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  • Car fringe benefits tax (FBT) guide for small business

    If you are an employer and your employees use a car you hold for private purposes, you may be providing a car fringe benefit. Generally, an employer who provides a car to their employee must pay fringe benefits tax (FBT). FBT is separate to other taxes such as income tax or the goods and services tax.

    Download the Car fringe benefits tax (FBT) guide for small business (NAT 75353, PDF, 655KBThis link will download a file).This link will download a file

    This information will help you, as an employer, understand:

    • whether you are providing a car fringe benefit
    • the implications of providing cars to your employees
    • what records to keep.

    Key points

    • You will need to determine whether the vehicles that employees use are cars.
    • You will be able to choose either the operating cost method or the statutory formula method to calculate your fringe benefits.
    • These methods have differing record keeping requirements.
    • The FBT car calculator will help you calculate the value of the fringe benefit.
    • If you provide a car fringe benefit, you will need to be registered for FBT, lodge an FBT return and pay FBT.

    When a car fringe benefit is provided

    In order to work out whether a car fringe benefit is being provided, you need to consider the following.

    Am I providing a car fringe benefit?

    Question 1: Is there a car?

    • Yes, go to question 2.
    • No, there is not a car fringe benefit.

    Question 2: Is it held by the employer?

    • Yes, go to question 3.
    • No, there is not a car fringe benefit.

    Question 3: Is it provided for their private use?

    • Yes, there is a car fringe benefit.
    • No, there is not a car fringe benefit.

    If there is a car

    Generally, if there is a car that is held by an employer, being provided to an employee for their private use, then there is a car fringe benefit. However, there are some specific definitions of ‘car’ for the purpose of car fringe benefits. The definitions relate to the manufactured design.

    For FBT purposes, a car is any of the following:

    • a sedan or station wagon
    • any other goods-carrying vehicle with a carrying capacity of less than one tonne, such as a panel van or utility (including many four-wheel drives and some utes)
    • any other passenger-carrying vehicle designed to carry fewer than nine passengers.

    Vehicles outside these specifications with higher goods carrying and passenger loads; as well as other transport such as motorbikes; are not cars.

    If the vehicle is not a car, and the employee has private use of it, the employer may be providing a residual fringe benefit rather than a car fringe benefit.

    Residual fringe benefits

    A residual fringe benefit may arise when you provide an employee with any benefit that doesn’t fall into one of the specific categories of fringe benefits.

    See: FBT – a guide for employers: Chapter 18 – Residual fringe benefits

    FBT- exempt cars

    There are some types of cars that, while they fit the definition, are exempt from FBT if the employee’s private use is limited. Common types of FBT – exempt cars include:

    • taxi
    • panel vans
    • utes.

    If the car is held by the employer

    This generally means a car you own or lease. If you hire a car, such as a rental car or taxi service for the private use of an employee occasionally as required, for less than three months, you are not considered to ‘hold’ the car. In these situations, a residual fringe benefit may arise rather than a car fringe benefit.

    If an employer does not hold a car, a car fringe benefit does not arise.

    If the car is provided for private use

    A car fringe benefit commonly arises where you make a car you own or lease available for the private use of an employee.

    You make a car available for private use by an employee on any day that either:

    • the car is actually used for private purposes by the employee
    • the car is available for the private use of the employee.

    A car is treated as being available for private use by an employee on any day that either:

    • the car is not at your premises, and the employee is allowed to use it for private purposes
    • the car is garaged at the employee’s home.

    A car that is garaged at an employee’s home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.

    As a general rule, travel to and from work is private use of a vehicle.

    Once you establish that you are providing a car benefit, you can then calculate your FBT.

    Calculate your FBT

    You can calculate the taxable value of a car fringe benefit using either the statutory formula method or the operating cost method.

    You can choose whichever method returns the lowest taxable value so long as you have the appropriate records.

    Statutory formula method is based on the car’s base value. A statutory rate of 20% applies to the car’s base value.

