Fringe benefits tax - a guide for employers

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Chapter 7 - Car fringe benefits

   Relying on this Guide

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If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this Guide applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

Where a vehicle is provided or made available to your employee (or their associate) for their private use, it may be a 'car fringe benefit' or a 'residual fringe benefit'. This Chapter deals with the provision of a car fringe benefit.

A car fringe benefit (as defined in section 7.1) is subject to FBT where it is provided in respect of employment and is not an exempt benefit.

Like all fringe benefits, you, as the employer, will be required to calculate and pay the FBT liability in relation to the car fringe benefit. This Chapter helps you to work out the taxable value of a car fringe benefit.

7.1 What is a car fringe benefit?

Where you, or an associate of yours, make a car available to an employee (or their associate) for private use, a car benefit may arise. A car benefit may also arise where you, or an associate of yours, have organised someone else to make that car available. In some circumstances, the FBT rules will also deem that a car is being made available to an employee.

A car fringe benefit will generally arise if a car which is held by the employer is:

  • used for private purposes by the employee or their associate, or
  • taken to be available for private use by an employee or their associate.

Note: The car needs to be provided in respect of the employment of the employee.

All subsequent references to an 'employee' in this Chapter are references to the employee and their associates.

If a vehicle you (or your associate) provide does not satisfy the above requirements, you may provide a residual benefit. This will most commonly arise where the vehicle that you have provided is not a 'car' as defined in the FBT rules. Miscellaneous Taxation Ruling MT 2034 Fringe benefits tax: private use of motor vehicles other than cars outlines when use of a vehicle other than a car will give rise to FBT. Section 18.6 explains how to calculate the taxable value of a residual benefit.

The following table will help you to determine whether a car benefit is provided and how to calculate the 'taxable value' of the car fringe benefit.

7.1.1 Working out if a car benefit is provided and the taxable value of the car fringe benefit

Table 1: Working out if a car benefit is provided and the taxable value

Step

Action

Detail

Decision

1

Is the vehicle a 'car'?

Section 7.2 outlines what is a car for the purposes of determining if you provide a car benefit.

No: A car benefit is not provided but you may provide a residual benefit. MT 2034 deals with vehicles that fall within the residual benefit rules. Section 18.6 explains how to calculate the taxable value in respect of the vehicle.

Yes: Go to step 2.

2

Is the car held by you or your associate?

You hold a car when you own it or lease it.

Alternatively, you or your associate may enter into an arrangement with another party for them to provide the car to your employee.

Section 7.3 outlines when a car is held by you.

No: A car benefit is not provided.

Yes: Go to step 3.

3

Do you provide a car for your employee to use for private use or is the car available for the employee's private use?

And

The car is provided or made available to the employee in respect of their employment?

A car is used by your employee for private use even if they have done so in accordance with the directions given by you or another person.

A car is available for private use if:

  • it is garaged or parked, at or near your employee's residence, or
  • the car is not parked at your business premises and either
    • your employee is entitled to use the car for private use, or
    • your employee has the keys to the car even when they are not working.

See sections 7.3 and 7.4 to determine if you provide or make available a car for your employee's private use.

No: A car benefit is not provided.

Yes: Go to step 4.

4

Is the car an emergency service car?

Section 7.4.4 outlines the special rules that apply to emergency service cars.

No: Go to step 5.

Yes: If the car is not used for private use a car benefit is not provided. If the car is used for private use, go to step 5.

5

Is the car registered?

Section 7.6 outlines the requirements of certain exemptions from FBT.

No: A car benefit is not provided.

Yes: Go to step 6.

6

Is the car a taxi, panel van or utility truck designed to carry a load of less than 1 tonne?

Or

Another road vehicle that is not designed principally to carry passengers and is designed to carry a load of less than 1 tonne?

Section 7.5 outlines where certain cars are exempt from FBT provided employee's private use of these vehicles is limited.

Yes: Go to step 7.

No: Go to step 8.

7

Is the car used by the employee only to travel from their place of residence to their place of employment and while on work?

Section 7.5 outlines where certain cars are exempt from FBT provided employee's private use of these vehicles is limited.

Yes: A car benefit is exempt from FBT if it is only used for home to work travel, and any other private use is minimal and ad hoc.

If the car is used privately and that private use is more than minimal and ad hoc, go to step 8.

No: Go to step 8.

8

Are you a personal service entity that provides more than one car?

Section 7.6 outlines special rules that apply to personal service entities.

Yes: You do not provide a car benefit for the second and subsequent cars you provide. Go to step 9 to determine if you provide a car benefit for one of the cars you provide.

No: Go to step 9.

9

Is the car provided as part of a salary package arrangement?

If the car is not provided as part of a salary packaging arrangement, the car may be exempt from FBT if:

  • the car is provided for private use minimally and on an ad hoc basis, and
  • the notional taxable value of the benefit in the FBT year is less than $300 (determined as if the benefit was a residual fringe benefit).

Section 20.8 outlines when the minor benefits exemption applies.

Yes: Go to step 10.

No: If the use is minor, you do not provide a car fringe benefit.

If the use is not minor go to step 10.

10

Did you elect to use the operating cost method to value the benefit which needs to be made prior to 21 May for the FBT year that you provided the car?

See section 7.7 for the requirements to be satisfied to make the election and for the records you are required to keep for both methods.

No: Use the statutory formula method to value the benefit. See section 7.8 .

Yes: Use the operating cost method to value the benefit. See section 7.9 .

Note that if the statutory formula method results in a lower taxable value, the statutory formula method will apply, even if you elect to use the operating cost method.

7.2 What is a car?

A car is:

  • a road vehicle powered by a motor (petrol, diesel, hybrid or electric)
  • designed to carry a load of less than one tonne, and
  • designed to carry fewer than 9 passengers (for example, a people mover that is designed to carry 9 or more passengers is not a 'car').

A car is not:

  • a motorcycle, electric bicycle, scooter or moped
  • a hearse
  • a semi-trailer
  • a station wagon, panel van or ute designed to carry more than one tonne
  • a motor vehicle which is not a road vehicle, such as a boat, train, tram, or aeroplane, or
  • motor vehicles which cannot be registered for use on a public road because of their design, such as
    • motorised skateboards and kick-scooters, which are only permitted to be used on separated pedestrian and bicycle paths
    • golf carts or go-karts, which may only be used on roads in very limited circumstances.

7.2.1 How do I work out if the vehicle is designed to carry a load of less than one tonne?

Table 2: Working out if the vehicle is designed to carry a load of less than one tonne

Step 1

Work out the gross vehicle weight .

This is specified in the vehicle's compliance plate.

It is the maximum the vehicle can weigh when fully loaded as specified by the manufacturer with all of its fluids, oils, coolants, a full tank of fuel and passengers.

Step 2

Work out the basic kerb weight.

Basic kerb weight is the weight of a vehicle without passengers and goods, with all of its fluids, oils, coolants, a full tank of fuel and all standard equipment.

Step 3

Subtract the basic kerb weight from the gross vehicle weight.

This gives you the designed load capacity and this is the carrying capacity of the vehicle.

Gross vehicle weight - (basic kerb weight) = (designed load capacity)

Designed load capacity takes into account accessories fitted by the manufacturer that are standard equipment for the particular vehicle. The designed load capacity does not change by modifying a vehicle with options or accessories after manufacture even if those parts are genuine accessories supplied by the manufacturer.

A vehicle's designed load capacity is distinct from its towing capacity. Where a vehicle is capable of towing a load on a trailer, the load carrying capacity of the motor vehicle does not include the towing capacity.

Example 1 - where a vehicle is a car

You provide an employee with use of a vehicle under a salary packaging arrangement.

Under the arrangement you propose to provide your employee with use of the following:

  • Campervan XYZ, with a gross vehicle weight of 2,000 kg
  • basic kerb weight of approximately 1,400 kg
  • manufacturer designed to carry 4 passengers.

The Campervan XYZ has been modified to add various items such as a kitchen with a sink and microwave oven, table, TV, fridge, water tanks, a lounge which converts to an electric roll-down bed, shower, toilet, and so on. The designed load capacity of 600 kg is not impacted by these modifications.

The Campervan XYZ is a motor-powered road vehicle designed to carry a load of less than one tonne and less than 9 passengers. It therefore satisfies the definition of a car.

Example 2 - unregistered vehicle that is a car

Kim drives a 4-wheeled drive motor vehicle provided by his employer.

