We've observed a large proportion of employers that provide work cars for their employees are not fully meeting their fringe benefits tax (FBT) obligations. Based on the common errors we see employers make, here are our 3 key tips.
Ensure you:
- Correctly classify vehicles for FBT purposes.
- Understand what is considered as private use.
- Are keeping complete and accurate records.
FBT generally applies when employees (or their families or associates) use work cars privately, or the cars are available for their private use. Even where a third-party provider manages your fleet, you remain responsible for meeting FBT obligations.
To help you identify compliance risks early and reduce the risk of unexpected liabilities, you should review the following tips.
Are you providing a 'car' fringe benefit?
For FBT purposes, a 'car' is defined as:
- a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers
- Examples include
- most sedans, hatchbacks, SUVs, convertibles, people movers, 4-wheel drives or station wagons
- some vehicles designed to carry goods with a carrying capacity of less than one tonne (such as panel vans, vans, 4-wheel drives and utes, including dual cabs)
If you provide a car, then you need to understand how your employees use it and keep complete and accurate records.
Is the car being used privately?
FBT generally applies when employees use a work car privately, or the car is made available for private use. Private use may arise if your employees use the work car for travel or activities not related to their employment, such as:
- school pick-ups or drop-offs (even if it's on the way to or from work)
- running personal errands
- transporting family or friends
- garaging the car at or near their home (even if the car is not being used or is being garaged for security reasons)
- weekend recreational trips.
Are you keeping the right records?
If you provide work cars, it's essential you keep complete and accurate records. This applies even if the cars aren't used for private purposes, you don't have an FBT liability, or you're not required to lodge an FBT return. If your work cars are used fully for work purposes, your records need to prove that.
Your records must:
- support the calculation method you use
- show how you calculated the taxable value of the car fringe benefit.
If you use the:
- operating cost method, maintain records such as logbooks and odometer readings
- statutory formula method keep records such as purchase records, invoices, receipts and lease documents.
We often see instances where employers have missing or incomplete logbooks.
Maintaining the right documentation can help you demonstrate compliance with your FBT obligations and support accurate FBT reporting.
For more information, visit How FBT applies to cars.
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