March 2027, or actual costs. A home charger installed at the employee's house isn't a car cost and may be a separate fringe benefit.
Exempt, but still reported
An exempt EV is still a reportable fringe benefit. The employer works out the value as if FBT applied and reports the grossed-up amount (using the Type 2 rate) on the employee's income statement if the taxable value is over $2,000. It isn't taxed, but it counts for:
- Medicare levy surcharge
- Division 293 tax on super contributions for high earners
- Study and training loan repayments
- Family and other income-tested payments
- Child support
On a $60,000 EV under the statutory formula, the reportable amount is about $22,600 a year. For an employee near an income threshold, that matters.
What happened to plug-in hybrids?
Plug-in hybrid electric vehicles (PHEVs) stopped being eligible from 1 April 2025. A PHEV can only still be exempt if it was already being provided as an exempt benefit before 1 April 2025 under a financially binding commitment made before that date, and that commitment continues. A new PHEV lease today is taxed like any petrol car.
Is the electric car FBT exemption ending?
Proposed changes, not law. The Government has announced phased changes to the exemption:
| Period | Proposed treatment |
|---|---|
| To 31 March 2027 | Full exemption continues (current law) |
| 1 April 2027 to 31 March 2029 | Cars valued at $75,000 or less stay fully exempt. Cars above $75,000 but below the luxury car tax threshold get a 25% discount on the FBT otherwise payable |
| From 1 April 2029 | Full exemption ends. All eligible cars below the luxury car tax threshold get a 25% FBT discount |
The Government has said existing leases won't be affected. Treasury released exposure draft legislation in September 2026, including grandfathering for financially binding commitments made before the transition date. As at 18 October 2026, no Bill has passed and the ATO lists the measure as not yet law. The detail, including exactly which arrangements are protected, can still change.
What it means in practice:
- An EV ordered and committed to now is likely to be protected for the term of that arrangement, if the final law follows the draft.
- An EV over $75,000 ordered after the transition date would, under the proposal, attract FBT at a reduced rate.
- Don't sign a lease on the assumption that the proposal will or won't pass. Read the contract's terms for what happens if the tax treatment changes.
How do novated leases and FBT work?
A novated lease is a three-way agreement: the employee leases a car from a finance company, and the employer agrees to make the lease payments and pay the running costs from the employee's salary. The employer is providing a car fringe benefit.
For a petrol, diesel or hybrid car, novated leases are usually structured with the employee contribution method: the employee pays part of the costs from after-tax salary, equal to the taxable value, so the employer's FBT is nil. The rest comes from pre-tax salary. The saving comes mainly from GST and the pre-tax portion.
For an eligible electric car, there's no FBT to offset, so the whole cost (lease, charging, insurance, servicing) can come from pre-tax salary. That's why EV novated leases have become so popular. The trade-off is the reportable fringe benefit described above.
Worked example: a novated EV
Hypothetical, round numbers, before the proposed 2027 changes.
An employee on $150,000 novates a $60,000 electric car. Lease and running costs are $18,000 a year, all paid from pre-tax salary.
- Taxable salary falls from $150,000 to $132,000. At 2026–27 rates, $15,000 of that comes off the 37% bracket and $3,000 off the 30% bracket, plus 2% Medicare levy on the lot, so the saving is about $6,810 a year compared with paying the same $18,000 from after-tax money.
- The employee also saves GST on the car and running costs, because the employer claims it.
- The reportable fringe benefit of about $22,600 appears on their income statement and is added back for the income tests listed above.
Whether it's worth it depends on the car, the lease terms and fees, the employee's income tests, and what happens to the lease if they change jobs. Financial advice about the lease product itself comes from a licensed adviser; we can model the tax.
What are the common FBT car mistakes?
- Assuming no FBT because the car is in the company's name. That's exactly when FBT applies.
- Using the statutory formula by default when a logbook would have halved the FBT.
- No logbook, or a logbook kept for less than 12 continuous weeks.
- Missing odometer readings at 31 March.
- Claiming the ute exemption for a dual-cab used as the family car.
- Not reporting exempt EV benefits on income statements.
- Signing a PHEV novated lease after 1 April 2025 expecting the exemption.
- Buying a second-hand EV that bore luxury car tax when new.
- Forgetting employee contributions paid by journal entry, so they're never recorded as income or counted against the taxable value.
- Not lodging an FBT return because "it's just the director's car".
Is a company car worth it at all?
Sometimes the honest answer is no. For a director-shareholder who mostly uses the car privately, the FBT, record-keeping and accounting cost can exceed the benefit. Alternatives:
- Own the car personally and have the company pay a car allowance or reimburse business kilometres.
- Own the car personally and claim business use through your own return if you're an employee who uses it for work.
- Choose an exempt vehicle: an eligible EV, or a work ute genuinely used for work.
The right answer depends on the car's price, business use, your structure, and who drives it. Taking a car out of a company can also raise Division 7A if it isn't done at market value. And if you're buying a car for the business, the instant asset write-off guide explains the depreciation side, including the 2026–27 car limit of $69,883.
How BPAG helps with car FBT
Our FBT agent works through car benefits, EVs, exemptions and valuation, and compares the statutory and operating cost methods car by car. Your accountant checks the logbooks, base values and contributions, then prepares and lodges your FBT return. The agent drafts; a qualified accountant reviews and signs off before anything is lodged. See our FBT return service.
We also look at the bigger picture in our tax planning service: whether the car should be in the business at all, and how it fits with your salary, super and structure. FBT on cars is a common issue for professional practices, which is why we cover it on our page for medical practices and health services. For the rest of what a business can deduct, see our small business tax deductions guide.
Frequently asked questions
Do sole traders pay FBT on their own car?
No. FBT applies to benefits an employer gives an employee. A sole trader isn't their own employee, so there's no FBT. Instead, you claim the business portion of the car's costs in your tax return using the cents-per-kilometre or logbook method. For the same reason, a sole trader can't use the electric car FBT exemption on their own car.
Is a work ute exempt from FBT?
It can be. A ute or panel van (other than a car designed mainly to carry passengers) is exempt if the employee's private use is limited to travel between home and work, travel incidental to work travel, and other private use that is minor, infrequent and irregular. A ute used for weekends away and the family's errands doesn't qualify.
When is the FBT return due?
The FBT year runs from 1 April to 31 March. For the year ending 31 March 2027, the return is due 21 May 2027 if you lodge it yourself, and later if a registered tax agent lodges electronically under their lodgment program. If you have no FBT to pay, you may not need to lodge, but you should notify the ATO if you were previously registered.
Does a second-hand electric car qualify for the FBT exemption?
It can, if it was first held and used on or after 1 July 2022 and luxury car tax has never been payable on any sale or import of that car. A used EV whose original price was over the luxury car tax threshold for fuel-efficient cars is permanently ineligible, even if it's now cheap.
Are the company's charging costs for an EV exempt too?
Yes. Registration, insurance, repairs, maintenance and electricity to charge an eligible electric car are part of the exempt car benefit. A home charging unit installed at the employee's house is not a car expense, though. It may be a separate fringe benefit, so check it before you pay for one.
What is the FBT record-keeping exemption?
Small employers can be exempt from keeping full FBT records in later years if their total fringe benefits in a base year were under the threshold, which is $10,962 for the FBT year ending 31 March 2027. The exemption has conditions, and it doesn't remove FBT on the benefits, so check eligibility before relying on it.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.