Although the vehicle is eligible for registration as a road vehicle, it has not been registered for the time it has been held as it has not been required to be used on a public road or for work. The vehicle seats 8 passengers, including the driver, and has a load carrying capacity of 900 kg.

On most days, Kim drives the vehicle around his farm, and he attaches a trailer to the vehicle which can carry an additional 1,500 kg.

The vehicle's carrying capacity is less than one tonne, as the weight carried by the trailer is not included in the vehicle's load carrying capacity, because the trailer does not form part of the vehicle's standard equipment.

Although the car is not registered for use on public roads, its design is that of a road vehicle such that it may still be used on a public road if registered. The vehicle is a car.

Example 3 - modifying of a vehicle does not change its classification as a car

You provide cars to your employees that are primarily sold as passenger cars.

To improve the utility of these vehicles in your business, you modify the cars to essentially convert them into 4-door 'panel vans'. The conversion involves removal of the rear seats, welding a steel cage to the back of the front seats and lining the interior with heavy duty rubber flooring. These changes are permanent and change the design of the car such that its principal design is no longer to carry passengers.

The modifications leave 2 seats available for the driver and a single passenger and are intended to create significant storage space. The vehicles are designed to carry a load of less than one tonne.

The modifications do not change the classification of the vehicle as a car.

As the car may now be classified as a 'panel van', use of the panel van may be exempt from FBT (see section 7.5 ).

7.3 Who 'holds' the car provided?

To be a car benefit, the provider of the benefit must hold the car. A car may be 'held' by you, an associate of yours or a third party with whom you (or your associate) make an arrangement.

A car is held by a provider where the car is:

  • owned (includes cars acquired under hire-purchase arrangements which are considered to be owned by the hirer from the start of the hire purchase agreement)
  • leased (or let on hire), or
  • otherwise made available to the provider.

A car is not considered to be held by the provider where the car:

  • has been destroyed
  • is in a workshop for extensive repairs following an accident (however, a car is considered to be held and available for private use where it is in a workshop for routine servicing or maintenance), or
  • is owned by the employee themselves and not by you or your associate.

You can work out who 'holds' the car by looking at the car:

  • registration papers
  • insurance policies, or
  • leasing documents.

7.3.1 Special rule for cars on hire

A car will not be held by a provider (and therefore not provided by the provider) where the car is:

  • a taxi let on hire, or
  • a car that you hire on a short-term basis.

A car is held on a short-term basis where there is no 'substantial continuity' to the hire arrangement.

If you provide a hire car or taxi for a total period of less than 3 months for your employee to use, it will not be a car benefit but it may still be a residual fringe benefit.

Determining whether there is 'substantial continuity' in hire arrangements is a question of fact that may be difficult to determine. Where you provide a hire car or taxi under successive hire arrangements and the total hire period across those hire arrangements exceeds 3 months, you will be taken to have provided a car and a car benefit will arise (if the other requirements are satisfied).

7.4 Private use

A car which is held by you or your associate is a car benefit, where the car is

  • applied for the employee's private use, or
  • taken to be available for the employee's private use.

The circumstances in which a car is either applied or taken to be available for the private use of the employee can vary significantly.

7.4.1 When does an employee apply a car for private use?

Private use is everything else other than in the exclusive course of working, running a business or otherwise earning income. This means that private use of a car includes any use that is dual purpose and has both private and business aspects to it.

The term applied means actual private use of the car by your employee or where your employee (or a third party) has used the car in accordance with the directions given by you or another person that the car be used for their private use. Private use means any use. It does not just mean driving the car.

Example 4 - car with advertising decals

Freddie is provided a car by her employer. It is wrapped in advertising decals to promote the employer's fitness business. Freddie and her employer enter into an agreement whereby Freddie agrees to drive the car along certain routes and to popular shopping, eating and entertainment precincts to maximise exposure to the eye-catching decals. Freddie gets paid an amount to do so. According to the agreement, Freddie is able to use the car for private purposes while driving it in accordance with the agreement.

Freddie uses the car to drive along the routes which includes her local supermarket and her favourite restaurant. When Freddie uses the car to do her shopping at the local supermarket or has a meal at her favourite restaurant, the use of the car in this way, while it has a business use, is considered private use as the business use is mixed with private use.

Example 5 - car not applied for private use under a salary packaging arrangement when garaged at employer's business premises

Jerry is provided with the use of a car by his employer under a salary packaging arrangement. Jerry agrees to sacrifice part of his fortnightly income (registration, insurance and fuel costs are included) in exchange for the use of a car owned by his employer. In this particular year, Jerry takes some long service leave and is absent from the workplace for 3 months. Jerry and his employer document an agreement in an email to garage the car at his employer's premises for the period of the long service leave. Under the agreement, Jerry (and his associates) are not entitled to use the car during the 3 months, the vehicle may not be used by other employees during this time, and Jerry voluntarily surrenders the car to his employer (including giving the employer the keys). He does not drive the car for the period of his long service leave, having garaged it during this time as per the agreement.

The salary packaging agreement continues during the period of his long service leave. However, under the agreement entered with the employer to garage the car at the employer's premises, Jerry is not able to access and use the vehicle.

In this scenario, the employer holds the car for the purpose of providing fringe benefits and there is no private use of the vehicle by Jerry (or his associates) during this time.

7.4.2 When is travel in the ordinary course of business?

The following table operates as a general guide about when travel in a car is in the course of working, running a business or otherwise earning income.

Table 3: When is travel in the ordinary course of business?

Travel in the course of working, running a business or otherwise earning income

Travel that is not in the course of working, running a business or otherwise earning assessable income

Travel from the employee's home to somewhere other than their regular place of work (an alternative work location), where their duties of employment require it.

Travel between the employee's home and regular place or places of work.

Travel from the employee's home (or another private location) to a place of regular work when they are 'on call' and all of the following factors are present:

  • the employee's duties have substantively commenced at their home (or another private location) and the employee is required to travel to a regular place of work to complete those particular duties
  • undertaking the work in 2 locations is a necessary obligation arising from the nature of the duties, and
  • the travel to the workplace is not part of a normal journey to work that would have occurred anyway.

For example, where a doctor is 'on call' at their residence and commences care of a patient by issuing instructions from their residence and then directly travels to the hospital to complete the treatment.

Travel from the employee's home to a regular place of work, when their employment duties have not commenced.

This includes where an employee waits at home for advice from their employer whether they are required to work, where they are in a sense on 'standby', but no substantive duties commence until they arrive at their workplace.

This is so even if an employee performs minor work-related tasks en-route such as picking up the mail, or the travel is outside normal working hours.

Travel to a meeting or client's premises from the regular place of work.

Travel between places of work for different employers or businesses.

Travel by an employee who has no fixed or predicted place of work and is considered to be an itinerant worker (where the employee has no fixed place of work).

Travel by an itinerant worker who also transports a family member (for example, school drop-off and pick-ups) in the course of their journey.

Travel by an employee where the nature of their job creates a practical necessity to transport bulky tools or work equipment by car between home and work.

 

Example 6 - private travel between home and a regular work location

Nikia travels between home and work in a car provided to her by her employer.

Nikia travels daily to her employer's office, and often manages work problems out of ordinary work hours.

Nikia frequently checks and responds to work emails at home. She may at times spend an hour or more working at home either before driving into the office or after she returns home in the evening. While driving to or from work, Nikia responds to work phone calls.

Nikia's use of the employer's car for these purposes constitutes private use because:

  • Nikia is not required to start work at home and to travel to continue work at the office - she has chosen to start work at home, rather than at her regular office, and
  • the trip between Nikia's home and the office is a normal daily journey, reflecting her private choice about where to live.

Example 7 - travel to alternative workplace not private use

Duy works for a company in Launceston, where he lives. During the year, the company requires Duy to work from their Devonport office which is located 70 minutes' drive from his regular place of work. Duy's presence at the Devonport office is ad-hoc and irregular.

Duy travels to Devonport directly from his home to the office and back home at the end of the day in a car provided to him by his employer. The Devonport office is considered to be an 'alternative work location' for Duy, as it is not his regular workplace.

Duy's use of the car to travel to Devonport is not considered to be private use.

Example 8 - travel after direction to commence duty

Michelle is a coding specialist who normally travels daily between home and work using a car provided by her employer. Michelle is supervising a major upgrade of a computer facility.

When away from the office, Michelle is 'on call'. This requires her to be available at all hours to receive telephone calls from colleagues working at the office and to give them advice over the phone when problems arise regarding the operation of the computer facility. For this purpose, Michelle is given IT equipment to install at her home that enables her to connect to the central computer to try to resolve the matter. If the problem cannot be resolved at home, Michelle travels to the office in order to progress the matter further.

