Given the concessional FBT treatment afforded to car fringe benefits, packaging car fringe benefits is a reasonably common practice for employees of Australian Government entities. The FBT attributable to salary packaged cars is ultimately borne by the employee through a salary packaging arrangement. Entities should, therefore, provide the employee with the opportunity to minimise the FBT liability in respect of the packaged car.
This can be done by allowing employees the option of maintaining a log book. If a log book is maintained, entities can use the calculation method that results in the lower taxable value for the benefit. As a rule of thumb, where business travel exceeds 70% of total travel, the use of the operating cost method will result in a lower taxable value for the car fringe benefit. Depending on the value of the car, and the total kilometres travelled, even where the business use percentage is less than 70%, the use of the operating cost method may result in a lower taxable value.
A log book must be maintained for a representative period of 12 consecutive weeks during the applicable FBT year, the log book year. A log book can be used as a basis for calculating the business use percentage for up to five FBT years, being the log book year and a further four consecutive FBT years, provided there is no major change in the pattern of use of the car. An increase or decrease of 10% in the business use of a car will generally be considered a major change in the pattern of use of the car. The log book can also be used for a replacement car.
Employees should provide the log book to the entity within 21 days of the end of the FBT year to enable the entity to calculate the FBT payable on the car fringe benefit.
Those employees who anticipate that they will undertake minimal business travel may prefer not to maintain a log book for 12 weeks. In that case, the statutory formula method will generally be used to calculate the taxable value of the car.
Salary packaging a vehicle other than a car
Employees may request to salary package a vehicle that is not defined as a car for FBT purposes. For example, a motor cycle or a utility designed to carry one tonne or more. Such benefits will not be taxed as car fringe benefits, but are considered to be residual fringe benefits. Such vehicles will be exempt if they are used for only work-related travel and other travel that is minor, infrequent and irregular (in accordance with subsection 47(6) of the FBTAA). Australian Government entities should be cautious in enabling employees to package such vehicles because it is difficult for entities to monitor the use of the vehicle and, therefore, be satisfied that the subsection 47(6) exemption applies.
Salary packaging an exempt car benefit
Employees may also request to package an exempt car benefit such as a utility or a panel van designed to carry less than one tonne that is used only for work-related and other minor, infrequent and irregular private travel (exempt under section 8 of the FBTAA). A discussion of the FBT treatment of such vehicles is included below. Australian Government entities should be cautious in enabling employees to package vehicles purporting to fall within the section 8 exemption because it is difficult for entities to monitor the use of the vehicle and, therefore, be satisfied that the section 8 exemption applies.
Estimating kilometres travelled
Employees that salary package a car using the statutory formula calculation method are required to accurately estimate the kilometres that will be travelled during the year so that their FBT deductions can be determined. Salary packaging providers often provide a 'ready reckoner' that enables employees to track kilometres travelled and adjust the contribution rate, if required. Where entities provide salary packaging in-house they may consider developing a similar ready reckoner. An example ready reckoner is provided at Figure 5 in the section titled Cars home-garaged for security reasons.