Company cars are one of the most common benefits provided to employees, but if the vehicle is used for private purposes, it triggers a Fringe Benefits Tax (FBT) liability for the employer. In Australia, the FBT on company-provided cars is taxed at a rate of 47%.

‍

The FBT year runs from 1 April to 31 March, and businesses must lodge their FBT return and make payments by 21 May (or by 25 June if using a tax agent). As tax season approaches, it's time to assess your company's FBT liability for the 2024 financial year.

‍

What Is a Car Fringe Benefit?

‍

A car fringe benefit arises when a company car is provided to an employee or an associate for private use. A car is considered to be held by the employer if it is owned or leased by the business, including novated lease arrangements.

‍

Key Questions to Determine if a Car Fringe Benefit Exists:

‍

1.Is a Car Provided?

• A car refers to a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers. Common examples include motor cars, station wagons, panel vans, and utility trucks (excluding those that can carry loads of one tonne or more).

2.Is the Car Available for Private Use?

• Private use includes situations where:
  • The car is parked at the employee's home.
  • The car is parked at the business premises but is accessible to the employee for personal purposes.

3.Do Any Exemptions Apply?

• There are exemptions for certain types of vehicles:
  • Electric vehicles costing less than the luxury car tax threshold ($89,332 for 2023-24).
  • Work-related vehicles: Some vehicles not defined as cars may be exempt if their private use is limited to work-related travel, with strict limits on private trips

‍

This level of responsibility can be time-consuming, and mistakes can result in costly penalties. Therefore, it's essential that SMSF trustees are well-informed and committed to managing the fund appropriately.

‍

Conditions for Exemption from FBT

‍

To qualify for the work-related travel exemption, the following rules must be met:

‍

• Vehicle Cost: The vehicle's GST-inclusive value must be less than the luxury car tax threshold at the time of acquisition. For 2023-24, this is $89,332 for fuel-efficient vehicles and $76,950 for other vehicle.
• Salary Packaging:The vehicle must not be part of a salary packaging arrangement, and the employee must not have the option to receive extra pay instead of using the vehicle.
• ‍Private Use Limitation:The employer must have a policy limiting private use, and employees must certify that their use complies with the following conditions:
  • Travel between home and work may include minor detours, but the additional distance must not exceed 2 km.
  • For purely private journeys, the vehicle must not be used to travel more than 1,000 km in total or for any return trip exceeding 200 km.

‍

Record-Keeping for Car Fringe Benefits

‍

To ensure compliance with FBT requirements and to qualify for exemptions, maintaining accurate records is essential:

• Logbooks: Employees must keep a valid logbook to record personal and business travel.
• Odometer Readings: Record the vehicle’s odometer reading on 31 March each year to track mileage for the FBT year.

It is recommended that employers regularly compare opening and closing odometer readings with expected travel distances to ensure the conditions of limited private use are consistently met.

‍

Calculating Fringe Benefits Tax

‍

You can choose one of two methods to calculate the taxable value of a car fringe benefit. Opt for the method that results in the lowest taxable value, as long as appropriate records are maintained.

1.Statutory Formula Method

• A flat statutory rate of 20% is applied to the base value of the car. The base value is the original cost price, excluding registration and stamp duty, but including:
  • Dealer delivery charges
  • GST and luxury car tax
  • Non-business accessories fitted to the vehicle

2.Operating Cost Method

• This method is based on the actual costs of operating the car (including depreciation and interest), adjusted by the percentage of private use. The private-use percentage is calculated from the employee’s logbook for the FBT year. Employee contributions toward the car’s operating costs can be subtracted from the taxable value.

‍

Conclusion

‍

Understanding the complexities of Fringe Benefits Tax on company cars is crucial for businesses that provide vehicles to employees. Ensuring that accurate records are maintained, including logbooks and odometer readings, can help reduce your FBT liability and even qualify for exemptions. If you need assistance with calculating FBT or want to explore ways to reduce your tax liability, Growthfront Accounting is here to help. Contact us today to ensure you're fully compliant and taking advantage of all available exemptions.

‍