When Michelle receives a call outside of her normal work hours, she commences her employment duties at that time and is subject to her employer's direction and control. Michelle commences substantive work before leaving home and then completes that work once she attends the office. Michelle does not choose to do part of the work of her job in 2 separate places, but rather the 2 places of work are a fundamental part of Michelle providing specialised support because of the nature of her special duties.

On the occasions when Michelle commences duty out of normal business hours and drives to her employer's office because of a call to assist, she is travelling between work locations. This is not private use.

Example 9 - travel to a work location when on standby

Luke is a dental assistant and travels between home and work in a car provided to him by his employer. Luke is sometimes required to be on 'standby' duty. If Luke is called by his employer while he is on standby duty and asked to work, he travels from his home to the dental surgery and starts his shift once he gets there.

No substantive duties are commenced until he arrives at work. The use of the car is private.

7.4.2.1 Travel related to income from residential investment properties

Travel by an employee to a residential premises that they own, and from which they derive rental income, is not considered private use for the purposes of car fringe benefits. Different considerations apply in determining an entitlement for an income tax deduction in respect of travel to residential investment premises. In particular, an income tax deduction is usually not available where a privately owned car is used to travel to or from residential rental investment properties.

Example 10 - travel to rental investment premises is not private use

Mischa is a specialist computer technician and her employer provides her with a car. The car is garaged at Mischa's home when she is not working. Mischa is provided with the car to travel to alternative workplaces.

Mischa is also an investor who owns several residential rental premises from which she derives assessable income. Mischa occasionally uses the car provided by her employer to attend property inspections, pay bills and engage with her letting agent.

The travel to engage in Mischa's rental investment property activities is not private use and Mischa therefore does not use the car for private use. However, as the car is garaged at Mischa's home, the car will be taken to be available for her private use and a car benefit will be provided.

See also:

  • Law Companion Ruling LCR 2018/7 Residential premises deductions: travel expenditure relating to rental investment properties
  • Miscellaneous Taxation Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel
  • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses?
  • Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses
  • Rental properties and travel expenses

7.4.3 When is a car 'taken to be available' for private use?

A car benefit can arise where a car is taken to be, or made available, for the employee's private use (whether or not the employee actually uses it).

Two circumstances commonly arise where a car is made available to the employee for private use:

  • the car is garaged or kept at or near the employee's residence
  • the car is not at your business premises and the employee has use, custody or control of the car, or is entitled to use it for their private use.

A car will not be taken to be available for the employee's private use where:

  • the car is somewhere other than your business premises (such as in a commercial storage facility)
  • the custody and control of the car has been removed from the employee, and
  • the employee is not entitled to use the car for private use.

Where your employee's place of residence and place of employment are the same, the car is made available for the private use of the employee. An employee's place of residence is the place where they live or have sleeping accommodation. It does not matter whether it is permanent or temporary or if they share the place with someone else.

A car can be taken to be available for private use even where the car is used in accordance with the directions, instructions or wishes of a person (including you or your associate, employee or another person).

If you have rules in place to disallow private use of company or business cars, they must be clear and straightforward. A general instruction or understanding between you and your employee is not sufficient. We recommend that you:

  • put these rules in writing
  • have a plan or course of action that checks and verifies odometer readings and private use, and
  • always enforce these rules against private use.

You must consistently enforce any rules that you have that disallow private use of the car, otherwise the car may still be taken to be available for private use.

The issuing of a minute or a directive stating the rules without further training, auditing and enforcement is not considered to be sufficient for employers to access this exemption.

A car benefit will not arise if the employer removes custody and controlof the car from the employee. An employee must relinquish possession (for example, by surrendering the keys) to divest themselves of custody and control.

Where a car is in a workshop for extensive repairs (for example, following a motor vehicle accident) it is not available for private use of the employee. However, a car is considered to be available for private use where it is in the workshop for routine servicing or maintenance.

Example 11 - garaging a car at home taken to be available for private use

John is provided a car by his employer to attend client meetings. According to the employer's car use policy, while John can take the car home and keep it in his garage, he is not permitted to use the car for private use. The garaging of the car at John's home means that the car will be made available for private use. It does not matter that John does not use the car privately or that the employer has a policy preventing John from using the car for private use.

Example 12 - car taken to be available for private use when garaged at motel

Robert is based in Melbourne but is required to fly to an alternative workplace in Sydney and stay there for the week leading up to the implementation of a new project. Robert works from the Sydney office during this time, staying in motel accommodation and is provided a car by his employer to travel between the airport and motel. Robert garages the car at the motel car park and commutes to the Sydney office by ferry. Robert has the keys to the car even though he does not use the car other than to travel back to the airport at the end of the week. The car, being garaged at the motel, means that the car is made available for private use. The motel is a place of residence for Robert while he is staying there even though it is only on a temporary basis.

Example 13 - car not taken to be available where car is in a safe storage

Robert, as outlined in Example 12, is based in Melbourne. Prior to beginning his week trip to Sydney, he used the employer's pool car to drive from work to Melbourne airport and parks the car at the Melbourne airport car park. The Melbourne airport car park is not business premises of the employer or their associate, and is not near his residence in Melbourne.

As per the employer car policy, Robert dropped the keys in to the safe deposit box at Melbourne airport. The safe deposit has a rolling pin code that resets each day. Robert (or his associate) is not permitted to access the keys or use the car until he returns from Sydney. The car will not be taken to be available to Robert until his return from Sydney, when he will be issued with that day's pin code and he can access the car keys. Therefore, for the period when the car is parked at Melbourne airport car park, it is not made available for private use.

See also:

  • Taxation Determination TD 94/16 Fringe benefits tax: where an employee is provided with a car by the employer and the car is kept in safe storage (e.g. in a commercial garage) while the employee is travelling, under what circumstances is that car taken to be available for private use under section 7 of the Fringe Benefits Tax Assessment Act 1986?
  • Taxation Ruling TR 2000/4 Fringe benefits tax: meaning of 'business premises'.

7.4.4 Special rule for emergency service cars

Your employee can keep certain types of emergency service cars at or near their place of residence and not attract FBT. A car benefit will only arise where the employee actually uses the car for private use other than if that private use is exempt (see section 7.5 ).

To qualify for the special rule, at the time the emergency vehicle is kept at or near the employee's place of residence, it must be used by an ambulance, police or firefighting service. The car must also be fitted with exterior markings indicating that it is being used by that service and also be equipped with a flashing warning light and horn, bell or alarm.

7.5 When is the provision or use of certain cars exempt from FBT?

If you provide (or make available) one of the following cars to your employee, it will be exempt from FBT in certain circumstances:

  • a taxi, panel van or utility truck designed to carry a load of less than one tonne, or
  • any other road vehicle that is not designed principally to carry passengers and is designed to carry a load of less than one tonne.

Dual-cab vehicles must meet these requirements to fall within this exemption (see section 7.5.4 ).

To be exempt, the employee's private use of such a vehicle must be limited to:

  • Home-to-Work Travel: travel between the employee's place of residence and the employee's place of employment (see section 7.5.1 )
  • Incidental-Work Travel: incidental travel in the course of performing employment-related duties (see section 7.5.2 ), and
  • Minor-Private Travel: the other private use of that car is minor, infrequent and irregular. For example, occasional use of the vehicle to remove domestic rubbish (see section 7.5.3 ).

See also:

  • Eligible vehicles
  • Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel
  • Taxation Determination TD 94/19 Fringe benefits tax: is the method outlined in Taxation Ruling MT 2024 appropriate for determining whether a vehicle, other than a dual or crew cab, is 'designed for the principal purpose of carrying passengers' and thereby ineligible for the work-related use exemption available under subsection 8(2) of the Fringe Benefits Tax Assessment Act 1986?

Where the vehicle is designed to carry one tonne or more, you may be eligible for an exemption under the motor vehicles - residual fringe benefits exemption (see section 18.6 ).

7.5.1 What is Home-to-Work Travel?

Travel between the employee's place of residence and place of employment includes travel to the regular place of employment, or travel to a temporary place of employment (an alternative work location).

An employee's place of employment relates only to the employment relationship under which the car benefit is provided. Where you provide a panel van or utility (car) to your employee, travel by the employee to a second employer is private use.

Travel between the employee's place of residence and place of employment must be undertaken by a current employee only. If an associate of the employee travels with the employee, the exemption will not apply.

