The Fringe Benefit Tax (FBT) regime is currently under review following longstanding concerns from tax agents and employers. Chartered Accountants Australia and New Zealand (CA ANZ) has provided input to Inland Revenue, outlining practical measures to modernise the system, reduce compliance burdens, and support fair and consistent tax outcomes.

CA ANZ’s feedback calls for balance: tax rules should capture genuine remuneration benefits without penalising businesses for minor or unavoidable private use of work assets. The focus is on two main components of the regime—motor vehicles and unclassified benefits—where the current rules are no longer well-aligned with typical employment practices. With Inland Revenue seeking reform, CA ANZ has offered detailed comments on areas where changes could be made.

Motor vehicle FBT: Simplification must reflect reality

CA ANZ recommends retaining the tax book value method for valuing motor vehicle benefits. Member feedback confirms that this method is commonly used by small and medium businesses with older vehicle fleets and provides a fairer reflection of the benefit’s value in those cases.

On the proposed new cost-based valuation rates for petrol, hybrid, and electric vehicles, CA ANZ suggests truncating the percentage values for simplicity. Additional clarification is sought on how these rates would apply to vehicle pools containing a mix of petrol, diesel, hybrid, and electric vehicles. CA ANZ also proposes a five-year review cycle to align with vehicle depreciation estimates.

Vehicle categories and common use cases

The proposed three-tier framework for vehicle use—100%, 35%, or 0% FBT liability—does not reflect a range of real-world arrangements. For example, vehicles used exclusively for business during weekdays but available for private use on weekends would be taxed at 100% under the current proposal. CA ANZ proposes refining the categories or adding an additional category to recognise arrangements where private use occurs only on weekends or public holidays, which do not fit neatly within the proposed 35% or 100% FBT tiers.

It also calls for clearer definitions of “predominantly” and “material change in use,” both of which will impact how employers apply the new rules.

Incidental and emergency use: Definitions matter

CA ANZ backs defining and excluding “incidental private use” from FBT and recommends replacing the current “de minimis” threshold (defined as 5% of a journey and 2km of additional distance) with a more practical test based on factors such as duration, frequency, and purpose of travel. CA ANZ requests guidance on the records that employers would need to keep to support claims of incidental use.

For emergency vehicles, CA ANZ agrees with the proposal to exempt outright from FBT any vehicles owned by an ambulance service, police, and fire and emergency used for emergency services, and suggests extending it to other essential service providers like Civil Defence and Red Cross. It also seeks clarity on whether signwriting will be mandatory for all exempt vehicles, particularly those used for sensitive roles such as unmarked police units.

Unclassified benefits: Scrap the complexity

CA ANZ supports a new test based on whether the benefit is provided in substitution for remuneration, capped at $200 per benefit. This would replace the current de minimis thresholds and remove the need for complicated tracking systems and employer-level caps. However, CA ANZ believes the $200 cap is too low and recommends raising it to $300.

Inland Revenue is also encouraged to publish guidance on how related or connected benefits should be aggregated to ensure appropriate application of the cap. CA ANZ emphasises that the long-standing “on-premises” exemption—which excludes certain workplace-provided benefits from FBT—should remain in place for simplicity and consistency.

Entertainment tax: Don’t merge it yet

CA ANZ does not support integrating entertainment expenditure rules into the FBT regime at this stage, noting that the proposal lacks sufficient analysis and may have unintended consequences—particularly where benefits are provided to non-employees or involve non-food-related items such as corporate boxes or holiday accommodation. It recommends that any changes be pursued through the full Generic Tax Policy Process (GTPP), allowing for proper consultation and analysis.

A balanced way forward

The proposed reforms offer a chance to simplify compliance and modernise the regime, particularly for SMEs. Success will depend on whether the changes are clearly defined, proportionate, and supported by practical guidance.