As the 2026 FBT year comes to an end, the ATO is focusing on employers that provide vehicles to employees. In particular, from 1 April 2025, PHEVs are no longer treated as zero or low-emission vehicles and therefore no longer qualify for the FBT exemption.
For employers that provide plug-in hybrid vehicles (PHEVs), it is important to remember that there is a new shortcut method available for calculating electricity costs set out in PCG 2024/2.
This month, the Bills that set out Division 296 and other super reforms passed through Parliament and received Royal Assent. The operation of Division 296 tax will start from 1 July 2026.
As change occurs, we’ll keep you posted through Fortis Accounting Partners’ social media accounts.
From the Government
Draft Regulations For Super Reforms
The Government has now released the exposure draft regulations to support the super reforms for Division 296 under the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Act 2026 and the Superannuation (Building a Stronger and Fairer Super System) Imposition Act 2026, which have now passed the Senate and received Royal Assent.
The draft regulations:
- explain how super funds will attribute fund earnings to individuals
- set out how to calculate earnings for defined benefit interests
- specify the super interests that are excluded from the policy
- explain how the tax applies in a person’s final year
- set the adjustment factors for capital gains tax for large super funds
Treasury is seeking feedback on the draft regulations until 7 April 2026.
From the Regulators
Key Updates For FBT Time
The ATO is reminding taxpayers of some key updates for the 2026 FBT year.
Plug-in hybrid electric vehicles
Employers that provide plug-in hybrid electric vehicles (PHEVs) to employees, their families, or associates for private use should be aware of changes affecting home charging costs and FBT treatment.
The ATO has updated PCG 2024/2, Electric vehicle home charging rate, to introduce a new shortcut method for calculating electricity costs where a PHEV is charged at an employee’s home. Employers can use this optional shortcut rate where the eligibility requirements are satisfied, or they can continue to calculate the actual electricity costs.
From an FBT perspective, PHEVs are no longer treated as zero or low-emissions vehicles from 1 April 2025 and therefore no longer qualify for the FBT exemption, unless a pre-existing arrangement was in place before this date. Where employers provide PHEVs for private use, or where they are available for private use, FBT obligations may arise from the 2025–26 FBT year. Employers may still be eligible for the electric car FBT exemption where all relevant requirements are met.
Common mistakes
The ATO has also highlighted some common errors that may attract ATO scrutiny. These include:
- lodging a nil FBT return when fringe benefits were provided
- treating private use of work vehicles as business use, or failing to report it
- incomplete or invalid records to support exemptions or concessions used, or to show how the taxable value of benefits was calculated
- incorrect reporting of employee contributions to reduce FBT liabilities, or reporting them at the wrong label in the income tax return
Providing Work Vehicles or Other Perks To Staff
The ATO has published guidance on its current FBT focus areas.
The ATO is reminding employers that providing perks to employees, even on an occasional basis, may give rise to FBT obligations. A common example is the provision of work vehicles that are used for private purposes, including where a vehicle is garaged at an employee’s home. Employers are encouraged to ensure they understand their obligations where private use occurs, so they can lodge correctly and remain compliant.
The guidance also highlights recent changes affecting PHEVs. As noted above, from 1 April 2025 PHEVs are no longer eligible for the electric car FBT exemption unless specific transitional rules apply. As a result, employers who provide PHEVs for employee private use may have an FBT liability for the 2025–26 FBT year.
In addition, the ATO notes that where employees charge PHEVs at home, employers may use the shortcut method to calculate electricity costs, provided they meet the eligibility criteria. Alternatively, employers can continue to calculate actual electricity costs.
The private use of work vehicles is a key compliance focus area for the ATO, with increased scrutiny on employers who may be overlooking or incorrectly reporting FBT where such vehicles are used for personal purposes.
Logbooks
The ATO is reminding taxpayers that while a logbook is generally valid for five years, a new logbook may be required where there are changes that affect the accuracy of the original record, including changes to their pattern of work-related car use.
For clients using the logbook method across two or more vehicles, a separate logbook must be maintained for each car, and each logbook must cover the same representative period. Where a client purchases a new car and wishes to continue relying on the logbook from their previous vehicle, they must make a written nomination before lodging their tax return. This nomination must confirm that the new car is a replacement and specify the date the nomination takes effect.
