The complex interplays between Fringe Benefits Tax (FBT) and other employment taxes at both a State and Federal level are often underestimated in Australian employment tax compliance.
FBT has flow on impacts into payroll tax and workers compensation insurance, as well as significant cross over and connection with superannuation guarantee, Pay As You Go withholding and employee share schemes (ESS).
Overlooking these interactions can expose organisations to significant risk, especially as the ATO and Offices of State Revenue intensify their data matching and audit activities.
FBT is no longer just a compliance task – it has become a governance challenge. This alert outlines how a three‑lines‑of‑defence controls model and robust system integration can help build a compliance program, as part of an effective FBT governance framework, that stands up to ATO scrutiny and supports effective risk management.
This article also explores how grossed-up FBT affects payroll tax disclosures and workers compensation insurance reporting, as well as potential impact on payday superannuation due to salary sacrifice treatments. Lastly, we note the need to appropriately consider whether FBT may apply to certain equity instruments depending on the structure and whether they meet the ESS criteria and how this should be documented.
FBT Governance: Why It’s a Year-Round Issue
- FBT rate for 2026 remains at 47%: Type 1 gross-up is 2.0802, Type 2 is 1.88681.
- The ATO’s audit priorities include ensuring correct calculations, timely and accurate reporting, and appropriate record-keeping for all benefit types, with a particular focus on car benefits, salary packaging, and entertainment.
- Data matching and system integration mean errors are more easily detected, and governance failures can trigger broader reviews, with it now being common for an ATO review to encompass GST, corporate tax and FBT, highlighting the importance of robust FBT governance.
- The ATO continues to examine small and medium sized businesses for compliance with FBT obligations.
The Three-Lines-of-Defence Model
| Line of Defence | Who | Responsibilities |
|---|---|---|
| First Line | Payroll, HR and Finance Teams | Data entry, benefit policies, benefit availability in contracts, expense classification, and day-to-day compliance activities. |
| Second Line | Tax Team and Risk Functions | Overseeing tax controls, undertaking FBT review processes, and ensuring systems are correctly configured and integrated. |
| Third Line | Internal Audit Function and External Advisors | Providing independent assurance, sign offs on positions and assisting with readiness for potential ATO / OSR review. |
As part of the overall Tax Governance approach within a business, there should be appropriate FBT processes in place, such as those in the three lines of defence approach noted above, which should help to ensure adequate FBT compliance.
FBT and Payroll Tax
- One of the most common areas we see missed by clients is ensuring the correct FBT amounts are disclosed in State Payroll Tax returns under the FBT wage item.
- Payroll tax is calculated on the grossed-up taxable value of fringe benefits, not just benefit value.
- Whilst both a Type 1 and Type 2 gross-up rate apply in the FBT legislation depending on GST credit eligibility associated with each benefit, for payroll tax disclosure purposes only one rate is used, the Type 2 rate.
- For employers operating in multiple States, the benefits should be declared in the appropriate State where the recipient is captured for payroll tax purposes or where this is not possible an apportionment based on overall Wages is typically accepted.
- The Offices of State Revenue in all States and Territories undertake data matching of FBT return data to compare against payroll tax disclosures and we regularly see clients audited due to this simple oversight.
- Errors in FBT calculation which require correction flow directly into payroll tax liabilities, compounding risk due to the need for corresponding payroll tax amendments and the potential for the imposition of penalties and interest.
Key Action:
Ensure your payroll tax processes correctly incorporates grossed-up FBT amounts and that there is an approach to reconcile the payroll tax and FBT returns.
FBT and Workers Compensation Insurance Premium
- Similar to payroll tax, we see many clients inadvertently miss including the correct FBT amounts State based Workers Compensation Insurance Premium annual declarations of rateable remuneration under the FBT item.
- Workers Compensation Insurance Premiums are also calculated on the grossed-up taxable value of fringe benefits, not just benefit value. For workers compensation insurance premium purposes the FBT gross-up rate used is the Type 2 rate.
- For employers operating in multiple States, the benefits should be declared in the appropriate State where the recipient is captured for Workers Compensation Insurance purposes or where this is not possible an apportionment based on overall Wages is typically accepted.
- In all States and Territories, there is data matching of the payroll tax annual reconciliations and FBT return data to compare against workers compensation insurance premium disclosures and we regularly see clients audited due to this simple oversight.
Key Action:
Ensure your Workers Compensation Insurance premium processes correctly incorporates grossed-up FBT amounts and that there is an approach to reconcile the amounts disclosed for workers compensation insurance, payroll tax and FBT purposes, to support consistent FBT governance.
Payday Super: Timing and Traps
- The introduction of Payday Super means superannuation guarantee must now be paid into employee funds at the same time as salary and wages are paid, not just quarterly as under the current system.
- Some fringe benefits may impact superannuation guarantee calculations, especially where salary packaging is involved for certain benefits.
Key Action:
Review your salary packaging arrangements and ensure super is correctly calculated and paid in line with new payday super requirements, as quarterly fix ups will become a thing of the past. This is an enormous change for businesses, and appropriate preparation is needed before 1 July to address this change.
Employee Share Schemes (ESS): Documentation
- The provision of equity to employees is a complex regime which can have many different tax outcomes depending on how provided and the nature of the equity instrument used.
- This can include items being treated under the ESS regime whereby they are taxed to the individual or in some cases these instruments can be subject to FBT and taxable to the employer.
- The assessment of these instruments is a complex area of taxation and required, detailed documentation review.
- The ATO expects clear identification of the relevant ESS subsection in your records and appropriate reporting either under the ESS provisions or under the FBT provisions.
Key Action:
Maintain up-to-date ESS documentation and advice on the treatments, including plan rules, offer letters, and evidence of board approvals. Also consider your flow on payroll tax obligations with respect to ESS.
Data Sources, System Integration, and ATO & OSR Data Matching
- The ATO and each of the Offices of State Revenue use sophisticated data matching to identify discrepancies between FBT disclosures, and the flow on disclosures for payroll tax and workers compensation insurance premium, as well as the matching of superannuation guarantee, income tax reporting and ESS amounts.
- Integration and consistency in approach and amounts disclosed by Tax teams, Payroll, HR, and finance is critical to ensure data consistency and reduce errors.
Key Action:
Map your data flows and tax disclosures to identify any gaps or manual processes that could create compliance risks or increase your chance of a review or audit.
What This Means for You
- FBT governance is a whole-of-organisation issue, not just a tax function responsibility.
- FBT year-end is the ideal time to review your controls, data sources, and system integration.
- A robust three-lines-of-defence model will help you identify and address FBT risks before the ATO does, and strengthen overall FBT governance.
Next Steps / Andersen Perspective
- Conduct a year-end FBT review, focusing on the FBT treatments but also considering the flow on payroll tax, workers compensation insurance premium, superannuation guarantee and ESS interactions.
- Test your FBT controls and documentation against the ATO’s current audit focus areas.
- Contact Andersen Australia for a tailored FBT compliance review and to strengthen your Tax Governance framework.
Key Reference Links
FBT 2026 Hub
Stay up to date with all of our FBT insights, guides and practical resources in our FBT 2026 hub:
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