Fringe Benefits Tax and Vehicles

Fringe Benefits Tax or FBT, is a term you hear quite often when talking about vehicles for business use or novated leasing but what does it mean and how does it affect employer and employee?

The Base Value of a Car

The Base Value of a vehicle is the value used by the ATO to calculate your FBT so what is it?

What is base value of a car you own?

Of course, that’s rarely the case, as there are as many options to finance a car as there can be paint colours.

• The original cost price you paid (excluding registration and stamp duty).
• The cost of any fitted non-business accessories.
• Dealer delivery charges.

All cost and charges include goods and services tax (GST) and luxury car tax where appropriate.

Non-business accessories are fitted accessories not required to meet the special needs of your business operations. An example of a business accessory is a fitted GPS in a salesman’s car, while alloy wheels, rear spoilers and seat covers are non-business accessories. Any non-business accessories added after you purchase the car increase the base value of the car for the year in which they are added and for subsequent years.

Where the vehicle is designed to carry one tonne or more, you may be eligible for an exemption under the motor vehicles – residual fringe benefits exemption.

Example: 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.
• If the use of the vehicle exceeds the limits set out above, it is a car fringe benefit. All the private use of the vehicle, including the travel between home and work, is taken into account in determining the business percentage under the operating cost method. If no logbook records are maintained, the statutory formula method must be used to value the car fringe benefit.

Example: Non-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.
• If the use of the vehicle exceeds the limits set out above, it is a car fringe benefit. All the private use of the vehicle, including the travel between home and work, is taken into account in determining the business percentage under the operating cost method. If no logbook records are maintained, the statutory formula method must be used to value the car fringe benefit.

• A council employee takes a utility (carrying capacity of less than one tonne) 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.
• Dual cab vehicles are variants of conventional goods vehicles with additional seating positions behind the driver and front passenger seats. They share a common chassis, to which the single or dual passenger cab and alternative tray sections may be fitted.

Dual cabs qualify for the work-related use exemption only if one of the following applies:

• They are designed to carry a load equal to or greater than one tonne, or more than eight passengers.
• While having a designed load capacity of less than one tonne, they are not designed for the principal purpose of carrying passengers.

A dual cab that has a designed load-carrying capacity of less than one tonne may qualify for the work-related use exemption only if the vehicle is not designed for the principal purpose of carrying passengers.
To determine whether the majority of the designed load capacity is attributable to passenger-carrying capacity, multiply the designed seating capacity (including the driver’s seat) by 68 kilograms, which is the figure used for applying the Australian Design Rules. If the total passenger weight so determined exceeds the remaining ‘load’ capacity, the vehicle is treated as being designed for the principal purpose of carrying passengers and is ineligible for the work-related use exemption.

Example: Dual cab vehicles

A dual cab vehicle with a gross vehicle weight of 1,950 kilograms, a basic kerb weight of 1,400 kilograms and a designed seating capacity of five would be considered a vehicle designed principally for carrying passengers. This is because the majority of the total load capacity (340 kg (5 × 68 kg) of a total of 550 kg) would be absorbed by its designed passenger-carrying capacity.

Novated leases and FBT

Full novation

Under this arrangement, an employee leases a vehicle from a financier using a standard finance lease agreement.

The employee, the employer and the financier then enter into a novated lease, which transfers to the employer for the term of the lease:

• The employee’s obligation to pay the lease payments
• The right to use the vehicle
• Other obligations under the finance lease.

As the employer in the novated lease, you are entitled to a deduction for lease expenses where the vehicle is used in the business or provided to an employee as part of a salary packaging arrangement.

However, this rule does not apply to leasing a luxury car. In the case of a luxury car, the deduction is based on an accrual amount and depreciation is subject to the luxury car depreciation limit.

ECM (Employer contribution method)

Most good salary packagers use the ECM method when setting up a novated or fully novated lease.

This means that they calculate the maximum you can claim as an employee from your vehicle use and lease and only deduct that amount pre-tax.

This means those employees using the ECM method properly for their salary packaging will not be liable for FBT payments and neither will the employer.

For employers and employees seeking more information about their FBT liabilities or requirements you can call the National Fleet Hotline on 1300 63 7283