If your business provides employees with a company vehicle, there are some important Fringe Benefit Tax (FBT) changes that took effect from 1 April 2026, as well as significant reforms proposed for 2027. Here’s a rundown of what’s new and what it means for you.
The 2026 Change: The Investment Boost and FBT
The Government’s 20% Investment Boost allows businesses to claim an accelerated depreciation deduction on new assets, including vehicles. This reduces the vehicle’s tax book value – but from 1 April 2026, legislation makes clear that this reduction doesn’t mean your FBT bill goes down proportionally.
Instead, new FBT valuation rates apply specifically to vehicles where the Investment Boost has been claimed, to reflect that the tax book value has already been reduced:
- Yearly rate: 41.4% (GST-inclusive) or 47.61% (GST-exclusive) of the vehicle’s tax book value
- Quarterly rate: 10.35% (GST-inclusive) or 11.90% (GST-exclusive)
These rates are higher than the standard FBT rates, compensating for the lower tax book value base. If no Investment Boost has been claimed on a vehicle, you continue using the existing standard rates as before.
There is also a new minimum tax book value of $7,317 for vehicles where an Investment Boost has been claimed – meaning FBT can’t be calculated on a figure lower than this, even if the vehicle has depreciated further.
What This Means in Practice
If you’ve recently purchased a new vehicle for the business and claimed the Investment Boost, you’ll need to make sure your FBT calculations use the correct new rates. This is worth reviewing with your accountant, particularly for the first FBT return after purchasing a new vehicle.
What’s Proposed for 2027: A Category-Based Approach
Announced as part of Budget 2026, the proposed 2027 reforms would be the most significant overhaul of FBT motor vehicle rules in decades. The headline change is replacing the current day-counting system which requires businesses to track the days a vehicle is available for private use, with a simpler category-based approach. Under the proposal, employers would assign each vehicle to one of four categories based on how it’s actually used, ranging from full private use through to restricted work-only use, with pool vehicles at the other end of the scale. Each category attracts a different FBT inclusion rate, removing the need for logbooks and day counts. The proposals would also introduce differentiated FBT rates based on fuel type for the first time, with electric vehicles attracting the lowest rate and petrol/diesel the highest – an incentive for businesses to consider lower-emission fleet options.
Keep in mind, these are still proposals and the final rules may change before being enacted, with the intended start date being benefits provided after 1 April 2027.
The Bottom Line
The 2026 changes are in effect now, so if you’ve purchased a new vehicle and claimed the Investment Boost, check that you’re using the correct FBT rates.
The 2027 proposals are still being developed, but they signal a genuine simplification on the horizon. If you want to understand how the proposed categories might apply to your vehicle fleet specifically, get in touch and we can walk you through the detail.
As always, if you’re not sure how these changes affect your specific situation, your accountant or tax adviser at Engine Room is the best place to start. Book a time with our team today.
This blog is general in nature and does not constitute personalised tax advice. Please speak with a qualified tax professional about your specific situation.