The ATO also reiterates that clients are not entitled to claim work-related car expenses where a car is provided by their employer or obtained through a salary sacrifice arrangement, such as a novated lease.
When claiming car expenses using the logbook method, clients need to keep the following records:
- odometer records for the start and end of the period they own the car during the income year in which they rely on their logbook
- proof of purchase price, or a new lease agreement and lease payment records
- decline in value calculations
- fuel and oil receipts, or records of a reasonable estimate of these expenses based on odometer readings
- receipts from commercial charging stations, or evidence showing they incurred additional electricity costs to charge their electric or plug-in hybrid car at home, such as an electricity bill and the calculation of the direct cost to recharge
- registration and insurance, with evidence of payment
- servicing, repairs and tyres, with evidence of payment
Commercial charging costs cannot be claimed if a client uses the home charging rate of 4.2 cents per kilometre as a reasonable estimate of home charging based on odometer readings. If the car is a plug-in hybrid, a specific formula must be used to calculate home charging expenses.
Sham Contracting
The ATO and the Fair Work Ombudsman (FWO) are focusing on sham contracting, with community insights and intelligence revealing concerning patterns of behaviour across several industries.
Sham contracting happens when an employer misrepresents an employment relationship as an independent contracting arrangement without a reasonable basis for doing so. This may be done to avoid paying entitlements such as superannuation, leave, and workers compensation.
Courts can impose significant penalties for sham contracting, including:
- $19,800 for individuals
- $99,000 for businesses with fewer than 15 employees
- for businesses with 15 or more employees, the greater of $495,000 or three times the underpayment amount
Taxable payments annual reporting (TPAR) also gives the ATO visibility over payments made to contractors each year.
Late Payment Offset No Longer Available
Employers can currently reduce their super guarantee charge (SGC) liability by amounts paid late to a fund through the late payment offset (LPO).
With Payday Super being introduced, this will no longer be available. The last time an employer can use the LPO is for the quarter ending 31 March 2026. Superannuation for this quarter is due by 28 April 2026, and employers can claim the LPO when lodging an SGC statement for any late payments made up to and including 30 June 2026.
On 1 July 2026, Payday Super starts. If there is an SG shortfall for the quarter ending 30 June 2026, SG payments made between 1 and 28 July 2026 will first be used to reduce this shortfall before being applied to Payday Super amounts.
Under Payday Super, late payments will automatically be applied by law to the oldest outstanding Payday Super amount.
Payday Super
The ATO is reminding taxpayers what they should do before Payday Super comes into effect on 1 July 2026.
The move from quarterly superannuation guarantee payments to paying super at the same time as salary and wages may have a significant impact on business cash flow. This is expected to be particularly relevant in July 2026, when employers may need to manage both their usual April to June quarterly super payment and their first Payday Super payments. This could result in multiple additional payments where employees are paid weekly. The ATO encourages employers to plan ahead to manage this transition.
The ATO has also confirmed that the Small Business Superannuation Clearing House (SBSCH) will permanently close from 1 July 2026. From 11:59 pm AEST on 30 June 2026, employers will no longer be able to access the system, including logging in, submitting payment instructions, or viewing historical records.
The ATO is also reminding taxpayers who use the SBSCH to download their records now. Employers will not be able to log in, submit payment instructions, or view any records after the closure. They should download their records now, as they may need them in future to respond to audits or employee queries.
Rulings, Determinations & Guidance
Sales of New Residential Premises
The ATO has issued an addendum to GSTR 2003/3 following the decision in Domestic Property Developments Pty Ltd as trustee for the Dals Property Trust v Commissioner of Taxation [2022] AATA 4436.
GSTR 2003/3 sets out what is considered a ‘sale’ for the purposes of section 40-65 and when real property is considered new residential premises under section 40-75 of the GST Act.
In particular, the updates provide that:
- the 5-year period in section 40-75 does not include periods during which the premises are used to make GST-free supplies
- the 5-year period in section 40-75 of the GST Act must be a continuous period
- the marketing of premises for sale is a ‘use’ of the premises for the purposes of section 40-75
- the meaning of ‘applied’ in Division 129 and ‘used’ should not automatically be interpreted consistently, and ‘used’ takes its ordinary meaning
Payday Super Rulings
The ATO has issued a series of draft rulings that explain various aspects of the Payday Super reforms.
