Car fringe benefits

Providing your employees with a car – what are the FBT implications?

A way of incentivising employees is by providing them with ‘benefits’ in addition to their salary and wages. One of the most common benefits provided by employers is a car for private purposes. As a result of providing this benefit, they may be taxation implications.

What is a fringe benefit?

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages. For the purposes of fringe benefits tax (‘FBT’), an employee includes:

• Current, future or past employee
• Director of a company
• Beneficiary of a trust who works in the business

What is fringe benefits tax?

FBT is the associated tax for providing employees with a benefit and is paid by employers on certain benefits provided to their employees, employees’ family or other associates. FBT is sperate to income tax and is calculated based on the taxable value of the fringe benefit provided to the employee.

What is a car fringe benefit?

A car fringe benefit is provided where an employer makes available a car they own or lease to an employee for their private use. A car includes any of the following:

• Any other goods-carrying vehicle with a carrying capacity of less than one tonne, such as a panel van or utility (including four-wheel drive vehicles)
• Any other passenger-carrying vehicle designed to carry fewer than nine passengers

A fringe benefit arises whether the car is available to the employee for private use on any day they or their associates are allowed to use or use the car for private purposes.

A car is considered as being available for private use on any day where:

• The car is not at the employer’s premises and the employee is allowed to use it for private purposes
• The car is garaged at the employee’s home.

Are there any exemptions?

Exceptions to car fringe benefits arise where the private use is limited to:

• Travel between home and work
• Incidental travel in the course of preforming employment-related travel
• Non-work-related use that is minor, infrequent and irregular (such as occasional use of the vehicle to remove domestic rubbish)

An example provided by the ATO of non-exempt private use is:

A council employee takes a utility (carrying capacity of less than one tonner) home each night and                         on the weekends. Although the utility is clearly marked as a council vehicle, the employee uses it                            for shopping and other private purposes during the week and often for country trips on the weekends.

This use of the utility would not be exempt from FBT and would be treated as a car fringe benefit.                           Assuming there are no logbook records, the taxable value of the utility would be calculated using the                     statutory formula method.  

Contrastingly, the following example provided by the ATO shows a situation in which there is exempt use:

An electrical company employee takes the company van (carrying capacity of less than one  tonne) home each night as there is no security at the company premises. The only non-work-  related use during the FBT year was a trip to pick up some furniture and take it to the employee’s home. This use of the van would be exempt from FBT.

An electrical company employee takes the company van (carrying capacity of less than one  tonne) home each night as there is no security at the company premises. The only non-work-  related use during the FBT year was a trip to pick up some furniture and take it to the employee’s home. This use of the van would be exempt from FBT.

The following records should be kept each FBT year, depending on which formula is used to calculate FBT (statutory method or operating cost):

• Fuel and oil expenses – where an employee incurs the cost, they must provide you with documentary evidence or a declaration form (in the form approved by the Commissioner)
• Base value – this information can be found on the initial purchase invoice, receipt, journal entries, bills of sale or lease documents
•  Total kilometres travelled – best way to keep record is through odometer readings at the beginning and end of the FBT year
• Day available for private use - You must record the days when the car is not used or available for private travel (eg. If the car is with the repairer for substantial repairs, not regular service or maintenance)
• Business use percentage - Can be calculated using a logbook records maintained for at least 21 weeks

Could I be providing other fringe benefits?

Other benefits relating to the use of a car, that give rise to a fringe benefit could include:

• Providing car parking for an employee – Car parking fringe benefit
• Pay for, or reimburse employee’s expenditure on road tolls – Expense payment fringe benefit
• Allow an employee to use employer’s electronic toll tag – Residual fringe benefit
• Allows private use of a motor vehicle that is not considered a car for FBT purposes – Residual fringe benefit

How can Tax Controversy Partners help you?

Understanding the tax cost of providing a fringe benefit to an employee is important prior to providing the benefit. Where the benefit it provided without this understanding, there can be unexpected tax costs, which may outweigh the benefit for your business.

At Tax Controversy Partners, our experienced lawyers can advise you on the tax implications of providing your employees with fringe benefits, to avoid any unexpected surprises. Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.