FBT and providing cars to your employees

Cars are among the most frequently provided benefits to employees. Unfortunately, if the car is available for the employee’s private use, that means that the employer will be liable for Fringe Benefits Tax on the taxable benefit provided, at a rate of 47 per cent, writes Mark Chapman, Director of Tax Communication at H&R Block, and that’s bad news for business owners.

The FBT year runs from 1 April to 31 March, with lodgements and payments due on 21 May, or 25 June if lodging through a tax agent. Therefore, your business should now be in the thick of working out your FBT liability for the 2024-year!

A car fringe benefit arises when a car is held by an employer and is made available for the private use of an employee or an associate of an employee. A car is typically held by an employer when it is owned or leased by the employer (including under a bona fide novated lease arrangement).

There are several key principles to determine whether a car fringe benefit actually exists:

Is a car provided?

A car is defined as a motor-powered road vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers. Therefore, the following (including four-wheel drive vehicles) are all types of car:

1. Motor cars, station wagons, panel vans and utility trucks (excluding panel vans and utility trucks designed to carry a load of one tonne or more)
2. All other goods-carrying vehicles designed to carry a load of less than one tonne
3. All other passenger-carrying vehicles designed to carry fewer than nine people

The car must be available for private use

Private use includes situations where:

1. The car is garaged at the business premises, but the employee is allowed to use it for private purposes
2. The car is garaged at the employee’s home regardless of how it is used.

Do any Exemptions Apply?

The provision of a car benefit may be exempt if:

1. The vehicle is exempt from FBT. This includes all those vehicles which are not defined as cars (see above) and also electric vehicles which cost less than the current threshold for luxury car tax ($89,332 in 2023-34), or
2. When private use of the vehicle is strictly limited to so-called ‘work-related travel’ which can include some minor elements of private travel, and travel between home and work. The ATO has provided guidelines for the operation of this exemption as follows:

• the vehicle must have a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired ($89,332 for fuel efficient vehicles and $76,950 for other vehicles for 2023-34),
• the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle,
• the employer has a policy in place that limits private use of the vehicle and obtains assurance from its employee that private use is limited to the rules outlined at d) and e), below,
• the employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than 2km to the length of the trip; and
  • for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel:
  • More than 1,000km in total, and
  • For a return journey that exceeds 200km.

Record-keeping requirements

if your business has provided a Car Fringe Benefit, it is recommended that the following actions are undertaken:

1. The employee maintains a valid logbook recording their personal and business travel
2. A record of the closing odometer reading of their vehicle is taken on 31 March of each year

For the exemption for ‘work-related travel’ above, you (and by extension, your employees) must be able to demonstrate that the use of the vehicle meets the limited private use conditions at all times. For example, you could regularly compare the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work.

Calculating FBT

The taxable value of a car fringe benefit can be calculated using either of the methods listed below. You can choose whichever method gives you the lowest taxable value so long as you have the appropriate records.

Statutory formula method

A statutory rate of 20% applies to the car’s base value, which is the cost price you (or a lessor) paid for the car:

• excluding registration and stamp duty
• after any trade-in or cash payment by the employee
• plus the cost of any fitted non-business accessories, dealer delivery charges, and any GST and luxury car tax

Operating cost method

This method is based on the costs of operating the car (including deemed costs for depreciation and interest) , multiplied by the percentage of private use of the car (taken from a log book) in the FBT year, less any employee contributions.

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