Got a Business Car?
Here’s What You Need To Know At FBT Time
Emma Bowdler
I’m a cheerleader for women and an accountant bursting with personality.
Here’s some handy tips from The Women’s Accountant on what to do if you have a motor vehicle or car for business purposes come the end of the Fringe Benefits Tax (FBT) year.
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?
Unfortunately, no.
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.
Not sure if your car qualifies?
🎞️ Watch this video on the ATO website
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.
What About If You Operate Your Business As A Company Or Trust?
Regardless if your business is operated as a company or a trust, for each car owned by your business, you will need to provide your:
- The car’s registration number or ‘rego’
- The odometer reading on 31st of March 2022 (with photo evidence preferably)
- An ATO-compliant logbook completed every five years
FYI: if you owe FBT, you must lodge a return and pay your liability (i.e. tax) usually by mid-to-late May. However, if you use a tax agent (like us!), you can get an extension. Yet another benefit of not having to do the dirty work yourself! However, be sure to get the information to them as soon as possible and you’ll be in the good books.
Can An Employer Reduce Its FBT Liability?
The short answer is yes. It is possible to reduce your FBT liability (or even eliminate it all together) but asking your employee to make a cash contribution towards the cost of the benefit provided to them. For every dollar they pay towards it, the taxable value of the benefit reduces by the same amount.
Are You A Sole Trader, Part Of A Business Partnership Or An Employee?
If you are a sole trader, partnership or an employee, you don’t need to worry about FBT (lucky you!) and there’s no separate return to do. However, the ATO does have a different set of rules that apply to motor vehicles if you plan on claiming them on tax.
In this case, for each car owned by a sole trader or employee, you will need to provide your accountant with:
- The car’s registration number or ‘rego’, and
- An ATO compliant logbook completed by EOFY (June 30), including records of all your car expenses for the financial year (excluding fuel)
OR
- An estimate of the total kilometres travelled for work/business for the entire financial year. This method is recommended if you travel less than 5,000 kms for work per year (and be sure to keep a log in a diary).
Need Help To Lodge An FBT Return?
If on your ‘to-do’ list this year is to have the most stress (and tax)-free year possible for your business, you know we are professional tax agents, right?
Simply email our team at [email protected] and we will email you our special downloadable FBT Checklist to answer any FBT, MBE or WTF questions you have, or phone us today:
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