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  • Simplified approach for calculating car fringe benefits on fleet cars

    We published Practical Compliance Guidelines (PCG) that set out an optional simplified record-keeping approach for calculating car fringe benefits. This page contains answers to frequently asked questions (FAQs) about the application of PCG 2016/10 Fleet Cars: simplified approach for calculating car fringe benefits.

    PCG 2016/10 FAQs

    When calculating whether an employer has a fleet of 20 or more cars for the purposes of determining whether an employer can apply the simplified record keeping approach, do you only include cars that meet all of the requirements set out in paragraph 6 of PCG 2016/10?

    Only cars that meet all of the requirements set out at paragraph 6 of PCG 2016/10 are included.

    The simplified record-keeping approach outlined in PCG 2016/10 can apply to a car that:

    • is a ‘tool of trade’ car, and
    • has a GST-inclusive value less than the luxury car tax threshold, and
    • is a make and model chosen by the employer, rather than the employee, and
    • isn't provided as part of a remuneration package.

    Cars that meet this criteria are referred to as ‘qualifying cars’. To apply the simplified approach the employer must:

    • have a car fleet that contains at least 20 qualifying cars, and
    • have a mandatory log book policy in place that requires employees using the qualifying cars to maintain valid log books for the cars.

    If an employer has valid log books for at least 75% of the qualifying cars in its fleet, the average business use percentage can be used to value the car fringe benefits for the entire fleet of qualifying cars (including those for which a valid log book wasn't received).

    Which formula should an employer use when determining whether they hold valid log books for at least 75% of the qualifying cars?

    An employer should use the following formula to determine if they hold valid log books for at least 75% of the qualifying cars in the log book year (the 75% criterion):

    The number of qualifying cars with a valid logbook
    Total number of qualifying cars

    Example

    An employer has 30 cars. 10 are provided as part of a remuneration package, 20 of which are qualifying cars. The employer obtains valid log books for 15 of the qualifying cars, but doesn't receive log books for the remaining 5 qualifying cars (despite having a mandatory log book policy for its qualifying cars). In this example, the employer has met the 75% criterion, as 15 qualifying cars with a log book / 20 qualifying cars = 75%.

    End of example

    Example

    An employer determined they had 1,000 qualifying cars, but only held 700 valid log books for these cars. In this example, the 75% criterion isn't met. The employer would not be able to use the average business use percentage derived from the 700 valid log books and apply it to a proportion of qualifying cars held. If in the following FBT year, the employer obtained log books for an additional 56 qualifying cars, it would meet the 75% criterion as it now has 756 valid log books for its fleet of 1,000 qualifying cars.

    End of example

    Is there a number of days for which an employer can hold less than 20 qualifying cars without the simplified approach ceasing to apply? For example, if an employer with 20 qualifying cars has one of the cars destroyed in an accident or natural disaster – can it continue to apply the simplified approach if it takes more than a day to get a replacement car?

    An employer is required to have a fleet of 20 (or more) qualifying cars throughout a FBT year to meet the requirements in paragraph 6 of PCG 2016/10.

    If at the start of the FBT year an employer held 20 qualifying cars, and during the FBT year a qualifying car was destroyed, the employer could continue to apply the simplified approach, if before the end of the FBT year:

    • the car was replaced within a reasonable time frame, and
    • the employee and the role remained the same (showing that the log book was still reflective of the use of the car).

    Where the number of an employer’s qualifying cars falls below 20 during an FBT year and no attempt is made to replace the car within a reasonable timeframe the employer may not be able to apply the simplified approach – even if they have 20 (or more) qualifying cars at the end of the FBT year. Individual facts and circumstances behind the shortage in number during the year will need to be taken into account in order to determine if all of the requirements set out in paragraph 6 of PCG 2016/10 are met to apply the simplified approach.

    To be a qualifying car, the car must be of a make and model chosen or listed by the employer (not an employee). Is there a maximum number of cars that may be listed by an employer before the car would no longer be considered to be of a make and model chosen by the employer?

    There is no maximum number. We would expect a list of cars selected by an employer to be given to an employee to choose from – rather than the employer giving broad guidelines or parameters. An employer could list different cars for different areas of Australia (metro, regional and remote) for operational reasons. An employer wouldn't meet this criterion if the only parameter was a sedan or station wagon up to the value of $45,000.

    Is the luxury car tax threshold referred to in PCG 2016/10 the luxury car tax threshold applicable upon the sale of a new car? Does the applicable threshold vary depending on the categorisation of the car as ‘fuel efficient’ or otherwise?

    The luxury car tax (LCT) threshold referred to in PCG 2016/10 is the LCT threshold applicable upon the sale of a new car.

    The applicable threshold does vary depending on categorisation of a car as ‘fuel efficient’ or otherwise.

