Tips for the FBT year end - car fringe benefits

Tips for the FBT year end - car fringe benefits

Varun Kumar, Courtney Ashworth

With the Fringe Benefits Tax (FBT) year ending on 31 March 2021, here are a few issues in relation to car fringe benefits to look out for during the 2020-21 FBT year.

Cars
The Australian Taxation Office (ATO) routinely collect motor vehicle information from government agencies to determine whether businesses meet their FBT obligations. In fact, the ATO have recently announced they are collecting and reviewing information relating to vehicles for the period 1 July 2019 to 30 June 2022 and expect to review the data of 1.5 million individuals per financial year reviewed.

As always, it is important to consider whether the vehicle you own is a “car” as defined under the FBT Act. In practice, we have seen numerous instances where the FBT exemption available for certain vehicles is used incorrectly.

A car is a motor vehicle (except a motor cycle or similar vehicle) designed to carry:
  • a load of less than one tonne
  • fewer than nine passengers

If an employer makes a car available for private use, it is generally subject to FBT.

For other vehicles that are not cars (e.g. vehicles with a carrying capacity of more than one tonne), the benefit may be exempt if the private use is limited to:
  • travel between home and work.
  • incidental travel in the course of performing employment-related travel.
  • any non-work-related use is minor, infrequent and irregular.

The above exemption is also available for certain cars where it can be shown that although the car’s carrying capacity was less than one tonne, the car is not designed to carry passengers (e.g. certain dual cabs). Calculations may be required in order to determine whether a car is designed principally to carry passengers.

Car Fringe Benefits and the impact of COVID-19
The ATO have released a
factsheet on the impact of COVID-19 on car fringe benefits.  If a car was garaged at the employee’s home and was not being driven or had only been driven for the purpose of maintaining the car, the ATO will accept that the car was not being held for providing a fringe benefit to the employee. This concession does not apply to cars provided under a novated lease arrangement.

However, depending on the method used to value the car fringe benefit, the above may have differing impacts. If the operating cost method is used, there will be no FBT liability during this time. If the statutory method is chosen, FBT will apply as normal and be payable for the full year. Therefore, it is essential a valid logbook is maintained to avail this concession.
  
Tip: a logbook can straddle two FBT years. Therefore, if you have not maintained a logbook yet, you still have a few weeks to start a new logbook to ensure you can use the concession above. Refer to our 'Motor vehicles and logbook requirements' article for more information.
 
Example – no logbook
ABC Pty Ltd provides a vehicle costing $80,000 to an employee during the 2021 FBT year. During the lockdowns, the employee had parked the vehicle at home. The employer had not reopened their office during the entire FBT year, and the employee has worked from home. The employee had not used the vehicle and had only driven briefly to maintain the car. The employee does not have a logbook.

Since a logbook has not been maintained, the employer is required to use the statutory method to value the car fringe benefit. The value of the benefit is $16,000 ($80,000 x 20%) and the FBT payable on the benefit is $15,643.

Example – logbook maintained
ABC Pty Ltd provides a vehicle costing $80,000 to an employee during the 2021 FBT year. During the lockdowns, the employee had parked the vehicle at home. The employer had not reopened their office during the entire FBT year, and the employee has worked from home. The employee had not used the vehicle and had only driven briefly to maintain the car which is reflected in the odometer readings for the FBT year. The employee maintained a logbook and the private use of the vehicle is 95% as per their logbook.
Since a logbook was maintained, the employer can use the operating cost method. The value of the benefit provided would be nil due the ATO’s concessions above and no FBT would be payable on the provision of the benefit.

Impact of COVID-19 on existing logbooks
Employers can still rely on any existing valid logbooks in place despite any changes in driving patterns over the last year. Employees must keep odometer records for the year (as is required irrespective of COVID-19), with these records evidencing how much the car has been driven during the year, including any lockdown period. Based on the logbook and odometer records, an employee can make a reasonable estimate of the business use percentage taking into account any changes in the pattern of business use during the FBT year.



More information
Contact your Moore Australia advisor today if you would like to discuss this in further detail.