Fringe Benefits Tax Deep Dive: Motor Vehicles
Motor vehicle fringe benefits refer to the use of a car, van, or other similar vehicles for private purposes, which are provided by an employer to their employees or associates (including company directors and shareholders) designed to carry a load of less than one tonne and fewer than nine passengers. A motor vehicle is considered to be available for the private use of an employee as soon as it spends a night at the employee’s home address.
Motor vehicle fringe benefits are subject to the Fringe Benefits Tax (FBT) which is levied on the value of the benefits provided. FBT is levied at a flat rate of 47% of the value of the benefit being provided.
The car could be:
Company car: This is a vehicle that is owned or leased by the employer and is available for the private use of an employee, or
Novated lease: This is an agreement between the employer, employee, and a finance company, where the employee leases a vehicle and the lease payments are deducted from their pre-tax salary.
You have a choice of one of two methods to calculate motor vehicle fringe benefits:
1) Statutory Method: is the most commonly used method for calculating FBT on motor vehicle fringe benefits. It involves calculating a flat 20% statutory rate on the base value of the vehicle. The base value is the GST inclusive cost of the car including all accessories and modifications. The FBT payable is then calculated as follows:
FBT payable = Base value x 20% x FBT Rate%
For example, if the base value of a company car is $40,000, the FBT payable would be:
FBT payable = $40,000 x 20% x 47% = $3,760
2) Operating Cost Method: is an alternative method for calculating FBT on motor vehicle fringe benefits. It involves calculating the FBT based on the actual operating costs of the vehicle, including fuel, maintenance, registration, insurance, deemed interest and deemed depreciation multiplied by the private use percentage.
The private use percentage is the percentage of the total kilometres travelled in the vehicle that are for private use. This is calculated using a logbook which has been maintained for a continuous 12 week period. You can read further on logbook requirements in our blog post Logbook Essentials.
Once the taxable value of the benefit has been established it is grossed up by 2.0802, if the benefit provider is eligible to claim a GST input tax credit on the motor vehicle expenses. The FBT payable is then calculated as follows:
FBT payable = Operating cost x Private use percentage x Gross up rate x FBT rate %
For example, if the operating costs of a company car for the FBT year were $10,000, and the private use percentage was 40%, the FBT payable would be:
FBT payable = $10,000 x 40% x 2.0802 x 47% = $3,910.78
The value of the benefit calculated under either of the above two methods can be reduced by contributions an employee makes towards the running cost of the vehicle. It's also important to note that whichever method is used, the FBT payable is tax-deductible for the employer.
Exemptions
Electric Vehicles
As of 1 July 2022 electric cars that meet the following criteria are exempt from FBT:
the car is a zero or low emissions vehicle
the car is used by a current employee or their associates (such as family members)
car has a value less than the Luxury Car Tax limit of $84,916 for fuel efficient vehicles.
Other Vehicles
The following types of vehicles may also be exempt from FBT:
A panel van or utility truck designed to carry a load of more than 1 tonne, or
Any other road vehicle designed to carry a load of less 1 tonne and not principally designed to carry passengers – is an exempt car IF:
private use is limited to home to work travel, and
other private travel is minor, infrequent or irregular.
The ATO takes a very narrow view of what is minor, infrequent or irregular use. It is worth keeping a logbook for a 12 week representative period that demonstrates:
travel between home and place of work and any diversion adds no more than two kilometres to the ordinary length of each trip;
no more than 1,000 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and
no single return journey for a wholly private purpose exceeds 200 kilometres.
Furthermore for the exemption to apply:
a) the employer must provide an eligible vehicle to a current employee
b) the vehicle is provided to the employee to perform their work duties
c) the employer has a policy in place that limits private use of the vehicle and obtain assurance from your employee that their use is limited
d) the vehicle had a GST-inclusive value less than the luxury car tax threshold of $71,849 or $84,916 for fuel efficient vehicles
e) the vehicle is not provided as part of a salary packaging or remuneration arrangement.
Vehicles which have company signage on them aren’t automatically exempt from FBT. They are subject to the same rules as outlined above, regardless of their advertising capability.
Reporting of benefits
Motor vehicle fringe benefits, including electric vehicles are to be reported on an employees annual payment summary, to be disclosed in their tax return.
To understand FBT and your risk to this tax more generally, you might like to read our blog FBT: The forgotten about tax or complete our handy FBT Checklist, adapted from the ATO’s very own FBT Audit Checklist.
FBT is a complex tax. Please contact us should you need help in understanding your obligations.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.