LCR 2026/D1 sets out the Commissioner’s views on what constitutes qualifying earnings (QE) within the meaning of section 10A of the Superannuation Guarantee (Administration) Act 1992 (SGAA). QE is used to calculate the minimum level of superannuation contributions an employer needs to make for the benefit of its employees to avoid liability for the superannuation guarantee (SG) charge under the SGAA.
LCR 2026/D2 explains the criteria contributions must satisfy to be treated as eligible contributions, and the time periods within which the contributions must be received.
LCR 2026/D3 sets out how the SG charge is calculated and assessed.
LCR 2026/D4 provides guidance on the application provisions of the Payday Super amendments and the savings provisions of the old Act.
Administration of Penalties for Failure to Comply With Superannuation Member Account and STP Reporting Obligations
The ATO has issued a draft Practice Statement that explains how ATO staff should administer penalties where a superannuation fund becomes liable for failing to comply with reporting obligations through the member account attribute service and member account transaction service. It also covers decisions about the remission of penalties where appropriate.
The ATO has also issued draft PS LA 2026/D2, which explains how ATO staff should administer penalties where an entity becomes liable for failing to comply with its Single Touch Payroll reporting obligations accurately and on time, including the remission of penalties where appropriate.
Withholding Variation
The ATO has registered the Taxation Administration (Withholding Variation for Payments to Indigenous Artists who do not Quote an ABN) Legislative Instrument 2026, which varies the withholding rate to nil where an entity makes a payment to an Indigenous person for a supply of artistic works, the person works or resides in Zone A, and they do not quote an ABN in relation to that supply.
The ATO has also registered the Taxation Administration (Withholding Variation for Certain Payments to Religious Practitioners) Legislative Instrument 2026, which varies the withholding rate to nil for certain payments to religious practitioners.
GST and Fund-raising Events
The ATO has finalised legislative instrument LI 2026/3, A New Tax System (Goods and Services Tax) (Frequency of Fund-raising Events) Determination 2026.
Under the instrument, eligible entities may continue to choose to treat all supplies made in connection with a fund-raising event as input taxed, provided they hold 15 or fewer like or similar fund-raising events within a prescribed accounting year.
However, where an entity holds 16 or more like or similar fund-raising events within the same prescribed accounting year, the concession is no longer available. In these circumstances, the entity cannot treat any of the events as input taxed and will be required to remit GST on all supplies made in connection with those events, including supplies relating to the first 15 events held during that year.
The instrument introduces the concept of a prescribed accounting year, defined as the 12-month period ending on the date the entity balances its accounts. This replaces the previous reliance on the standard financial year, 1 July to 30 June, and accommodates entities that operate on a different accounting cycle.
PepsiCo Case Decision Impact Statement
The ATO has issued a decision impact statement following the High Court’s decision in FC of T v PepsiCo Inc & Anor. The Full Federal Court held that payments made under exclusive bottling agreements were solely for concentrate and did not include any royalty component. As a result, the Court also found that the diverted profits tax (DPT) provisions did not apply, as no tax benefit was obtained by the taxpayers.
At a high level, the case involved US entities PepsiCo Inc and Stokely-Van Camp Inc, which owned intellectual property for major beverage brands and entered into exclusive bottling agreements with an Australian bottler. Although the arrangements granted rights to use intellectual property, the agreements only required payment for concentrate, with no express royalty. The Commissioner assessed the taxpayers on the basis that part of the payments constituted royalties subject to withholding tax, or alternatively that DPT applied. While the Federal Court initially found for the Commissioner, this was overturned on appeal, with the High Court ultimately confirming that no part of the payments was for the use of intellectual property and that no amounts were derived by or paid to the taxpayers for royalty purposes.
In relation to DPT, the High Court held that no tax benefit arose because there was no reasonable alternative postulate to the arrangement entered into. The Court emphasised that the commercial substance of the arrangement, being arm’s length dealings where the price was for concentrate only and consistent with market practice, meant the taxpayers could demonstrate the absence of a tax benefit.
In its impact statement, the ATO notes that the decision reinforces the need to consider the totality of the commercial arrangement when identifying whether a payment constitutes a royalty, and that agreements may extend beyond a single contract to a broader composite of arrangements. The ATO maintains that payments may still be characterised as royalties depending on the facts, even where intellectual property rights are embedded within amounts labelled otherwise, and confirms that labels or pricing methodologies are not determinative.
