Base value of a car you own
The base value of a car you own is:
- the original cost price you paid (excluding registration and stamp duty)
- the cost of any fitted non-business accessories
- dealer delivery charges.
All cost and charges include goods and services tax (GST) and luxury car tax where appropriate.
Non-business accessories are fitted accessories not required to meet the special needs of your business operations. An example of a business accessory is a fitted GPS in a salesman's car, while alloy wheels, rear spoilers and seat covers are non-business accessories. Any non-business accessories added after you purchase the car increase the base value of the car for the year in which they are added and for subsequent years.
Base value of a car you lease
Where the lease started when the lessor bought the car, the base value is the cost price to the lessor (including GST and luxury car tax). Any non-business accessories added after the lessor bought the car increase the base value of the car for the year in which they are added and for subsequent years.
Where the lessor acquired the car at some other time, the base value is the market value (including GST and luxury car tax) at the time you first held the car (that is, the amount a person could reasonably be expected to have paid to buy the car under an arm's length transaction).
Cars under a novated lease are subject to the same car fringe benefit valuation rules as other cars you lease - for more information, see section 7.7.
Cost price is generally the expenditure incurred by you or the lessor for the acquisition or delivery of the car. Usually, this is the purchase price (GST included) that has been paid, although there may be arrangements in place which have an impact on the cost price.
For example, where an employee provides a trade-in or cash payment as part of the sale agreement, the cost price would be the purchase price minus the trade-in or cash payment. Fleet discounts and manufacturer rebates may also reduce the expenditure incurred on the acquisition of the car.
Alternatively, where an employee pays an amount directly to you, you will need to look at the terms of any agreements and contracts in place to determine whether this payment is an employee contribution or not.
An employee contribution does not reduce the cost price of the car.
For more information about the cost price of a car, refer to Taxation Ruling TR 2011/3.
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Reducing the base value after four years
You do not reduce the base value of a car each year. However, you can reduce the base value of a car by one-third in the FBT year that starts after you have owned or leased the car for four years. That is, the reduction applies from 1 April after the fourth anniversary of the date on which you first owned or leased the car. The reduction applies only once for a particular car and you then use the reduced base value for subsequent years. The reduction does not apply to non-business accessories added after you acquired the car.
Example: Reducing the base value after four years
An employer purchases a car for $30,000 (including GST) on 1 July 2003. The employer can reduce the base value of the car by one-third ($10,000) in the FBT year beginning 1 April 2008.
There are safeguards to make sure the true base value of a car is not artificially reduced by devices such as sale and lease-back or buy-back. The safeguards also apply where a leased car is acquired by the lessee on termination of the lease. Under the safeguards, the base value is determined at the time you or your associate first held the car and according to whether it was owned or leased at the time.
There are further safeguards to ensure a car that changes ownership at less than market value, or a car that is acquired at no cost (for example, a car donated to a charitable organisation) is priced appropriately. Generally, such a price is the market value of the car at the time of transfer.