Example 14 - travel to separate places of employment is private use

Joe is a current employee of Company A and Company B. The companies are unrelated.

During the FBT year, a car benefit is provided to Joe by Company A. The relevant car is a utility truck designed to carry a load of less than one tonne. Joe uses the truck to travel between his home and his workplace with Company A on Monday to Friday. This travel is between Joe's place of residence and his place of employment with Company A.

Joe also performs work for Company B on Saturday morning. Joe uses the utility truck to travel between his home and his workplace with Company B on Saturday morning. This travel is private use. The use is not exempt as the travel to Joe's workplace with Company B is not incidental to his travel in the course of his employment with Company A and is not considered to be minor, infrequent or irregular.

7.5.2 What is Incidental-Work Travel?

Private use will be incidental to travel in the course of employment when it is considered minor or subordinate to the main purpose of the travel - being for employment. For example, travel that is considered incidental to employment related travel would include a stop at the newsagency on the way in to work to buy a newspaper, or a trip through a drive through caf é or fast food outlet to purchase a coffee on the way to a meeting with a client - as long as neither stop requires your employee to depart significantly from their ordinary route.

Travel will be incidental when it does not change the main reason for the travel, rather it is an add-on to the main purpose of the travel. Private use is not incidental to travel in the course of employment when the employee transports a family member.

7.5.3 What is Minor-Private Travel?

Private use by the employee needs to be minor, infrequent and irregular - all 3 terms must be met.

Private use that is minor, infrequent and irregular is travel that can be described as all of the following:

  • travel that is small or insignificant in distance and time compared to business travel
  • travel that does not happen very often, or is not the norm, and
  • travel that does not happen regularly or at fixed regular intervals.

Example 15 - minor, infrequent and irregular use

Robin takes the company panel van (with a carrying capacity of less than one tonne) home each night. Robin has only used the vehicle privately on one occasion during the year to move some furniture when Robin moved house. Robin's private use of the van to move the furniture is considered to be minor, infrequent and irregular and would be exempt from FBT.

Example 16 - not minor, infrequent and irregular use

Rose is an employee of the local Council and takes the Council's utility (with a carrying capacity of less than one tonne) home each night after work. Rose also takes the utility home on weekends. Rose uses the utility, regularly, for shopping trips and taking her husband to the football on most Saturdays during the football season. This private use of the utility is not minor, infrequent and irregular.

Example 17 - minor, infrequent and irregular use

Charlie, an employee of a plumbing company, has employment duties that are itinerant in nature. Charlie takes the utility (with a carrying capacity of less than one tonne) home at night. On several occasions during the year, Charlie uses the utility to drop her child to childcare on her way to work - when her partner is ill and cannot do it. This private use of the utility is minor, infrequent and irregular.

Example 18 - not minor, infrequent and irregular use

Jim is a washing machine repairman who is provided with a panel van by his employer. He drives the panel van home each night and each morning he drives the panel van to his first job or his employer's supply depot. This travel is between Jim's place of residence and his place of employment, or an alternative place of employment. On one occasion, when the regular family car was unavailable, Jim used the panel van to pick up groceries. The once-off weekend trip to the supermarket is minor, infrequent and irregular.

If on school days, Jim drives his children to school in the panel van on the way to his first job, even if the school is on his direct route to work, this private use would not be minor, infrequent and irregular unless it meets the requirements of Practical Compliance Guideline PCG 2018/3 Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles (see 7.5.3.1 ).

7.5.3.1 Car exemptions - Commissioner's special administrative approach

We understand that it can often be difficult to identify when use of a vehicle falls within incidental or minor, infrequent and irregular use. To provide you with some certainty, we have developed some limits that you can choose to work within and be assured that you will not be subject to audit action.

See also :

  • Practical Compliance Guideline PCG 2018/3 Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles.

7.5.4 How do I work out if my dual cab vehicle falls within this exemption?

Dual cabs are not considered to be 'utility trucks'. Dual cabs are not designed to carry more than 8 passengers.

Therefore, dual cabs (with a load capacity of less than one tonne) only fall within this exemption if they are not designed primarily to carry passengers.

You can work this out by using the steps in the following table:

Table 4: Working out if the dual cab car falls within this exemption

Step 1

Work out the gross vehicle weight .

This the maximum the vehicle can weigh when fully loaded as specified by the manufacturer with all of its fluids, oils, coolants, a full tank of fuel and passengers.

Step 2

Work out the basic kerb weight.

This is the weight of a vehicle without passengers and goods, with all of its fluids, oils, coolants, a full tank of fuel and all standard equipment.

Step 3

Subtract the basic kerb weight from the gross vehicle weight. This gives you the designed load capacity and this is the carrying capacity of the vehicle.

(Gross vehicle weight) - (basic kerb weight) = (designed load capacity)

Step 4

Work out the designed seating capacity (including the driver's seat) and multiply it by 68 kg. This gives you're the total passenger weight .

(Designed seating capacity) × 68 = (total passenger weight)

Step 5

Subtract the total passenger weight from the designed load capacity. This gives you the remaining 'load' capacity .

If the total passenger weight exceeds the remaining load capacity, the vehicle is designed primarily to carry passengers and is ineligible for this exemption.

This calculation only applies to dual cab vehicles.

Example 19 - dual cab vehicles

A dual cab vehicle with a gross vehicle weight of 1,950 kg, a basic kerb weight of 1,400 kg and a designed seating capacity of 5 would be considered a vehicle designed principally for carrying passengers. This is because the majority of the total load capacity (340 kg (5 × 68 kg) of a total of 550 kg) would be absorbed by its designed passenger-carrying capacity.

Dual cabs (with a load capacity of more than one tonne) are eligible and fall within this exemption as long as private use of the vehicle is limited (see sections 7.5.1 to 7.5.4 ).

See also:

  • Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel .

7.5.5 What other vehicles fall into this exemption?

Where a car is permanently modified (for example, the alterations cannot be readily undone), such that its principal purpose is no longer the carriage of passengers, the exemption will apply. For example, where a station wagon is transformed into a hearse.

See also:

  • Miscellaneous Taxation Ruling MT 2033 Fringe benefits tax : application of sub-section 8(2) exemption to modified cars.

7.6 Special circumstances exemptions

7.6.1 Unregistered vehicles

If a car is unregistered for the whole of the FBT year when the car was held and was used wholly or principally in direct connection with your business operations, any private use is exempt from FBT.

Example 20 - unregistered car used on the farm

Toni works on a farm and drives her employer's car (which is principally designed for the purpose of carrying passengers) while undertaking employment duties on her employer's business premises. The car has always been unregistered, and Toni's employer does not permit the car to leave the farm premises.

Outside of work hours, when the car is not required by her employer, Toni is given private use of the car, to travel from her place of work on the farm to her own car which is also parked on the farm premises, as part of Toni's normal journey home. This enables Toni to return home sooner and more safely. The employer's car is then parked on the farm, such that it is still accessible to, and available for, use by her employer.

As Toni's use of the car will not detract from its principal use in the business operations of the farm, this private use of the car is an exempt benefit.

7.6.2 Where more than one car benefit is provided by a personal services entity

If the personal services entity rules prevent the personal services entity from claiming car expenses for the car, the use of the car is an exempt benefit.

A personal services entity is limited to the car expenses it can deduct. Deductions are not allowed for more than one car for private use per individual whose personal services income is included in the personal services entity.

Example 21 - personal services entity provides cars to worker

Software Development Co Pty Ltd provides software development services. Rob is employed by Software Development Co Pty Ltd and does all of the work in providing those services. Software Development Co Pty Ltd's income from providing the services is Rob's personal services income because it is a reward for his personal efforts and skills. This makes Software Development Co Pty Ltd a Personal Services Entity.

Software Development Co Pty Ltd provides Rob with 3 cars. Car 1 is solely for business trips and is not available for private use. Cars 2 and 3 are used for private purposes. Software Development Co Pty Ltd can deduct all the car expenses for Car 1. It is also able to claim deductions for all the car expenses it incurs, for its choice, of either Cars 2 or 3. Software Development Co Pty Ltd chooses to claim deductions for Car 2, as well as the FBT it pays for that car. Expenses in relation to Car 3 are not deductible and the car benefit being provided by Software Development Co Pty Ltd to Rob is exempt from FBT. As Car 1 is not available for private use, a car benefit will not be provided.

See also:

7.7 Taxable value - summary of calculation methods

If you have provided a car fringe benefit to an employee, you need to work out its taxable value. The law provides different ways in which you can calculate the value of the car.

