Fringe benefits tax and motor vehicles

What is FBT?

FBT or Fringe Benefits Tax is a tax paid by employers on the grossed up taxable value of benefits provided to their employees (or their associates) in respect of their employment. Whilst these benefits can be in many forms, the car fringe benefit is the most popular benefit provided by an employer.

Lodgement of FBT Returns

The FBT tax year covers the period from 1st April until 31st March and those required to lodge an FBT return must do so by the first business day after 21 May or, if lodged by your tax agent, 28 May.

When does a Car Fringe Benefit Arise?

In order for a car fringe benefit to arise, all of the following conditions must be met:

(a) there is a car;
(b) the car is held (ie owned or leased) by the employer; and
(c) the car is either used or deemed to be available for private use.

A car is deemed to be available for private use if it is garaged or kept near to a place of residence of the employee, the employee has the custody and control of the vehicle and the employee is entitled to use the car for private purposes.

What is a Car?

For FBT purposes, a ‘car’ is defined as a motor vehicle which is designed to carry less than one tonne and fewer than nine passengers. Contrary to popular belief, this also includes four wheel drive vehicles.

Panel vans and utility trucks (designed to carry more than one tonne), taxis, motor cycles and cars hired for a period of less than 12 weeks are specifically excluded from FBT.

Taxable Value of a Car Fringe Benefit

The taxable value of a car fringe benefit is determined by using either of two valuation methods, the statutory formula method or the operating cost method. The ATO allows the employer to choose which method they would like to apply, subject to meeting all the requirements of each method.

The Statutory Formula Method

This method calculates the taxable value of the car benefit by applying a statutory fraction to the base value of the car. The statutory fraction varies according to the annualised distance travelled by the car during the FBT year. The higher the amount of kilometres travelled, the lower the statutory fraction and therefore the fringe benefit.

The Operating Cost Method

This method calculates the taxable value of the car benefit by applying a percentage (based on the actual private use of the car) to the total costs of operating the car during the FBT year. Some costs, ie depreciation and interest are included at a deemed cost based upon ATO rates. As this method uses a percentage, it can only be applied where a valid log book has been kept for a continuous period of at least 12 weeks which should be renewed every five years. Where there is a high proportion of private use, this method will generally give rise to a higher taxable value than the Statutory Formula method.

Which ‘Operating Costs’ are included and excluded?

Included	Excluded
Fuel and Oil	Car Parking Expenses
Repairs and Maintenance	Bridge and Road Tolls
Insurance	Repairs paid by Insurance Companies
Registration	Parking Fines
Lease Payments
Car Wash and Detailing
Insurance Excesses
Automobile Club Fees
Deemed Depreciation
Deemed Interest

Recipient’s Payments

Irrespective of which valuation method is used, the taxable value of the car can be reduced by a recipient’s payment which is often referred to as an employee’s contribution. These ‘payments’ can take two forms:

(a) the employee personally incurs car expenses during the FBT year for which they receive no reimbursement; and
(b) the employee makes an after-tax contribution to the employer. This includes direct cash payments, deductions from net pay or a journal entry set off arrangement. Salary sacrificed payments cannot be included.

Which expenses are included as employee contributions?

Fuel and Oil
Repairs and Maintenance
Insurance
Registration
Car Wash and Detailing including Air Fresheners
Insurance Excesses
Automobile Club Fees

Help us to help you

Click here to download our FBT information gathering form and return it to our office as soon as possible after the 31 March 2010.

Or contact your Baker Affleck accountant on (07) 5538 3088.