    Operating cost method is based on the costs of operating the car. The percentage of private use of a car for a particular year is the difference between 100 and the percentage of business use.

    Taxable value comparison

    Statutory formula method

    Scenario:

    • Base value = $30,000
    • Days available = 365 days
    • Days in the FBT year = 365 days
    • Statutory percentage = 20%
    • Employee contributions = $1,100

    Taxable value = $4,900

    Operating cost method

    Scenario:

    • Total operating costs = $11,480
    • Private use = 25%
    • Employee contributions = $1,100

    Taxable value = $1,1770

    End of example

    FBT car calculator

    There is a Fringe benefits tax (FBT) car calculator on the ATO website, which is designed to help employers calculate the taxable value of a car fringe benefit – and you can do so using either method.

    So, you’ll be able to see which method yields the lowest taxable value; and if you have the appropriate records you can choose that method.

    See: Fringe benefits tax (FBT) car calculator

    Keep records

    Keeping records will help you to calculate and pay only the right amount of tax. By the end of the FBT year, you will need to calculate and pay your FBT.

    The records you need to keep depends on which method you use to calculate the taxable value of the benefit you provide. You need to have records to support any claims or calculations you make.

    Determine which method is best for you:

    Record keeping comparison

    Statutory formula method

    • Normal purchase records
    • Invoices
    • Receipts
    • Journal entries
    • Bills of sale
    • Lease documents
    • Employee records/declaration

    Operating cost method

    • Actual costs:
      • Repairs
      • Maintenance
      • Fuel
      • Registration and insurance
      • Leasing costs
       
    • Deemed costs
      • Depreciation
      • Interest
       
    • Logbook - 12 weeks each five years
    • Opening and closing odometer reading
    • Employee records/declaration
    End of example

    Under the operating cost method, a logbook recording details of business journeys must be kept for a continuous period of 12 weeks. Odometer records of the total kilometres travelled during the year must be kept. Each logbook you keep is valid for five years but you may start a new logbook at any time.

    Some important points for you to consider:

    • Entries in the logbook should sufficiently describe the purpose of the journey so it can be clearly determined as either business or private – not just ‘business’ or ‘miscellaneous business’.
    • Keep a separate logbook for each car.
    • You record the odometer reading at the start of the FBT year, 1 April — then you record the reading at the end of the FBT year, 31 March.
    • You can design your own logbook and there are also many commercial paper or electronic products available.
    • Whichever method you use, you must use it for an entire FBT year.
    • You must keep appropriate records and calculate for the period from 1 April until 31 March.
    • You can choose whichever method returns the lowest taxable value, regardless of which method you used in a previous year – however, if you haven’t kept the required records for the operating cost method (such as logbooks) you should use the statutory formula method.
    • If the operating cost method would provide you a better result, you could consider starting to keep the appropriate records and change methods the next year.

    Register for FBT, lodge and pay

    You don’t need to especially register for FBT because you’re automatically registered when you lodge your first FBT return. However, the ATO recommends employers register once they have an FBT liability.

    There are a number of ways to register:

    What you need to know:

    • Once the FBT year ends use your records to calculate your FBT.
    • If you have an FBT liability, you must lodge an FBT return.
    • FBT returns and payments are due by:
      • 21 May if you prepare your return yourself, or you use a tax practitioner who lodges by paper
      • 25 June if you use a tax practitioner who lodges electronically.
       
    • You may need to record reportable fringe benefits on your employee’s payment summary or through Single Touch Payroll.
    • If you don’t need to lodge an FBT return for the year, you must complete a form called FBT – notice of non-lodgment — this will let the ATO know that you haven’t forgotten your obligation, but rather that you’ve assessed your position and don’t need to lodge.

    For more information on how to lodge your FBT return and pay your FBT liability, see:

    Additionally, the ATO has recently developed videos to demonstrate step-by-step how to calculate car fringe benefits and complete your fringe benefits return, which can be found using this link: Calculate car FBTExternal Link.

      Last modified: 19 Apr 2021QC 65315