The ATO also highlights that, on the facts of this case, there was no constructive payment of any royalty to the taxpayers, as there was no antecedent obligation for the Australian entity to pay them. In respect of DPT, the Commissioner considers the decision to be confined to its specific and “unique” facts, with limited broader application. The ATO further notes that the decision clarifies the taxpayer’s onus in establishing the absence of a tax benefit under Part IVA, including the possibility of multiple reasonable alternative postulates.
The ATO is reviewing the implications of the decision for its existing guidance, including PS LA 2005/24 and draft Taxation Ruling TR 2024/D1.
Super Transfer Balance Caps
The ATO has issued draft Consolidation LCR 2016/9DC, which contains the proposed changes to:
- reflect the increase in the maximum allowable members made under the Treasury Laws Amendment (Self Managed Superannuation Funds) Act 2021
- further explain proportional indexation of the transfer balance cap and superannuation income streams subject to a commutation authority
- clarify how the general principles in the draft consolidation apply in the context of successor fund transfers
Cents Per Kilometre Rates for 2026-27
The ATO has issued TD 2026/1, which sets out the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle, other than a car, for the FBT year commencing on 1 April 2026.
| Engine capacity / vehicle type | Rate per km |
|---|---|
| 0–2500 cc | 70c |
| Over 2500 cc | 82c |
| Motorcycles | 20c |
Reasonable Food and Drink Amounts for 2026-27
The ATO has issued TD 2026/2, which sets out the amounts the Commissioner considers reasonable for food and drink expenses for employees receiving a living-away-from-home allowance (LAFHA) under section 31G of the FBT Act for the FBT year commencing on 1 April 2026.
Thin Capitalisation, Attribution of Risk-Weighted Assets to Australian Branches of Foreign Banks
The ATO has issued draft PCG 2025/D1, which outlines its compliance approach to determining the risk-weighted assets (RWAs) attributable to Australian branches for the purposes of the thin capitalisation rules for inbound banks in section 820-405 of the ITAA 1997.
Under the thin capitalisation rules, debt deductions will not be disallowed if the bank allocates a minimum amount of capital to the branch. The safe harbour rule is set out in section 820-405 and is used to work out the minimum capital amount. This requires a foreign bank to determine the part of its RWAs that is attributable to its Australian branch.
The guideline sets out the ATO’s risk assessment framework using green, amber, and red zones, along with the associated compliance approach for each.
Update to EV Home Charging Rate
The ATO has updated PCG 2024/2, which sets out the method used to calculate the cost of electricity when an electric car is charged at an employee’s or an individual’s home.
The EV home charging rate in Table 2 of the guideline has been updated to 5.47 cents per kilometre for the FBT year or income year commencing on or after 1 April 2026.
Cases
Substantiation of Reasonable Meal Expenses
The Federal Court has dismissed the ATO’s appeal against the ART decision allowing a long-haul truck driver to claim meal expense deductions calculated by reference to the Commissioner’s published reasonable daily amounts in TD 2020/5, without providing detailed receipts.
By way of background, Mr Shaw claimed meal deductions for the 2020–21 income year based on his tax agent’s advice that claims within the Commissioner’s reasonable amounts would not require detailed substantiation. Following an audit, the ATO disallowed the claim in full. The ART found in Mr Shaw’s favour, accepting his credible evidence about his travel routines, use of cash in remote areas, and food purchasing patterns as sufficient to establish that the expenses were incurred.
In the Federal Court, Justice Colvin dismissed all seven of the Commissioner’s grounds of appeal, confirming that the ART made no error of law. The Court affirmed the following principles:
- deductibility requires proof that the expense has been incurred, the Commissioner’s reasonable amounts operate only as substantiation thresholds and do not create automatic deductions. Taxpayers must still demonstrate that expenses were actually incurred in gaining income
- credible testimony can be sufficient, sworn evidence about travel routines, payment methods, and spending patterns, supported by general financial records, may be enough to establish that expenses were incurred, even without receipts
- section 8-1 and Division 900 operate independently, where the section 900-50 exception applies and the claim is within the reasonable amount, Division 900 substantiation obligations fall away, although the taxpayer must still satisfy the deductibility test under section 8-1
The Court also confirmed that incorrect tax agent advice can support a genuine and objectively reasonable expectation under section 900-200, although this only relieves the taxpayer of Division 900 record-keeping obligations. It does not remove the requirement to prove deductibility.