    See also:

    Example

    An employer purchased a non-fuel efficient car for $65,000 in the 2017 financial year. The car isn't a qualifying car and the employer couldn't use the simplified approach for this car.

    End of example

    Is a hire car considered to be a ‘tool of trade’ car?

    In order to meet the conditions that give rise to a car fringe benefit, the relevant car must be held by an employer or by its associate. If a hire car (which isn't a taxi on hire or a car hired on a short-term basis) is provided by an employer for a period of 12 weeks or more then it is taken to have been held by the employer. Where an employer seeks to apply the simplified approach, a qualifying car it hires can be included in calculating whether the employer has a fleet of 20 or more qualifying cars.

    Where a hire car is provided to an employee for a continuous period of less than 12 weeks (a short-term basis), provision of the car isn't considered to be a car fringe benefit. An employer is unable to include that car in determining whether it meets the requirements set out at paragraph 6 of PCG 2016/10.

    Does PCG 2016/10 apply where the private use of a car or cars is exempt from FBT?

    Yes, an employer can apply the PCG where the private use of a car (or cars) otherwise covered by the PCG is exempt from FBT. Car is defined for FBT purposes as a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers. A motor vehicle is defined as any motor-powered road vehicle (including a 4 wheel drive vehicle).

    Generally, the private use of a motor vehicle is exempt from FBT if all of the following conditions are met:

    • a taxi, panel van or a utility designed to carry less than one tonne – or any other road vehicle designed to carry a load of less than one tonne (that is, a vehicle not designed principally to carry passengers)
    • the employee's private use of such a vehicle is limited to
      • travel between home and work
      • travel that is incidental to travel in the course of duties of employment
      • non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish).
       

    Where the private use of a vehicle is exempt from FBT and the relevant vehicle is a qualifying car, the car may be included in determining whether the requirements set out at paragraph 6 of PCG 2016/10 are met.

    See also:

    Can an employer include a qualifying car that is not available for private use in the calculation of the average business use percentage?

    Qualifying cars which aren't available for private use can be included in determining whether the requirements in paragraph 6 of PCG 2016/10 are met. The PCG applies to qualifying cars which are ‘tool of trade’ cars, without excluding tool of trade cars which are 100% business use. Therefore, if all other conditions are met, these qualifying cars can be included in the calculation of the average business use percentage to value the car fringe benefits for the entire fleet of qualifying cars.

    If an employer has employees in two locations, must the employer include all qualifying cars when determining whether the 75% criterion has been met?

    An employer must include all qualifying cars (that are available for private use) when determining if the 75% criterion has been met.

    Example

    An employer who operates out of two locations has a fleet of 20 qualifying cars in each location. Maintenance of log books is only mandatory in one location.

    The employer would need to take all 40 qualifying cars into account when determining if it can use the simplified approach to calculate its car fringe benefits. As employees are mandated to use log books in only one location, the employer doesn't meet the 75% criterion.

    End of example

    Can a log book be taken into account in determining whether the 75% criterion has been met if it was done in an earlier FBT year?

    An employer can use valid log books completed in the last five years (for either the first year of the election or one of the previous four years) to determine if it meets the 75% criterion.

    Log books must remain representative of the qualifying car’s business use to be considered valid. If there is a material or substantial change in circumstances, an employer would need to get new log books.

    When do employers need to request valid log books?

    If an employer chose to use the simplified approach, it would need new log books after five years to continue to use this approach. An employer could choose to either request log books at the end of, or near the end of the five year term.

    If there was a material change in circumstances, the employer would also need to obtain new log books reflective of that change.

    Does the simplified approach apply if the employer holds a car in the fleet for which no log book has been prepared?

    If an employer has mandated the keeping of log books and holds valid log books for at least 75% of the qualifying cars in the fleet, the average business use percentage can be used to value the car fringe benefits for the entire fleet of qualifying cars (including those qualifying cars not represented by log books, or for which the log book is not valid).

    Is an employer that applies the simplified approach required to have odometer readings in respect of the holding period for each FBT year?

    An employer will need to monitor odometer readings outside of the 12 week log book period when they apply the simplified approach. This includes keeping odometer readings in respect of the holding period for each FBT year – including any years for which a log book isn't kept.

    How are reportable fringe benefit amounts (RFBA) calculated where an employer uses the simplified approach?

    An employer calculates an employee’s RFBA by reference to the ‘individual fringe benefits amount’, which is also used to determine an employer’s FBT liability.

    If an employer uses the simplified approach, the same average business use percentage must be used in calculating fringe benefits tax liability (as well as for working out an employee’s individual fringe benefits amount for RFBA purposes).

    The simplified approach provides an alternative way an employer can get a business use percentage, so they can calculate the car fringe benefits provided using the operating cost method. Adherence to the simplified approach is optional. Employers will need to determine if it is suitable for their individual circumstances.

     
      Last modified: 01 Jun 2017QC 52336