Increased ATO scrutiny on fringe benefits tax

What employers need to know for the 2026 FBT year

In recent years, the Australian Taxation Office (ATO) has increased its focus on the integrity of the fringe benefits tax (FBT) system, with a particular emphasis on employer-provided vehicles and the private use of work vehicles. 
While the ATO has not formally announced a broad FBT “crackdown” in those terms, it has expressly confirmed that reducing the FBT gap is an active compliance priority. This focus is being driven by expanded data-matching capabilities, enhanced risk modelling and targeted audit and review programs, with vehicle-related FBT matters emerging as a key area of scrutiny.

Given that FBT liabilities associated with motor vehicles are often significant and prone to error, this renewed enforcement focus presents both financial and regulatory risks for employers that provide vehicles to employees.

The FBT Gap and the ATO’s Compliance Strategy

The ATO has publicly acknowledged that the FBT tax gap remains material. In response, it has adopted an active compliance strategy aimed at improving reporting accuracy and increasing overall system integrity.

As part of this strategy, the ATO has confirmed that it is relying on:

• Advanced data-matching and risk-profiling technique
• Targeted compliance reviews and audits
• Enhanced employer guidance and education initiatives
• Identification of employers who should be within the FBT system but are not lodging returns

This approach reflects a shift towards more proactive and data-driven compliance activity, rather than reliance on random or reactive audits.

Why Vehicle FBT Is Under Heightened Scrutiny

Employer-provided vehicles remain one of the most common and highest-value fringe benefits. However, they are also among the most frequently misunderstood and incorrectly reported benefits under the FBT regime.

The ATO’s current guidance and published compliance focus areas consistently highlight risks in the following areas:

1. Private use of employer-provided vehicles
2. Incorrect reliance on “work vehicle” exemptions
3. Inadequate, incomplete or invalid logbooks
4. Incorrect treatment of employee contributions and after-tax payments

Misclassification of Utes, dual-cab vehicles and other commercial vehicles

This compliance focus is reinforced by the ATO’s expanded motor-vehicle data-matching programs, which enable cross-checking of registration data, payroll information and FBT lodgements to identify employers who may be under-reporting vehicle benefits or not lodging FBT returns at all.

Key Risks for Employers

Where vehicle-related FBT is incorrectly reported, or not reported at all, employers may be exposed to:

• Retrospective FBT assessments for prior years
• The imposition of general interest charge and administrative penalties
• Penalties for failing to lodge required FBT returns
• A need to reissue Reportable Fringe Benefit amounts and potentially have employees amend personal tax returns.

Unlike many other tax errors, FBT issues often span multiple years before being identified, compounding both the financial exposure and the administrative burden associated with remediation.

Actions Employers Should Take Now

Given the ATO’s confirmed focus on reducing the FBT gap and the clear emphasis on vehicle-related benefits, employers should consider taking the following steps to ensure ongoing compliance:

1. Review all vehicles provided to employees, including classification and private-use arrangements
2. Validate logbooks and private-use records, ensuring they meet legislative requirements
3. Review employee contributions and after-tax payments to confirm correct treatment
4. Confirm the appropriate FBT valuation method has been applied for each vehicle
5. Undertake a retrospective FBT health check to identify and address potential exposure

Proactive review and remediation can significantly reduce the risk of penalties and interest in the event of ATO review.

Final Observations

The ATO has clearly stated that reducing the FBT gap is a current enforcement priority supported by data-driven compliance activity. ATO guidance and independent commentary indicate that vehicle-related FBT will be a major focus of this activity. 

For employers, this means that company vehicles, private use of work vehicles and logbook compliance represent some of the highest FBT audit-risk areas heading into the 2026 FBT year.