The first step in calculating the taxable value of a car fringe benefit is to make a choice between the ways available to you. There are 2 ways you can calculate the taxable value of a car fringe benefit. Each method has special requirements and particular record keeping rules. These requirements are summarised in the following table:

Table 5: Taxable value - summary of calculation methods

Method

Special requirements

Records you must keep

Statutory Formula Method

  • Employee must provide you with receipts/invoices for expenses they have paid for and which are not reimbursed by you.
  • Employee declarations in relation to petrol and oil costs.
  • You have to obtain any relevant declarations on or before the due date for lodging your annual FBT return or, if you do not have to lodge a return, by 21 May.
  • Normal purchase records to establish base value, including invoices/tax invoices, receipts, journal entries, bills of sale, and lease documents. These records should illustrate the purchase price and date of purchase.
  • Record of days the car is used or available for private use.

Operating Cost Method

  • Based on the costs of operating the car (see section 7.9 )
  • You must make a written election to use this method on or before the day your FBT return is due to be lodged, or 21 May if you don't lodge an FBT return.
  • Your election to use this method can be made for some or all of your cars.
  • You must make the election for each FBT year you choose to value your car fringe benefits under this method.
  • Employee must provide you with receipts or invoices (or both) for expenses they have paid for.
  • Employee declarations in relation to petrol and oil costs.
  • You have to obtain any relevant declarations on or before the due date for lodging your annual FBT return or, if you do not have to lodge a return, by 21 May.
  • Record of days the car is used or available for private use.
  • Records showing business and personal use.
  • In a log book year, keep a log book for a continuous period of 12 representative weeks, recording the odometer records travelled during that period and during the year in total.
  • Take into account variations in the patterns of business use.
  • In a non-log book year, keep odometer records of the business use during that year and those travelled in the year in total.
  • Business records to support that you made the election in time and that the taxable value in your return was calculated based on this method. You do not need to notify us of the method you have chosen.

7.8 Statutory formula method

You calculate the taxable value using the steps in the following table.

Table 6: Statutory formula method

Step 1

Work out the base value of the car.

Step 2

Multiply the base value of the car by 0.2.

Step 3

Work out the number of days during that FBT year when the car was used or available for private use of an employee.

Multiply the Step 2 amount by this number of days.

If the car is used or available for private use for the full year, then you do not need to do anything at this step. Go to Step 5.

Step 4

Divide the Step 3 amount by the number of days in the FBT year (either 365 or 366 if a leap year).

Step 5

Reduce your Step 4 amount by any recipient's payments (employee contributions).

7.8.1 Step 1: work out the base value of the car

Table 7: Work out the base value of the car

If you or your associate own the car...

The base value of a car you or your associate own is:

  • the original cost price you or your associate paid (excluding registration and stamp duty)
  • the cost of any fitted non-business accessories, and
  • dealer delivery charges.

All costs and charges include goods and services tax (GST) and luxury car tax where appropriate.

Any non-business accessories added after you or your associate bought the car increases the base value of the car for the year in which they are added and for subsequent years.

The cost price is reduced by the value of any trade-ins or cash deposits and may also be reduced by fleet discounts or manufacturer rebates.

Non-business accessories are fitted accessories, being optional items that are not required to meet the special needs of the business. Non-business accessories do not include standard accessories or features. An example of a business accessory is a fitted GPS in a salesperson's car. Examples of non-business accessories include alloy wheels, rear spoilers, seat covers, paint protection, fabric protection, rust protection, window tinting and personalised licence.

Do not include insurance, registration and stamp duty.

Do not include non-business accessories paid for and installed by your employee.

Do not include payments for extensions to the new car warranty.

Do not reduce the cost price of a car by any recipient's payments (employee contribution).

The luxury car (depreciation) limit is irrelevant for FBT purposes and is ignored when establishing the cost base of the car. For example, if you purchase a vehicle for $110,000 which is then used for the employee's private use, the base value is taken to be $110,000 and not the depreciable value maximum for that income tax year.

See also:

  • Taxation Ruling TR 2011/3 Fringe benefits tax: meaning of 'cost price' of a car, for the purpose of calculating the taxable value of car fringe benefits .
  • Miscellaneous Taxation Ruling MT 2023 Fringe benefits tax: taxable value of new demonstrator motor vehicles and used car stock of motor vehicle dealers available for private use of employees .

If you or your associate lease the car...

If the lessor bought the car and leased it to you or your associate around the same time - the base value is the cost price of the car (as calculated above when the car is owned) to the lessor.

Any non-business accessories added after the lessor bought the car increases the base value of the car for the year in which they are added and for subsequent years.

If the lessor acquired the car at some other time, the base value is the amount a person could reasonably be expected to have paid to buy the car under an arm's length transaction (that is, market value, including GST and luxury car tax) at the first time the car was leased by you.

Where you previously provided a car to an employee under an earlier lease agreement and that agreement comes to an end and the employee:

  • purchases the car, or
  • enters another novated lease agreement for the same car with you, but with a different lessor,

the base value will be the cost to you or your associate under the first lease arrangement, being the earliest time that you or your associate first held the car.

Note that you will also need to consider whether the lease is a bona fide lease as this may impact on your FBT liability.

See also:

If you or your associate have rented the car on a short-term basis...

Short-term rental cars hired for more than 3 months and cars under a novated lease are subject to the same car fringe benefit valuation rules as other cars you or your associate lease.

If you or your associate have owned or leased the car for at least 4 years ...

You can reduce the base value of a car by one-third in the FBT year that starts after you or your associate have owned or leased the car for 4 years.

The reduction applies from 1 April after the fourth anniversary of the date on which you or your associate first owned or leased the car (the car does not need to be held continuously).

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 or your associate acquired the car.

Example 22 - working out the base value of a new car

Sports Co purchases a new car in 2019 and determines its base value at the time of purchase to be $35,000. Sports Co provides the car to Sam, an employee, for both private and business use. After 12 months, Sports Co and Sam enter into a sale agreement for the car. Sam agrees to purchase the car under a novated lease from Sports Co at its 2020 market value, being $28,000.

The base value of the car is determined at the earliest holding time. This is when the car was first owned by Sports Co in 2019 for $35,000.

Example 23 - working out the base value of a leased car

Sports Co leases another car and provides that car to another employee. The car was brand new on commencement of the lease and the cost price to the leasing company was $39,000 at that time. Sports Co added non-business accessories to the car in the middle of the second FBT year, at a total cost of $4,000.

The car's base value during the first year is determined at the earliest holding time. This is when the car was first leased by Sports Co for $39,000. From the second year, Sports Co will include the cost of the non-business accessories of $4,000 to the base value. It does not matter that the accessory did not remain on the car during the entirety of the second year.

Once the car has been held for 4 years, the base value of the car may be reduced by $13,000, being one third of the car's base value excluding the value of the non-business accessories.

Example 24 - working out the base value of a hire car leased for more than 3 months

During the FBT year, Sports Co enters into a 2-month lease on another car (first lease arrangement) and provides it to an employee. To meet business demands, Sports Co enters into a subsequent 2-month lease on the same car within a few days of concluding the first lease.

The base value of the car will be the arm's length or market value of the car, determined at the point in time the car was first held, being at the commencement of the first lease arrangement.

Example 25 - foreign car company, holding time and cost price

Big Co is a foreign car manufacturing company with an Australian subsidiary, Big Aust Co. Big Co manufactures its cars outside of Australia and supplies cars to Big Aust Co. Big Aust Co then provides some of those cars to its employees for their business and private use.

Big Aust Co is the provider of the car benefits and holds the car. Where an associate of the employer (Big Co) owns the car before the employer (Big Aust Co) the base value of the car is determined according to when Big Co first held the car. Big Co commenced holding the car at the time the manufacturing process was complete and the car came into existence. The 'earliest holding time' which Big Aust Co must use in determining the base value of each car provided is, therefore, the day on which Big Co completes the manufacturing process of the car.

The cost price of these cars is calculated on the wholesale price of the car at the time the car was applied to the manufacturer's (Big Co) own use. That is, the amount Big Co could reasonably expect to receive if they had sold the car by wholesale under an arm's length transaction, at the time of the car's sale. In the event that Big Aust Co purchases the cars from Big Co and then imports them into Australia, the costs of transport, customs duty and import duty are not incurred by Big Co and do not form part of the wholesale price of the car.

