March 29 - Tax Accounting

What is a Car Fringe Benefit?

It’s FBT season and the most common fringe benefit we see are cars – so let’s talk about it! If an employer offers an employee a company car for private use, that’s considered a car fringe benefit. Essentially it means that the car is a perk of being an employee, and the taxman is gonna want a slice of that.

So, how is FBT on vehicles calculated? 

There are two ways to do it: the statutory formula method and the operating cost method. Here’s what they both mean…

The statutory formula method. 

This is where we take a percentage of the car’s base value cost at the time of purchase or lease, andthat’s your taxable value. You can deduct any days the car wasn’t available for private use, and any contributions you made towards running costs. Easy peasy!

Base Value: if you’ve owned the car for less than four years when the FBT year began, the base value is the original cost price of the car, or two thirds of the cost price if owned for more than four full years. A car first owned prior to 1 April 2018 (and on or after 1 April 2017) will be eligible to the two thirds base value. 

Cost price: the original purchase price including GST and luxury car tax but excluding stamp duty, registration, acquisition costs such as delivery and non-business accessories like paint, fabric and rust protection or window tinting. 

The operating cost method.

If you want to get a little more technical, there’s the operating cost method. This is where you take into account all the costs of owning or leasing the car, and then work out the proportion of private use vs business use. You’ll need to keep a logbook for at least 12 weeks to figure out the business use percentage, but it’s worth it to potentially reduce your taxable value.

Are there any exceptions to FBT for vehicles?

Now, there are some exceptions to the rule. If you’re driving a commercial vehicle like a van or a ute, and your private use is minimal, then you might be exempt from paying tax on that benefit. And if you’re a hero who works in emergency services, then any cars you use for that are also exempt.

So, there you have it – the ins and outs of car fringe benefits (simplified). If you’re a client, you’ll be receiving texts from us regarding your FBT obligations. If you’re not on our books and need help with FBT, we’d love to hear from you.