Recent ATO crackdowns on nil and non-lodgers, together with expanded data matching and review activities, indicate that fringe benefits tax (FBT) obligations can no longer be treated as an afterthought. Increased ATO scrutiny of common compliance errors, alongside two landmark case decisions, is materially shaping the FBT landscape for the 2026 FBT year.
Expect additional scrutiny from the ATO in the areas of applying the “minor and infrequent” exemption, entertainment, dual cab utes, business travel, benefits to business owners, and journalised employee contributions to name a few. Additionally, the ATO’s recent wins on appeals at the Federal Court confirm that benefits provided to business owners risk potential FBT liability.
The first case, FCT v SEPL Pty Ltd ATF the SFT Trust [2025] FCA 581 (SFT Case), re-examined two issues and sets an important legal precedent for family businesses that provide benefits to family members who are owners or controllers of the business. The two issues identified were whether the brothers (beneficiaries of the trust) were (1) employees of the trust; and if so, whether (2) the luxury cars were provided to them in respect of employment. It was earlier held in BQKD v FCT [2024] AATA 1796 (BQKD Case) that the brothers were not employees and that even if they were, that the cars were not provided in respect of employment.
However, the AAT’s decision in the BQKD Case was overturned by the Federal Court in the SFT Case which held that under the extended definition of employee under section 137 of the FBT Act, anyone who receives a non-cash benefit that, if paid in cash, would be treated as ‘salary or wages’ would be an employee. This confirms that that scope of s 137 is not limited to common law employees but can also apply to directors as was the case in the SFT Case.
The common practice of journalising employee contributions made in relation to fringe benefits is also under more scrutiny. These journals will only be effective for FBT purposes where it is in the form of a journal entry “set-off” arrangement. According to ATO guidelines in MT 2025, the employee must have an obligation to make an employee contribution towards the fringe benefit, e.g. a company policy exists, or the employee has entered into a salary sacrifice arrangement. It is the employer’s responsibility to prove that such an obligation exists, so documented evidence of this arrangement would support this. Furthermore, the employer must also have an obligation to pay a debt to the employee.
Where a journalised contribution creates or increases a debit loan balance to the employee, for the offset journal to be effective for FBT purposes, both parties must explicitly agree in advance that the employer would grant a loan through the employee’s loan account. We note that a debit balance loan in itself could create other issues such as a Division 7A deemed dividend, or it may constitute a loan fringe benefit. Importantly, the time the set off agreement is entered into is the time the employee contribution is made.
The minor and infrequent FBT exemption allows small, occasional benefits under $300 to be exempt from FBT if they are provided irregularly and it would be unreasonable to treat them as fringe benefits. Common benefits that may qualify for the minor benefits exemption include off premises meal entertainment (such as meals at cafés or restaurants) where the cost is less than $300 per person (incl. GST) and provided infrequently, occasional small gifts or vouchers under $300 that are not provided on a regular basis, and light refreshments supplied in the workplace that satisfy the value and infrequency requirements. Each benefit must be assessed on its own facts, having regard to frequency, total value, and whether any associated benefits are provided.
These benefits risk being ineligible for the exemption where they are less than $300 but are not infrequent. Examples include instances where employees are regularly given gift cards as part of a direct reward for the employee’s services, or where a manager or director is frequently incurring meal entertainment as part of their role to promote their organisation. In these instances, the “infrequency” criteria will not be met and applying the minor benefit exemption could expose employers to unexpected FBT liabilities.
Another common myth is that dual cab utes are automatically exempt from FBT. However, this is not always the case. To qualify for FBT exemption, two conditions must be met. The dual cab ute must be:
1. An eligible vehicle, which means it is designed to carry: (a) a load of one tonne or more; (b) more than eight passengers (including the driver); or (c) a load under one tonne and not be primarily designed for carrying passengers.
2. Private use must be limited (i.e., minor, infrequent and irregular), such as the occasional trip to the tip or helping a mate move house.
Therefore, if a work dual cab ute “doubles as the family taxi or is used for weekend personal trips”, it is not exempt from FBT. Where an employee’s personal use of the dual cab ute does not meet both of the above exemption conditions, then the employer will be liable for FBT.[1]
These developments highlight the need for increased vigilance by both employers and advisers in identifying and managing FBT obligations. This requires a focus not only on meeting reporting and payment requirements, but also on ensuring that FBT exposures are accurately assessed, all relevant benefits are identified, and tax is not overpaid as a result of overly conservative or outdated assumptions.
Further detailed commentary on 2026 ATO audit risks and our MKT 2026 FBT guidance will be available by late March. If you would like to discuss the above further, please contact Mimi Ngo.
[1] Employers and tax agents can refer to ‘Exempt use of eligible vehicles’ (QC 71130) on the ATO’s website for further information in this regard.