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How FBT applies to cars

Check the definition of a car, how FBT applies, and the difference between private and business use.

Last updated 13 July 2023

Learning resources

Car fringe benefits

Media: Car fringe benefits Link (Duration: 0:50)


You can register for an Employer: Introduction to car fringe benefits session. This webinar will help you work out if you are providing a car fringe benefit.

Guide for small business

Our Car fringe benefits tax guide for small business will help you understand if you are providing a car fringe benefit and:

  • what this means for your business
  • which records to keep.

What is a car fringe benefit?

As an employer, you may have to pay fringe benefits tax (FBT) if you provide an employee with private use of:

  • a passenger vehicle designed to carry fewer than 9 passengers (including the driver), including a 4-wheel-drive vehicle but not a motorbike
  • an eligible commercial vehicle, where the use exceeds limited private use (limited private use of an eligible commercial vehicle may be exempt).

Exempt car or vehicle benefits

You don't pay FBT if you provide an employee with private use of a vehicle and:

A car you own or that is leased

When you are considering whether FBT applies, it doesn't matter if the car is owned or leased.

However, there may be a difference in the amount of FBT you pay. If the car is leased, and it's not a bona fide lease, you may pay more FBT.

Private versus business use

FBT applies to your employee's private use of your car, not their business use.

A simple way to work this out is to ask yourself: if the employee had paid for the costs of using the car (such as fuel), could they have claimed an income tax deduction for the whole cost? If the answer is yes, it is a business use of the car.

Private use

FBT applies if your car is used or available for private use by your employee or their associate. This includes:

Home garaging

If your employee garages a car at or near their home, even if only for security reasons, it is considered to be available for their private use. This is the case whether or not they have permission to use the car privately.

Similarly, if their place of employment and residence are the same, the car is considered to be available for their private use.

In either situation FBT applies.

Special rules for emergency service cars

FBT does not apply if your employee home garages an emergency service car. This is a car:

  • used by an ambulance, police or fire fighting service
  • fitted with exterior markings indicating it is an emergency service car, and
  • equipped with a flashing warning light and horn, bell or alarm.

Doing work tasks between home and work

If your employee is travelling between home and work and stops off to do some work on the way – such as collect your mail – it is still private use. This means FBT applies.

However, there are situations when travel between home and work may be considered business use.

Car in workshop

If your employee has access to your car for private use, and the car is in a workshop for:

  • routine servicing or maintenance – it is still available for their private use, so FBT applies
  • extensive repairs (for example, following an accident) – it is not available for their private use, so FBT does not apply.

Hiring a car

If you hire a car and make it available for your employee's private use, FBT applies in the same way as if you owned the car. If you hire the car for:

  • less than 3 months, you treat it as a residual fringe benefit
  • 3 months or more, you treat it as a car fringe benefit.

Business use

FBT does not apply to your employee's business use of your car. For example, when your employee uses a car to go from their workplace to a client's premises, it is business use.

If FBT does not apply because your employee's use is only for business, it also does not apply to road or bridge tolls you pay for your employee's use of the car.

When travel between home and work is business use

Travel between home and work is usually private, even if your employee stops off to do something work-related on the way.

However, travel between home and work is considered business use if:

  • your employee is on-call and they start work on receiving a call
  • the nature of the employment is itinerant, which means
    • travel is a fundamental part of your employee's work
    • it is impractical for your employee to perform their duties without the use of a car
    • the terms of employment require your employee to perform duties at more than one place of employment
    • the nature of the job itself makes travel in the performance of duties essential
  • the job is not inherently itinerant, but your employee is required in the ordinary course of duties to visit people such as clients or customers
  • your employee takes the car home at the end of the day solely to use it for a business journey from their home the next morning.

For a detailed explanation of when travel between work and home may be considered business use, see MT 2027 Fringe benefits tax: private use of cars: home to work travel in our legal database.

What to do if you provide a car fringe benefit

You need to:

  1. work out the taxable value of the car fringe benefit
  2. calculate how much FBT to pay
  3. lodge your FBT return
  4. pay the FBT amount
  5. check if you should report the fringe benefit through Single Touch Payroll (or on your employee’s payment summary).

Claiming tax deductions

You can claim a deduction for expenses for cars (and other motor vehicles) used in running your business. If you pay FBT, the:

  • FBT you pay is tax deductible
  • private use expenses of the car that you pay FBT on is tax deductible.