Example 26 - reducing the base value after 4 years - employer continuously holding car

Blackacre Co purchases a car for $31,000 (including GST) on 1 July 2016, which includes a DVD player added as an optional extra for $1,000. Blackacre Co provides the car to an employee under a novated lease agreement with Car Lease 1 Pty Ltd, to be used by the employee for their business and private use. In July 2018, the employee purchases the car from Car Lease 1 Pty Ltd, and subsequently enters into a new novated lease agreement with Blackacre Co and Car Lease 2 Pty Ltd for the same car.

After applying the one-third reduction, the base value of the car from the FBT year beginning 1 April 2021 will be $21,000 (a reduction of $10,000 calculated as one-third of the base value exclusive of the value of non-business accessories). The reduction will apply beginning 1 April 2021 as it has been 4 years since Blackacre Co first held the car.

7.8.1.1 Base value may be deemed if not at arm's length

Where transactions are not at arm's-length, the expenditure is deemed to be the amount that would have been expected to have been paid if the transaction was at arm's length. If the property is acquired or a benefit is obtained for no expenditure, then for the purpose of determining the base value of a car, the property or benefit is deemed to have been obtained for expenditure equal to its market value. For example, if a car is provided for free; the employer would be deemed to have paid the market value of that car.

See also :

  • Taxation Determination TD 94/28 Fringe benefits tax: for the purposes of the statutory formula method of valuing car fringe benefits, when is the 'cost price' or 'leased car value' reduced under subsection 9(2) of the Fringe Benefits Tax Assessment Act 1986?

7.8.2 Step 2: multiply the base value of the car by 0.2

A flat statutory rate of 20% applies to all car fringe benefits you provide.

7.8.2.1 Exception for pre-existing commitments prior to 7.30 pm AEST on 10 May 2011

There is an exception to the 20% statutory rate where a financially binding commitment to provide a car is in place before 7.30 pm AEST on 10 May 2011 (pre-existing commitment)). The statutory percentages for car fringe benefits provided before that time, or where you have a pre-existing commitment in place to provide the car after this time, are as follows:

Table 8: Statutory percentages for car fringe benefits - pre-existing commitment

Total kilometres travelled during the year

Statutory percentage

Less than 15,000

26

15,000 to 24,999

20

25,000 to 40,000

11

More than 40,000

7

You can continue to use these statutory rates for all pre-existing commitments unless there is a change to that commitment.

7.8.3 Steps 3 and 4: calculation where car is acquired or available for only part of the FBT year

If the car is held for a full FBT year , then you do not need to do anything at this step. Go to Step 5.

If a car is owned or leased or available for private use by your employee for only part of an FBT year , use the steps in the following table:

Table 9: Car used for private use for part of an FBT year

Step 3.1

Determine how many days during that FBT year the vehicle was used or made available for private use.

Step 3.2

Multiply the Step 2 amount by the number of days determined in Step 3.1.

Step 4

Divide that amount by the number of days in the FBT year (either 365 or 366 if a leap year).

The number of days includes where the car is taken to be available for private use. For example, if an employee takes a car home on Friday after work, garaging it at their home before returning the car on Monday to work, and there is no other private use of the car for that FBT year, the number of days is 4 days.

7.8.4 Step 5: reduce your Step 4 amount by any recipient's payments (employee contributions)

A recipient's payment (employee contribution) is:

  • a payment from the recipient of a car benefit (that is, your employee) from after-tax income, or
  • in respect of a car expense (such as registration, insurance, maintenance or fuel for the car) incurred either by you or the provider of the car during the holding period of the car.

The recipient payment is calculated by following these steps:

Table 10: Calculation of recipient payment

Step 5.1

Work out the sum of the expenses paid by the recipient (your employee) during the FBT year to which the expense relates.

Step 5.2

From that amount, subtract any amount paid or payable to the recipient by way of reimbursement of those expenses during the corresponding FBT year.

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 the payment is a recipient payment or not.

7.8.4.1 Records of any recipient's payments you must keep

Where the expense is incurred by the recipient of the car benefit, the recipient must provide to you (before the date of lodgment of the return, or if lodgment is not required, then by 21 May):

  • Where the car expense is in respect of fuel or oil, a declaration of the amount in a form approved by the Commissioner, or documentary evidence of the expense.
  • Where the car expense is not in respect of fuel or oil, documentary evidence of the expense.

See also:

7.8.4.2 Does a recipient's payment need to be included in your assessable income?

Where an amount is paid directly to you (as an employer) by an employee for use of a car - the recipient's payment must be included in your assessable income.

An amount paid by the employee to a third party for some of the car's operating costs (for example, fuel) are not included in your assessable income.

Recipient's payment and GST

A recipient's payment is treated as consideration for a taxable supply for GST purposes. Therefore, you have to pay GST on the supply. You reduce the taxable value of the fringe benefit by the GST-inclusive amount of the recipient payment.

A recipient's payment does not have any GST implications for you if either:

  • it is made through payment of an amount by the employee for some of the car's operating costs (for example, fuel), or
  • you are neither registered nor required to be registered for GST.

Example 27 - GST implications for employee payments and car expenses

Naomi is provided with a car by her employer that has a taxable value of $5,500 (before being reduced by the recipient payment).

Naomi makes a cash payment to her employer for $1,100 in respect of use of the car during the year.

During the year in which the benefit was provided, Naomi also pays $700 (inclusive of GST) for fuel, oil and car wash expenses at her local fuel station.

The taxable value of the car fringe benefit provided to Naomi can be reduced by $1,800 ($1,100 + $700) provided Naomi provides a declaration or documentary evidence (such as invoices and receipts) for the fuel and oil expenses. Naomi's employer (who is registered for GST) will also include $1,100 in their assessable income, and remit $100 (being one-eleventh of $1,100) of Naomi's cash payment for use of the car as GST. The taxable value of the car fringe benefit will be $3,700.

See also:

  • Section 1.6 What are the GST consequences of providing benefits? of Chapter 1 What is a fringe benefit?
  • Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000.

Journal entries

Journal entries in your accounts can be a recipient's payment only if all of the following are met:

  1. the employee has an obligation to make a contribution to you
  2. you have an obligation to make a payment to the employee, and
  3. you and the employee agree to set-off the employee's obligation to you against your obligation to the employee.

Even if a recipient payment is made by way of journal entry, it is still assessable income to you.

See also:

  • Miscellaneous Taxation Ruling MT 2050 Fringe benefits tax: payment of recipients contributions by journal entry .

Example 28 - calculating the taxable value using the statutory formula method

An employer purchases a car for $60,000 (including GST) on 1 August 2020. However, it was only available for private use by the employee for 182 days from 1 October 2020. The employee pays fuel costs of $1,000 and provides the employer with the necessary declaration.

Table 11: Calculating taxable value using the statutory formula method

Step 1

Work out the base value of the car.

Base value = $60,000

Step 2

Multiply the base value of the car by 0.2.

$60,000 × 0.2 = $12,000

Step 3

Work out the number of days during that year of tax when the car was used or available for private use of the employee. Multiply the days available by the Step 2 amount.

Number of days available = 182

$12,000 × 182 = 2,184,000

Step 4

Divide amount at Step 3 by total number of days in FBT year.

2,184,000 ÷ 365 = $5,983

Step 5

Reduce your Step 4 amount by any recipient's payments.

$5,983 - $1,000 = $4,983

The taxable value of the car fringe benefit using the statutory formula method is $4,983.

7.9 Operating cost method

You calculate the taxable value using the steps in the following table:

Table 12: Operating cost method

Step 1

Work out the operating costs of the car for the year.

Step 2

Identify the business use and private use percentages of the car for the year.

Step 3

Multiply the operating costs by the percentage of private use.

Step 4

Reduce the amount by the recipient's payment (employee's contribution).

Note: If you elect to use the operating cost method and later find out that the statutory formula method produces a lower taxable value, then you can set aside your election and rely on the taxable value calculated by the statutory formula method instead.

7.9.1 STEP 1: work out the operating costs of the car for the year

The taxable value of a car fringe benefit worked out under the operating cost method only relates to that part of the year when the car was held by you or the provider to provide a car benefit. Similarly, recipient payments which do not arise during that same period will not reduce the taxable value of the benefit. For example, if a car is only owned to provide a car benefit to an employee for half of the year, then the cost of depreciation and insurance and so on for the year will be apportioned to reflect this. Where repairs or maintenance are undertaken on the car whilst it is not held to provide a benefit, those costs will not be included in the benefit's taxable value.

