If you run your business through a company and the company buys a car that you take home, the company may owe fringe benefits tax (FBT) on it. It is a running cost that belongs in the purchase budget alongside the repayments.
This guide is for established business owners deciding which entity should buy their next vehicle. It explains when FBT applies, works through the Australian Taxation Office's statutory formula on a $66,000 car for the FBT year that runs from 1 April 2026 to 31 March 2027, and finishes with a checklist to work through with your accountant before you sign a purchase contract. All ATO pages were checked on 8 November 2026.
Who FBT applies to when the business owns the car
FBT is a tax the employer pays on certain benefits provided to employees or their associates. For FBT purposes, the ATO says an employee includes a director of a company and a beneficiary of a trust who works in the business. It also says that if you are a sole trader or a partner in a partnership you are not an employee, and benefits you provide to yourself are not subject to FBT. Source: ATO, how fringe benefits tax works.
So the structure that buys the car decides which rules apply:
- Company or trust buys the car and you, as a director or working beneficiary, can use it privately: the company or trust may have an FBT liability.
- You buy it as a sole trader or partnership: no FBT, but the tax deduction for the car is limited to its business use. Car tax deductions for 2026-27 covers the logbook and cents per kilometre methods for that situation.
Taking the car home usually counts as private use
The ATO treats a car as available for private use if it is garaged at or near your home, even if only for security reasons, and whether or not you have permission to use it privately. If your workplace and home are the same place, the car is also treated as available for private use. Travel between home and work is usually private, even if you stop to do something work-related on the way. Source: ATO, how FBT applies to cars.
That means a car the company owns and you drive home each night will usually produce a car fringe benefit, unless an exemption applies.
How the statutory formula works
The ATO allows two methods for valuing a car fringe benefit. The statutory formula method is set out as (A × B × C ÷ D) − E, where:
- A is the car's base value: the cost price excluding registration and stamp duty, after any trade-in, plus fitted non-business accessories, dealer delivery charges, GST and any luxury car tax.
- B is the statutory percentage, which is 20%.
- C is the number of days in the FBT year the car was used or available for private use.
- D is the number of days in the FBT year.
- E is any employee contribution, paid from after-tax income.
Source: ATO, taxable value of a car fringe benefit. The ATO's rates and thresholds page confirms the flat 20% rate regardless of distance travelled, an FBT rate of 47% for the year ending 31 March 2027, and a Type 1 gross-up rate of 2.0802, which applies where the employer is entitled to a GST credit for the benefit. The other choice, the operating cost method, needs logbook and odometer records. Without those records you must use the statutory formula.
Worked example: a $66,000 company car
This is our calculation using the ATO formula and rates above, not an ATO example. It assumes the company is registered for GST and can claim the GST credit, so the Type 1 rate applies, and that no exemption applies.
Full year, no contribution. The car has a base value of $66,000 and is available for private use on all 365 days of the FBT year from 1 April 2026 to 31 March 2027.
- Taxable value: $66,000 × 20% = $13,200
- Grossed-up value: $13,200 × 2.0802 = $27,458.64
- FBT payable: $27,458.64 × 47% = about $12,906 for the year, or roughly $1,075 a month
Bought part way through the year. The same car is first available on 1 October 2026, so it is available for 182 of the 365 days.
- Taxable value: $66,000 × 20% × 182 ÷ 365 = about $6,582
- FBT payable: about $6,582 × 2.0802 × 47% = about $6,435
You contribute from your after-tax pay. If you pay the company $13,200 from after-tax income for the full year, the taxable value falls to nil and no FBT is payable on the car. If you pay $6,000, the taxable value is $7,200 and the FBT is about $7,039. A contribution does not make the cost disappear. It moves it from the company to you, out of income you have already paid tax on, so ask your accountant which split leaves you better off overall.
The ATO says the FBT the company pays, and the private use car expenses it pays FBT on, are tax deductible to the company. That reduces the net cost, but it is still a real cash payment. Source: ATO, how FBT applies to cars.
