Fringe Benefits Tax (FBT) is a tax imposed on the employer. Where a benefit is provided by an employer (or associates of the employer) to its employees (or associates of the employee), FBT may be payable by the employer. For the employee receiving a benefit that is subject to FBT, they are not assessable on the benefit.
FBT is separate to income tax and is calculated on the taxable value of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (1 April to 31 March) and lodge an FBT return.
Car fringe benefits
A car benefit will exist if a car which is held by an employer is:
- applied to private use by the employee or an associate of the employee
- taken to be available for private use by the employee or an associate of an employee.
The existence of a car benefit is determined on a daily basis.
Private use in relation to a motor vehicle means any use of the motor vehicle that is not exclusively in the course of producing assessable income of the employee.
A car is taken to be “available for private use” if it is garaged or kept at or near a place of residence of the employee or of an associate of the employee at any time on a day where an employee is provided with a car by the employer and the car is kept in safe storage (e.g. in a commercial garage) while the employee is travelling, under what circumstances is that car taken to be available for private use.
A car is also taken to be available for private use where it is not at the employer’s business premises and any of the following conditions are satisfied:
- the employee is entitled to apply the car to a private use
- the employee is not performing the duties of their employment and has custody or control of the car
- an associate of the employee is entitled to use or has custody or control of, the car.
Exempt car benefits
There are some circumstances where the use of a car is exempt from FBT. For example, an employee’s private use of a taxi, panel van or utility designed to carry less than one tonne is exempt from FBT if its private use is limited to:
- travel between home and work
- incidental travel in the course of performing employment-related travel
- non-work-related use that is minor, infrequent and irregular i.e. no more than 1,000 kilometres
To calculate the taxable value of a car fringe benefit the employer must use one of two methods:
- the statutory formula method (based on the car’s cost price)
- the operating cost method (based on the costs of operating the car).
An employer can choose whichever method yields the lowest taxable value, regardless of which method has been used in a previous year. However, if the required documentation was not kept for the operating cost method (such as logbooks), than the statutory formula method must be used.
Under the Statutory formula method minimal record-keeping is required. The taxable value is determined using a statutory rate and multiplying that by the cost of the car. This method applies automatically.
The Operating cost method requires the employer to keep certain records like log books and odometer. The taxable value is equal to the private percentage of the operating costs of the car for the year.
The Operating cost method is the best method for employers with cars being used almost exclusively for business – such vehicles are often penalised by the statutory formula method.
While there might be some compliance effort associated with keeping log books, it is often well worth the trouble due to the size of the tax savings on offer; some employers can save 30% to 50%, compared with the statutory method.
Although employees may initially be reluctant to keep a log book, the log book can be kept and used for a period of five years and can also be transferred to new cars provided the pattern of usage remains similar.
To use the operating cost method, an employee must keep and retain log book records and odometer records. The following requirements must be satisfied in relation to all business trips:
- The odometer readings at the start and end of each journey
- The date on which each journey began and ended
- The kilometres travelled
- The purpose/ description of each journey
- It must be kept in English
- Entries must be made in the logbook at the end of each journey
If you have any queries about FBT and Motor Vehicles, please feel free to contact our team of experienced accountants by clicking here to submit an online enquiry form, calling us on 1300 QUINNS or alternatively, +61 2 9223 9166 to arrange a teleconference or appointment.