Table 13: Working out the operating costs of the car for the year

Step 1.1

Add up all of the following costs (inclusive of GST) for the car during the period of time that you, or the provider, owned or leased the car and the car was used to provide fringe benefits:

  • all repairs, including smash repairs
  • maintenance and service costs
  • fuel
  • payments for insurance, registration and extended warranties.

Include all operating costs you incur, or are deemed to have incurred, as well as all expenses incurred by the employee who receives the car.

The following are not included in your operating costs:

Cost of repairs to a car that are paid for by a third party or insurance provider, as a result of an insurance or compensation claim (you do not incur these costs).

Where the car is leased to the provider, any car expenses incurred by the lessor pursuant to the lease agreement (for example, the payment of insurance premiums by the lessor to insurance companies).

Costs for the purchase of the car, and other related costs such as stamp duty, dealer delivery and on-road costs.

Road tolls, car parking fees or fines related to the car (for example, parking or speeding fines, defect notices).

Improvements or add-ons to the car, such as costs for new rims, ute canopies, liners or lids, tow bars, roof racks, window tinting.

Step 1.2

If you or your associate have leased the car, add to the Step 1.1 amount so much of the charges paid or payable under the lease agreement as are attributable to the year or part of the year you used it to provide fringe benefits.

You have now worked out your operating costs for the car if you or your associate leased it.

Step 1.3

If you or the provider owned the car (or the car was otherwise made available) add to the Step 1.1 amount the deemed depreciation costs using the following as a guide.

You calculate deemed depreciation on the following basis regardless of how you treat depreciation for income tax purposes:

A.  Work out the depreciated value of the car at the start of the FBT year.

If you or the provider acquired the car in this FBT year , the depreciated value of the car is the cost price incurred by you or the provider, including the cost of non-business accessories fitted at the time of acquisition for the car. The cost price includes GST and luxury car tax, if applicable. You also include dealer delivery charges (including GST) in this calculation. The cost price is reduced by the value of any trade ins or cash deposits and may also be reduced by fleet discounts or manufacturer rebates.

Do not include registration and stamp duty.

Do not include non-business accessories paid for by your employee.

Do not include payments for extensions to the new car warranty.

If you or the provider acquired the car in an earlier FBT year , the depreciated value of the car is the cost price of the car reduced by deemed depreciation over the period of ownership.

B.  Multiply the depreciated value of the car by the depreciation rate that applied at the time the car was purchased. From 1 April 2008 , the depreciation rate for cars acquired on or after 10 May 2006 is 25%.

C.  You also include deemed depreciation on non-business accessories fitted to the car after its purchase. This is calculated separately and as if the accessory is a car. An example of a business accessory is a two-way radio in a sales representative's car, while alloy wheels and seat covers are non-business accessories.

D.  If you do not use the car to provide fringe benefits for the full year, apportion the depreciation to reflect the period it is so used.

The income tax depreciation cost limit does not apply for FBT purposes.

A recipient payment (employee contribution) towards the running costs of the car does not reduce the cost price of the car as it is consideration for the provision of the car fringe benefit.

See also:

  • Taxation Ruling TR 2011/3 Fringe benefits tax: meaning of 'cost price' of a car, for the purpose of calculating the taxable value of car fringe benefits .

Step 1.4

Add to the Step 1.3 amount deemed interest costs, using the following as a guide.

A.  Multiply the depreciated value of the car at the beginning of the FBT year (if you or the provider owned it at that time) by the statutory interest rate. Otherwise, you multiply the cost price of the car by the statutory interest rate.

See also:

You calculate deemed interest on this basis regardless of any actual interest costs associated with purchasing the car.

B.  You also include deemed interest on non-business accessories fitted to the car after its purchase. This is calculated separately on and as if the accessory is a car.

C.  If you do not use the car to provide fringe benefits for the full year, apportion the amount of interest to reflect the period it is so used.

You have now worked out your operating costs for the car.

7.9.1.1 Operating costs may be deemed if not at arm's length

In working out operating costs for a car, where transactions are not at arm's-length, the expenditure is deemed to be the amount that would have been expected to have been paid if the transaction was at arm's length.

If the property is acquired or a benefit is obtained for no expenditure, then for the purpose of determining the operating cost of a car, the property or benefit is deemed to have been obtained for expenditure equal to its market value. For example, if a car service or petrol is provided for free the employer would be deemed to have paid the market value of the car service or petrol.

7.9.2 STEPS 2 and 3: identify the business use and private use percentages of the car for the year; multiply the operating costs by the percentage of private use

You work out private use by comparing the total kilometres travelled and minus the business kilometres travelled. This is called working out 'private use' and 'business use'.

You then multiply your total operating costs by the percentage of private use.

A reduction in the taxable value of the benefit requires a reasonable estimate of the number of business kilometres travelled in the car - it is not enough to solely rely on a log book if the log book is not kept for a full year. A reasonable estimate must take all relevant matters into account, including log book records (in a log book year), odometer records, other records and any variation in the pattern of use of the car.

You can only factor business use into this calculation when you have kept the right records. If you have not kept the right records, you cannot count your business use and it is treated as nil business use.

See also:

What counts as private use and business use?

All kilometres travelled by the car during the time you or the provider own it or lease it will be either private use or business use. There are special rules that put some kilometres into a certain category:

  • private kilometres are put into the private use category only where they result in the provision of a car benefit
  • private kilometres that do not result in the provision of a car benefit (for example, where they are exempt) are put into the business use category, and
  • business kilometres are those kilometres left over, once you have put all of the relevant kilometres into the private use category.

High integrity electronic devices, such as a built-in global positioning system (GPS), can be used to determine the kilometres travelled and whether that travel is business or private use of the car.

See also:

Example 29 - business use and private use

Lia is provided with a car by her employer. Lia uses the car for the entire FBT year and travels 19,000 km in the year per odometer records. Lia and her employer have kept all of the required logbooks and other relevant records. According to her log book, Lia has used the car in the following way:

  • 5,000 km have been travelled between work sites to attend meetings (business use)
  • 12,000 km have been travelled between Lia's home and work (private use)
  • 1,000 km have been travelled on weekends, to run shopping errands, visiting friends, and taking the kids to their football matches (private use), and
  • 1,000 km have been travelled to and between vineyards that Lia runs as a side business to her employment, and travelling in the course of visiting local shops and eateries in an attempt to secure retail opportunities for her wine (business use).

Based on the records Lia has maintained, the car has been used to travel 6,000 km for business journeys. Lia's business use of the car is calculated as:

6,000 ÷ 19,000 = 31.58% .

Therefore, Lia's private use is 68.42%.

Example 30 - calculating business use when there are journeys that result in minor benefits

Rose is provided with Car A by her employer. The car provided to Rose is part of a broader pool of cars that are held by the employer for the full year. Both log book and odometer records are maintained for all of the cars held.

Car A is regularly used during the year by Rose (and other employees) for both work related and for private purposes.

The log book records show that during the year Rose used this car to undertake a short private journey. This use of the car was a car benefit under section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). It was determined at the end of the year that this car benefit satisfied the requirements of section 58P of the FBTAA and was an exempt benefit.

The employer elects and uses the operating cost method in section 10 of the FBTAA to calculate the aggregate of the taxable value of car fringe benefits in relation to the car.

When calculating the aggregate of the taxable values of car fringe benefits under subsection 10(2) of the FBTAA, the 'business use percentage' applicable to the car needs to be determined.

Where a journey is concluded to be a minor benefit that is an exempt benefit, it meets the definition of a 'business journey' as it is not private use that results in the provision of a fringe benefit, but rather it is private use that results in the provision of an exempt benefit. The employer should therefore record any journeys that are determined to be minor benefits that are exempt benefits, as business journeys.

The inclusion of a minor benefit that is an exempt benefit as a 'business journey' and therefore as 'business kilometres' will result in an increase in the ratio of number of business kilometres to total kilometres which will increase the 'business use percentage'.

The end result of the inclusion of the number of kilometres travelled on the short private journey by Rose (which was a minor benefit that is an exempt benefit) will be a reduction in the aggregate taxable value of the car fringe benefits as determined under subsection 10(2) of the FBTAA.

7.9.3 STEP 4: reduce the amount by the recipient's payment (employee's contribution)

Reduce your amount of (operating costs × personal use percentage) by any 'recipient's payment'. This is an amount that the employee has paid you for the use of the car or has paid for the operating costs.

See section 7.8.4 for how to work out the recipient's payment.

Example 31 - calculating the taxable value using the operating cost method

A car purchased by an employer in January 2020 is used privately by an employee throughout the FBT year 1 April 2020 to 31 March 2021. The employer and employee have kept the right records and determined that the business use percentage is 75%.

