FBT
Car fringe benefit
A car fringe benefit arises when an employer makes a car available for an employee's private use, and the benefit is valued using either the statutory formula or operating cost method.
A car fringe benefit arises when an employer, or an associate of the employer, holds a car and makes it available for the private use of an employee or an associate of the employee. Private use includes ordinary commuting between home and work, since travel to and from work is generally treated as private. If the car is only used for work and any private use is minor and incidental, it might not be a fringe benefit, but there are strict conditions, especially for utes and similar vehicles.
The taxable value of a car fringe benefit can be worked out under two methods. The statutory formula method uses the car's base value, a statutory fraction set by law and the number of days the car was available. The operating cost method uses the actual running costs of the car for the year and the proportion of private use shown by a logbook. Employers can choose whichever method gives the better result, and can change method from year to year, subject to rules about records.
Both methods allow the taxable value to be reduced by employee contributions, such as payments the employee makes for running costs or lease payments from after-tax pay. The calculation then moves on to the gross-up and FBT rate, as for other fringe benefits. Because the employer pays the FBT, the true cost of providing a car can be significant and should be part of remuneration planning.
There are concessions for some vehicles. Certain zero or low emission vehicles may be exempt from FBT, subject to conditions such as the car's value and the type of vehicle, and the arrangement is time-limited and changing. Employers should check ato.gov.au for the current rules. There are also special rules for work-related use of vehicles such as panel vans and utes, where private use is limited to travel between home and work and other incidental use.
GST has a clear role. When an employer buys a car for providing to employees, they can usually claim GST credits on the purchase, subject to the car limit, which is set by the ATO and changes from year to year. The employer also claims credits on running costs with tax invoices. If credits are claimed, the higher gross-up rate for the FBT calculation applies. The luxury car tax may also apply to expensive vehicles.
A common misunderstanding is that a car garaged at the employee's home and used only for work is automatically exempt. That is not necessarily true, and the commuting rules can catch it. Another is relying on verbal agreements. Employers should record employee declarations and keep logbooks where the operating cost method is used.
This is general information only, so check your position with the ATO or a registered tax professional.
Worked example
A company provides a car with a base value of $44,000 to an employee for the whole FBT year. Under the statutory formula method with a statutory fraction of 20% (used for illustration, since the actual fraction is set by law), the taxable value is $44,000 x 20% = $8,800 before any employee contribution. If the employee pays $2,000 of after-tax contributions, the taxable value becomes $6,800 before gross-up.
Practical tips
- Compare both valuation methods each year, since the best choice can change depending on how the car is used.
- Keep a logbook for at least 12 continuous weeks if you want to use the operating cost method, and keep odometer records.
- Check the current treatment of electric and low-emission vehicles before assuming an exemption.