What Is The FBT Year?
It’s almost March 31st and you know what that means? Time to get ready for possibly the most boring, but incredibly important, ‘New Years Eve’ on the calendar: the end of the fringe benefits tax (FBT) year. That means it’s time for all of you business chicks to start thinking about your FBT lodgement and payment obligations, or have your trusty women’s accountant do it for you.
But First, What Is A ‘Fringe Benefit’ Again?
A fringe benefit is defined by the ATO as a ‘payment’ to an employee, but in a different form to salary or wages – and no, it doesn’t have anything to do with a fresh new haircut. Bummer, right?
FBT is paid by employers (a.k.a. our kickarse clients running their own businesses) on certain benefits they provide to their employees, their employees’ family or other associates – including you. It’s separate from income tax and is calculated on the ‘taxable value’ of the fringe benefit. The employer must self-assess their FBT liability for the FBT year (that is, 1 April to 31 March) and lodge an FBT return.
The most common example of a ‘fringe benefit’ is when an employer (i.e. you) provides an employee (e.g. Karen in Sales) with a discount (i.e. a ‘benefit’) or full payment for a gym membership (a ‘fringe benefit’). Another example is using, or allowing an employee to use, a car for private purposes…and that’s what we’re here to talk about.
Have A Car For Your Business? You’ll Want To Read This.
If you use your motor vehicle for business purposes, most of you will know that there are some rules that come into play in regard to Fringe Benefits Tax. At this point, you might be thinking: ‘sounds complicated, should I really be worried about this?’ The baseline FBT rate is a whopping 47%, so – yeah, you probably want to give it at least a few minutes thought.
Of course, the ATO are all about definitions, so for the purposes of FBT, ‘cars’ are defined as:
- Motor cars, station wagons, panel vans and utilities (excluding panel vans and utilities designed to carry a load of one tonne or more);
- All other goods-carrying vehicles designed to carry less than one tonne;
- All other passenger-carrying vehicles designed to carry fewer than nine occupants.
Does This Mean I Can Drive My Kids To Soccer And Claim It On Tax?
When car is taken to be available for the private use of an employee on any day they or their associates use it, or are allowed to use it, for private purposes. Also, generally, travel to and from work is considered to be ‘private use’ of a vehicle.
If your car does fit the definition, then there are two methods we use to calculate the FBT on private use of motor vehicles. They are:
- The statutory formula method (based on the car’s cost price); and
- The operating cost method (based on the costs of operating the car).
The good news is that ATO gives us the option to calculate using either method, meaning that you (or your registered tax agent) can choose which option is the most tax effective. See, the tax man ain’t all bad?
While he’s not all bad, he is more your conditional love / strings attached type o’ guy, so bear in mind that, if you haven’t kept the required documentation for the operating cost method (such as log books), you must use the statutory formula method.