Table 14: Calculating the taxable value using the operating cost method

Step 1.1

Total repair, maintenance, service, fuel, insurance and registration costs (including GST, as appropriate) for FBT year:

  • $3,000 fuel
  • $1,500 repair and maintenance
  • $1,000 service
  • $2,000 insurance and registration costs

Step 1.1 amount = $7,500

Step 1.2

The car was not leased. Step 1.2 is not relevant.

Step 1.3

Calculate the depreciation costs.

The depreciated value at 1 April 2020 is $40,000, so that depreciation at 25% to 31 March 2021 would be $10,000 (that is, 25% × $40,000).

Step 1.3 amount = $7,500 + $10,000 = $17,500

Step 1.4

Add to the Step 1.3 amount, deemed interest.

The statutory interest rate is 5.20%, so that the interest component to 31 March 2021 would be $2,080 (that is, 5.20% × $40,000).

Step 1.4 amount = $17,500 + $2,080 = $19,580 (total operating costs)

Step 2

Identify the business use and private use percentages of the car during the year.

The percentage of private use is 25% (difference between 100% and percentage of business use).

Step 3

Multiply the operating costs by the percentage of private use

Step 3 amount = $19,580 × 25% = $4,895

Step 4

Reduce the amount by the recipient's payment (employee's contribution).

The employee spent $2,000 on fuel and has provided the required declaration to the employer.

Step 4 amount = $4, 895 - $2,000 = $2,895 (taxable value)

The taxable value of the car fringe benefit using the statutory formula method is $2,895.

7.9.4 Replacement cars

If you replace a car during the year, you may treat the replacement car as though it were the replaced car for the purposes of complying with the requirements of the operating cost method.

If you maintained log books and odometer records during the year, or in a previous year, you may transfer that percentage to the replacement car (if it remains appropriate) when estimating a business percentage for the replaced car.

The transfer of a business percentage in this way is conditional on you recording the make, model and registration number of both cars and the date on which the replacement was made. These entries must be made before the due date for lodging your annual FBT return or, if you do not have to lodge a return, by 21 May. Odometer records you keep for the cars during the replacement year must show details of the odometer readings of both the replaced car and the replacement car on the replacement date.

7.9.5 Log book year

A year is a log book year if one of the following applies:

  • none of the previous 4 years was a log book year of tax for that car
  • you elect to treat the year as a log book year (for example, to increase the nominated percentage of business travel), or
  • by written notice we require you to treat the year as a log book year.

The applicable log book period must be specified in the log book records for the period, at or as soon as possible after, the end of the period. Where the log book is kept for a 12-week period that extends beyond the current FBT year into the following FBT year, this following year is the log book year.

7.9.6 Electronic log book devices

There are now many readily available, low cost electronic log book devices available to track and record travel in a vehicle as well as storing the data and generating reports.

Electronic log book devices can be used to record journeys and generate reports that will be treated as log books when they meet the following minimum requirements:

  • The device is equipped with technology, such as a GPS, or capacity to connect to the car's own on-board computer and odometer and such technology enables the system to accurately track and record distance travelled by the car. The opening odometer reading of the car can be programmed into the system and the GPS then continuously tracks the location and distance of journeys undertaken in the car.
  • Sufficient detail is recorded and logged that records the date and time of the journey, the distance travelled and whether the journey is private or business. An entry stating 'business' or 'miscellaneous business' will not be enough - your entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey.
  • The report can be generated weekly and in English. The report should be subject to checks by the driver or the employer, or both. Ideally, this should happen on the day of the travel, but regular weekly intervals would also be acceptable.

See also:

7.9.7 Business use percentage calculation for employers with a fleet of 20 or more cars

We understand that it can be difficult to work out the business use percentage applicable to each car you provide if you have a large fleet. To provide you with some certainty, we have developed a simplified approach for calculating car fringe benefits if you have a fleet of 20 or more 'tool of trade' cars.

See also:

  • Practical Compliance Guidelines PCG 2016/10 Fleet Cars: simplified approach for calculating car fringe benefits.

7.9.8 Using the operating cost method if you have not maintained a log book

You can use the operating cost method of valuing all of the car fringe benefits for a particular car, under subsection 10(2) of the FBTAA, where a log book has not been maintained. However, you will not be able to reduce the operating cost of the car for any business journeys that are made.

If you elect to use the operating cost method and this results in a higher taxable value than under the statutory formula method, the election will be deemed not to have been made. As such, the taxable value would then be calculated under the statutory formula method.

7.9.9 Novated leases

Novated lease arrangements involve the novation (or transfer) by an employee to you of some of the obligations under a motor vehicle lease. Cars provided for the private use of an employee under a novated lease are subject to the same car fringe benefit valuation rules as other cars you lease.

There are many different types of novated lease arrangements, and you need to understand your rights and obligations under the arrangement, as this may affect how you calculate the taxable value of any car fringe benefits you provide.

For example:

  • Under a hire-purchase lease, you are regarded as the owner of the car from the moment you enter into the arrangement. The cost price of the car is the leased car value of the car when the car was first taken on hire. As you are taken to hold the car as an owner, you include deemed depreciation and deemed interest in the taxable value of the car fringe benefit if using the operating cost method.
  • In a novated lease , if you are regarded as the lessee, and you use the operating cost method, you include lease repayments in determining the taxable value of the car fringe benefit, however you do not include deemed depreciation or deemed interest.
  • Where an employee transfers a novated lease to you as a new employer and the old employer was not an associate of yours, the base value of the car for the purposes of the statutory formula method is the market value at the time of transfer.

Where multiple consecutive short-term novated leases are entered into, the minimum residual value is calculated based on the total period that the car has been leased for, rather than the term of each consecutive short-term lease arrangement.

See also:

  • Taxation Ruling TR 1999/15 Income tax and fringe benefits tax: taxation consequences of certain motor vehicle lease novation arrangements
  • Taxation Ruling IT 2509 Income tax: income tax and fringe benefits tax consequences of an employee leasing a car to an employer which is subsequently provided back to the employee
  • Taxation Determination TD 93/142 Income tax: in calculating the residual value of a leased item, may a lower residual value than those outlined in IT 28 be adopted in light of the more generous depreciation rates?

7.9.10 Transfer of lease to new employer

Upon a terminating event, such as the payment of the last lease payment under the novated lease or termination of employment, a further novation may occur. Under the further novation, your rights and obligations are novated to the employee. The employee becomes the lessee and can take this lease to another employer.

Where an employee transfers a novated lease to a new employer who is not an associate of yours, the base value of the car is the market value at the time of transfer.

7.9.11 FBT consequences of acquiring the car at the end of a lease

If the employee acquires the car at the end of a bona fide lease for its residual value, this will be an arm's length transaction on which you would not be subject to FBT.

This is because the residual value and notional value would be the same, so the benefit provided to the employee will have a nil taxable value.

We will generally accept the agreement as a bona fide lease if:

  • all dealings between the lessor, employer and employee are at arm's length and on commercial terms. An arm's length dealing is where each party acts independently and without influence or control over the other. It is dependent on the nature of your relationship and the quality of the bargaining between you
  • terms are not based on the reduced (net) cost of the car (that is, the cost to the employer or lessor after any trade-in credit or employee cash contribution)
  • the residual value of the car is
    • based on a reasonable valuation of estimated market value at the end of the lease
    • not based on reduced (net) cost
    • not less than the minimum residual values set out in ATO Interpretative Decision ATO ID 2002/1004 Income Tax: car lease residual values
  • there is no agreement the employee, their associate, nominee, or agent will
    • purchase the car after the end of the lease term
    • be allowed to keep using the car after the lease termination, or
  • an option for the employee, their associate, nominee or agent to purchase the car is by request and agreement between the lessor and purchaser as to the purchase price.

However, if the agreement is not covered by a bona fide lease, a fringe benefit would usually arise.

See also:

  • Car leasing fringe benefits
  • Taxation Determination TD 95/63 Fringe benefits tax: where a car is acquired at the end of a lease, is the acquisition at the residual value an 'arm's length transaction' for the purposes of section 43 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

 

Latest update

September 2022

SectionChanges and updates
AllRewritten to provide a step-by-step guide to identifying and calculating the taxable value of car fringe benefits.

Details of previous updates are available through the versions linked to in the table below.

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

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ATO references:
NO Fringe benefits tax - a guide for employers

Fringe benefits tax - a guide for employers
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