When the employer pays FBT, and how it shows on your income statement
The FBT year runs from 1 April to 31 March. An employer with an FBT liability lodges an FBT return and pays by 21 May, or by 25 June if it uses a tax agent. If the liability for the last year was $3,000 or more, the employer pays four quarterly instalments instead. Sources: ATO small business focus on work vehicles and ATO FBT rates and thresholds.
If your fringe benefits have a total taxable value of more than $2,000 in the FBT year, the grossed-up value must be reported on your income statement using the lower Type 2 rate of 1.8868. On the full-year example, that is $13,200 × 1.8868 = $24,905.76. Source: ATO FBT rates and thresholds. Keep that figure in mind when you compare your income statement with other income evidence, for example when you apply for personal finance.
Utes, vans and electric cars
Some vehicles can be exempt. The ATO says there is no FBT when an employee uses an eligible vehicle and private use is limited to travel between home and work, travel incidental to work, and non-work use that is minor, infrequent and irregular, such as an occasional trip to the tip. Eligible vehicles include a single cab ute, a panel van and a dual cab ute designed to carry a load of one tonne or more, more than eight passengers, or a load under one tonne where it is not designed mainly to carry passengers. Load capacity is the gross vehicle weight minus the unladen weight, using the compliance plate. Source: ATO, exempt use of eligible vehicles.
The exemption depends on both the vehicle and how it is used. The ATO warns that dual cab utes are not automatically exempt, and that a dual cab used as the family taxi or for weekend personal trips is not exempt. Source: ATO, why your dual cab utes may attract FBT. If you are weighing up a ute for the business, commercial van and ute finance covers payload, fit-out and use from the finance side.
The ATO also lists an eligible electric car as an exempt car benefit. Source: ATO, how FBT applies to cars. Our article on the EV novated lease tax break wind-back from 2027 covers the announced changes to that exemption.
Records matter more than the vehicle
The ATO lists the private use of work vehicles, including dual cab utes, as a small business focus area. Its published example describes a company with three luxury vehicles valued at $618,078 that had not lodged FBT returns since 2020. Its logbooks did not record the required details, so the statutory formula was applied. The total liability, including FBT, a 75% penalty and interest, was $938,000. Source: ATO small business focus on work vehicles.
Even where you rely on an exemption, the ATO says you must be able to show the vehicle's use met the conditions at all times, for example by comparing odometer readings with expected home to work travel. Source: ATO, exempt use of eligible vehicles.
Before the company buys: a checklist
- Decide which entity will own and finance the vehicle, and keep the purchase contract, invoice and finance application in that same name.
- Ask how the car will actually be used: who takes it home, who else drives it and how much weekend use there will be.
- Check whether the vehicle is a car or an eligible vehicle by its compliance plate, not its marketing description.
- Add a realistic FBT figure to the company's cash flow, using the statutory formula on the expected base value, and allow for quarterly instalments if they will apply.
- Decide with your accountant whether an employee contribution makes sense, and how it would be paid.
- Set up a logbook and odometer records from the day the vehicle is delivered, whichever method you expect to use.
- Remember the separate rules on depreciation and GST. The instant asset write-off guide covers the car cost limit, the GST credit cap and luxury car tax.
Financing the vehicle
FBT is a tax question, not a finance one, but it changes how much the business can comfortably commit to repayments. When you compare offers, use the same amount, term and balloon for each, and budget the FBT alongside the repayments. Chattel mortgages explained covers the most common way a business finances a vehicle it owns, and how a novated lease works covers the salary packaging route for employees. Loanseekers can compare business equipment and vehicle finance for the entity that will own the car.
The figures in this article are the ATO's published rates and rules, checked on 8 November 2026, and our labelled calculations. Tax rules can change and their application depends on your circumstances. This article is general information only and is not tax or financial advice. Speak to a registered tax agent before deciding how to structure a vehicle purchase.