Pre-CGT Building With Post-CGT Subleases
The Federal Court has held that the capital gain on the disposal of a building constructed on pre-CGT land should be disregarded, although two subleases were post-CGT assets and therefore subject to CGT.
The Brisbane Club acquired land in Brisbane in 1963 as a pre-CGT asset. In May 1985, it entered into a deed with a developer for the redevelopment of the land, which contemplated a subsequent building contract. A formal Building Agreement was executed in January 1986, and construction was completed in 1988. The Club also held two subleases over parts of the building, granted in June 1986. Following a pre-lodgment engagement, the ATO took the view that both the building and the subleases were post-CGT assets. The Club objected and ultimately appealed to the Federal Court.
In relation to the building, the central question was whether the relevant contract for construction under section 108-55(2), which separates a building from its underlying pre-CGT land where construction was contracted on or after 20 September 1985, was the May 1985 deed or the January 1986 Building Agreement.
The ATO argued that the Building Agreement was the operative contract, as it was the document under which the parties were actually obliged to construct the building.
The Court disagreed, finding that the deed and the Building Agreement were not separate stand-alone contracts and instead operated together as one. The Building Agreement was a condition precedent to performance of the building works, not to the formation of the deed itself. The parties’ intention was for the deed to prevail and for both documents to operate together. Accordingly, the relevant contract was entered into in May 1985, which was pre-CGT, and the capital gain on disposal of the building was to be disregarded.
In relation to the subleases, the Club argued that the subleases originated from rights contained in the May 1985 deed, making them pre-CGT assets. The Court rejected this, finding that the subleases were granted between different parties from those involved in the deed. There was no evidence that the developer had assigned its rights under the deed. As the subleases were formally granted in June 1986, they were post-CGT assets and the gains were not disregarded.
Legislation
Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026
The Bills introducing Division 296 and other related superannuation changes passed through Parliament in March 2026 and have now received Royal Assent.
The Bills were introduced to reduce the tax concessions available to individuals with total superannuation balances (TSBs) exceeding $3 million and $10 million, and to increase the income threshold for the low income superannuation tax offset (LISTO).
Treasury Laws Amendment (Delivering an Efficient and Trusted Tax System) Bill 2026
A Bill has been introduced that makes several targeted tax changes affecting donations, trust reporting, and the R&D Tax Incentive.
Schedule 1 proposes removing the $2 minimum threshold for tax-deductible donations to DGRs by amending section 30-15 of the ITAA 1997, allowing deductions for donations of any value.
Schedule 2 proposes requiring trustees to report beneficiary TFNs when lodging the trust tax return, replacing the current quarterly reporting requirement. Existing TFN withholding rules will remain unchanged.
Schedule 4 excludes tobacco and gambling-related R&D activities from eligibility for the R&D Tax Incentive from 1 July 2025, except where the activity is undertaken solely for harm minimisation purposes.
Treasury Laws Amendment (Supporting Choice in Superannuation and Other Measures) Bill 2025
The Bill contains a range of tax-related measures and passed through Parliament on 23 March 2026.
Key measures in the Bill include:
- amending the Superannuation Guarantee (Administration) Act 1992 to help employers streamline the choice of fund process during employee onboarding
- amending the Corporations Act 2001 (Cth) to ban the advertising of certain superannuation products to new employees as part of the onboarding process
- providing income tax and withholding tax exemptions for World Rugby and its wholly owned subsidiaries for income derived from activities relating to the men’s Rugby World Cup 2027 and the women’s Rugby World Cup 2029
- amending the International Tax Agreements Act 1953 to give force of law to the tax treaty between Australia and the Portuguese Republic
- amending the ITAA 1997 to list six new deductible gift recipients, extend the listing of five deductible gift recipients, remove eight deductible gift recipients from the listing, and update the name of one listing
- increasing the maximum amount of Wine Equalisation Tax producer rebate claimable by eligible wine producers, or a group of associated wine producers, from $350,000 to $400,000 per financial year from 1 July 2026
If you have any questions regarding the above information, please do not hesitate to contact our office to speak to one of our team.
