Did you know that if you provide an employee, employees’ spouse or an employees’ associate with a car that your business owns or leases, you could be liable for Fringe Benefits Tax? If the car is available for private use as well as business use, this will most likely give rise to a fringe benefit.
What is a ‘car’?
A car is defined as a “motor vehicle (except a motor cycle or similar vehicle) designed to carry a load
of less than one tonne and fewer than nine passengers.” Some vehicles are eligible to be exempt from FBT, including Panel Vans and Single Cab Utes, so long as the employee’s private use of car is minor, infrequent and irregular. However, Duel Cab Utes with less than one tonne capacity are not immediately exempt and there needs to be evidence that the vehicle is not designed for the principal purpose of carrying passengers, even if private use is minor, infrequent and irregular
If you are unsure if your vehicle is an exempt vehicle for FBT, please contact Aptus for more details.
What is ‘minor, infrequent AND irregular’ use
To be minor, infrequent and irregular the vehicle use must be limited to:
- travel between home and work
- travel that is incidental to travel in the course of duties of employment
- non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish)[i]
What records do you need?
Maintaining a valid log book is necessary to capture all your information and correctly calculate the taxable value of a vehicle. If you fail to maintain a valid logbook, you may end up paying more FBT than you need to.
A logbook needs to be kept for at least 12 continuous weeks during the income tax year and is valid for up to 5 years. The ATO requires the following information to be included in your log book per:
- when the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the business-use percentage for the logbook period
- the number of kilometres travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey). You will need to record the
- start and finishing dates of the journey
- odometer readings at the start and end of the journey
- kilometres travelled
- reason for the journey.
- the odometer readings at the start and end of each income year you use the logbook method.[ii]
The ATO has recently improved its data matching process which in turn has increased audit activity. Care needs to be taken when providing the information to complete the returns to ensure the information is accurate.
20 or more ‘tools of trade’ cars
If you have a fleet of 20 or more ‘tools of trade’ cars that you provide to employees, you may be affected by the recent concession made available to employers. Tools of trade simply means that there is extensive business use of the car, however there are some exclusions including luxury cars and salary sacrifice arrangements. It is required that the employee must maintain a valid log book for the FBT year, and employer’s must hold at least 75% of these log books throughout the year. Employers are also required choose the make and model of the car and have a list of these cars. It is no longer at the employee’s discretion to pick and choose what car they want.
Novated leases are not-exempt from FBT and need to be included when calculating your FBT return.
Car owned/leased by employee
It is important to note that if your employee owns the car and you are paying for costs associated with that car, this does not constitute a car Fringe Benefit, however another type of benefit might be applicable. If you are unsure please feel free to contact our office assistance!
Author: Megan Tully
[i] Information current as at 23/03/2018 and obtained from https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Exemptions-and-concessions/Fringe-Benefits-Tax—Exempt-Motor-Vehicles/?page=2#Eligibility_criteria
[ii] Information current as at 23/03/2018 and obtained from https://www.ato.gov.au/business/income-and-deductions-for-business/deductions/motor-vehicle-expenses/claiming-motor-vehicle-expenses-as-a-sole-trader/logbook-method/