What is a Car Fringe Benefit?
A car fringe benefit can occur when an employer makes a car they own or lease available for the private use of an employee. If you conduct your business through a company or trust, you may be an employee of the company or trust.
Are any of your business cars being used privately by an employee?
When a non-cash benefit (like the use of a car) has been provided to an employee, your business may be liable to pay Fringe Benefits Tax (FBT).
You can calculate the taxable value of your Car Fringe Benefit using either the Statutory Formula Method or the Operating Cost Method.
But that’s our job!
Your job is to provide the following information for each business vehicle as soon as possible, after 31 March 2015.
|Vehicle Registration Number|
|Vehicle Make / Model / Year|
|Odometer Reading as at 1 April 2014|
|Odometer Reading as at 31 March 2015|
|Business Use Percentage
(as per log book)
This information will help us to work out:
- which method yields the lowest taxable value
- reduce your FBT liability to nil; and
- ensure you keep adequate FBT records.
Warning! You need to have a valid log book to substantiate your business use. You will be required to sign a Log Book Declaration. If you don’t have a log book for each car, start one BEFORE 31 March 2015…
If you would like to read more information about the two calculation methods for car fringe benefits continue reading what is a car fringe benefit? – Advanced.
A car fringe benefit commonly arises when an employer makes a car they own or lease available for the private use of an employee. If you conduct your business through a company or trust, you may be an employee of the company or a trust.
A car is made available for private use by an employee on any day the car:
- is actually used for private purposes by the employee or associate
- is not at your premises, and the employee is allowed to use it for private purposes
- is garaged at their place of residence, regardless of whether they have permission to use it privately.
Calculating the Taxable Value of a Car Fringe Benefit
You can calculate the taxable value of a car fringe benefit using either of the following methods:
- Statutory Formula Method
- Operating Cost Method
Statutory Formula Method
The taxable value is calculated by applying a statutory formula percentage to the cost of the car at the date of purchase or lease. A flat 20% applies, regardless of the distance travelled, to all car fringe benefits you provide from 1 April 2014 (except where there is a pre-existing commitment in place before 7:30pm AEST 10 May 2011 to provide a car). Your liability is reduced by the number of days the car was not available for private use, and any employee contributions made towards the running and maintenance costs of the car.
|Base Value of Car
x Statutory Fraction
x No. of Days Benefit Provided
|No. of Days in FBT year|
Base value of the car
- If the car is owned less than 4 years prior to commencement of the FBT year = original cost price of car
- If the car is owned more than 4 years = two-thirds of the cost price of the car
Important Note: Cost Price of the Car
- Original purchase price (including GST, luxury car tax, excluding stamp duty and registration)
- Costs attributable to acquisition such as delivery
- Non-business accessories e.g. paint protection, fabric protection, rust protection, window tinting
Statutory Fraction – Pre-existing commitments
|Prior to May 2011||From
10 May 2011
1 April 2012
1 April 2013
1 April 2014
|0 – 14,999||26||20||20||20||20|
|15,000 – 25,000||20||20||20||20||20|
|25,000 – 40,000||11||14||17||20||20|
Operating Cost Method
The taxable value is based on the private usage proportion of the total costs of either owing or leasing and operating a car during the FBT year.
|Total Operating Costs
x Business Use Percentage
The total operating costs of a car include actual costs (such as running costs) and deemed costs (such as depreciation and interest). Running costs include repairs, maintenance, fuel, registration and insurance. If the employer leases the car, then the leasing costs of the car (for the period it’s used to provide fringe benefits) are also included.
For cars owned by the employer
- Deemed Depreciation is calculated by multiplying the depreciated value of the car at the start of the FBT year by the deemed depreciation rate applied at the time the car was purchased (after 10 May 2006 25%)
- Deemed Interest is calculated by multiplying the depreciation value of the car by the statutory FBT benchmark interest rate (5.95% for the 2014-2015 year).
To determine the applicable business percentage of a car a log book must be maintained for a continuous 12-week period which is representative for the use for the full FBT year.
Private use of a car is generally any use that is not for income-producing purposes. Travel to and from work is normally private use, even where there employee undertakes minor errands such as collecting the mail.
Warning! While an employer can use the operating cost method for a particular year for which a log book has not been maintained, there is no reduction in the operating cost of the car for any business journeys made.
The taxable value of a car fringe benefit calculated under the Operating Cost Method may be reduced by an employee contribution made or any unreimbursed car expenses incurred by the employee.
Exempt Car Benefits
Work related travel in commercial cars
A car benefit will be an exempt benefit where the vehicle constitutes a taxi, panel van, utility or other road vehicle designed to carry a load less than one tonne (other than designed for the principle purpose of carrying passengers) and the employee’s private use is limited to:
– Travel incidental to work-related travel e.g. travel between home and work; and/or
– Non-work-related use which is minor, infrequent and irregular.
Cars used for emergency services
Cars used for emergency services which are garaged or kept at or near an employee’s residence are exempt car benefits, where the car:
– is used by a police, ambulance or fire fighting services; and
– is fitted with a flashing warning light and siren, and
– has exterior markings which indicate its use.
Cars supplied by personal services entitles
As a personal service entity is unable to deduct car expenses from more than one car utilised by an individual, a car benefit in respect of a second car is an exempt benefit in relation to an FBT year.
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