FBT: The Hidden Payroll Cost That Can Turn “Normal” Business Spending Into a $100k Tax Bill

One company car.
One director benefit.
And suddenly, a $100,000 tax bill appears.

Not from income tax.
Not from GST.
Not because of fraud.

But because of a tax many businesses don’t realise applies to them: Fringe Benefits Tax (FBT).

FBT is dangerous because it’s quiet:

• It doesn’t appear on payslips.
• Employees rarely ask about it.
• Cash doesn’t leave the bank every pay cycle.

So it sits in the background until the Australian Taxation Office (or a state revenue authority) starts reviewing payroll, directors’ accounts, and expense patterns.

Most FBT problems don’t start with bad intent.
They start with everyday decisions that slowly become tax risks.

Why FBT Becomes an Audit Magnet

FBT exposure often shows up alongside other review areas because the same transactions touch multiple regimes:

• Payroll (benefits provided “in respect of employment”)
• FBT (taxed on the employer)
• Income tax (deductibility and private-use adjustments)
• Payroll tax (state-based implications)
• Director/shareholder issues (where “reimbursements” and private spending sit)

If your ledger has recurring patterns like:

• motor vehicle running costs
• “reimbursements”
• travel/meals/entertainment
• rent or accommodation paid by the company
• director loan accounts

…you’re already in the zone where FBT questions naturally arise.

FBT in real numbers: how the hidden cost actually builds

Below are examples that show how quickly “normal” spending can turn into material exposure.

1) Company car with private use

• Annual taxable value: $80,000
• Grossed-up value: ~ $147,000
• FBT payable: ~ $67,000

This is the classic scenario because the same car is often:

• fully depreciated as a business asset
• claimed as “100% business use”

Result: exposure across FBT, income tax, and payroll tax.

Control points

• a clearly defined “business vs private” usage position
• consistent treatment in bookkeeping and tax workpapers
• supporting documentation (so the story matches the ledger)

2) Director personal expenses paid by the company

• Personal expenses paid: $45,000
• Often treated as a fringe benefit
• FBT liability alone can exceed: $20,000
• Plus payroll tax impact
• Plus potential Division 7A review

This is where businesses get hit with “multi-layer compliance” pain: something recorded casually as “reimbursements” turns into a compounded issue.

Control points

• draw a hard line between: business expense, reimbursement, loan account movement, and benefit
• apply one policy consistently (and document it)

3) Housing / accommodation benefits

• Annual rent paid by company: $60,000
• Housing fringe benefit
• FBT payable: $25,000+

This category tends to be heavily reviewed and is documentation-sensitive.

Control points

• clear basis for why the arrangement exists
• clear separation of private benefit vs business necessity
• clean records that reconcile to agreements and payments

4) Travel, meals, and entertainment

• Annual spend: $30,000
• Mixed business and personal use
• Incorrect treatment → FBT exposure

This is how “small” items create big risk: many transactions, inconsistent descriptions, and no consistent classification.

Control points

• a simple rule-set in bookkeeping (what codes where)
• periodic sampling reviews before year-end

5) Interest-free director loans

• Average loan balance: $300,000
• No interest charged
• The “interest saving” itself can become a fringe benefit, often discovered years later.

This one hurts because it’s not visible operationally. Nobody feels it… until it’s assessed.

Control points

• track balances and terms like you would with any financial instrument
• don’t let loan accounts drift unmanaged for years

The technical reality: FBT is not a fringe issue

For Australian businesses, FBT is:

• a hidden payroll cost
• a frequent review trigger
• closely linked to payroll tax
• easy to ignore, expensive to unwind later

Businesses that take FBT seriously early don’t “save tax”.
They avoid unnecessary exposure.

A practical FBT risk check (fast diagnostic)

If you answer “yes” to any of these, you should review FBT positioning before year-end:

1. Does the business provide a vehicle that has any private use?
2. Are director/staff expenses ever paid by the company and later “sorted out”?
3. Do you pay for accommodation, rent, or living costs for someone connected to the business?
4. Do you have recurring meals/entertainment where business vs private isn’t clear?
5. Do director loan balances exist without clear terms and active management?

What to do next (simple, high-impact process)

1. Map the top 20 expense accounts where benefits hide (vehicles, reimbursements, meals, travel, accommodation).
2. Review samples monthly (not yearly).
3. Fix classification rules in bookkeeping so the ledger tells one clean story.
4. Document positions so your treatment is defensible in a review.

Closing

FBT doesn’t look like a payroll cost, but it behaves like one and it doesn’t show up gradually, it often shows up as a shock. If you’re unsure where FBT might be hiding in your business, it’s worth reviewing this before the ATO does.