As a recap from last week’s Fringe Benefits Tax (FBT) blog from Steven Glavevski, FBT rules tax employers on certain non-cash benefits provided to employees or an associate of an employee, such as a spouse.
FBT is levied at the top marginal tax rate (47% for the 2023 FBT year) so it’s important to ensure these benefits are treated correctly and minimised where possible.
The FBT year runs from 1 April to 31 March, with lodgements and payments due on 21 May, or 25 June if lodging through a tax agent.
There are also several specific exclusions from FBT, depending on what kind of fringe benefit is provided.
There are many different types of benefits that are captured by the FBT Regime as highlighted in Steven’s FBT blog, but the focus for this blog is on car fringe benefits.
A car fringe benefit arises when a car that is held by an employer, is made available for private use by an employee or an associate of an employee.
A car is typically held by an employer when it is owned or leased by the employer (including under a bona fide novated lease arrangement).
There are several key principles to look into to determine whether a car fringe benefit is being provided.
A car is defined in by legislation as a motor-powered road vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers. Therefore, the following types of vehicles (including four-wheel drive vehicles) are cars:
FBT only applies to your employee's private use of your car, not their business use.
It is said to be made available for private use in the following instances:
If you have provided a Car Fringe Benefit, it is recommended to do the following:
The provision of a car benefit may be exempt if:
You don't have to keep special records to be eligible for the exemption. However, you must be able to demonstrate that the use of the vehicle meets the limited private use conditions at all times.
For example, you could regularly compare the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work.
The taxable value of a car fringe benefit can be calculated using either of the methods listed below:
Based on the car’s base value. A statutory rate of 20% applies to the car’s base value
Based on the costs of operating the car. The percentage of private use of a car for a particular year is the difference between 100 and the percentage of business use.
You can choose whichever method returns the lowest taxable value so long as you have the appropriate records.
The two most common ways we see employers reduce their FBT liability is through either providing benefits that would be deductible for the employee or through employee contributions.
An FBT liability can be reduced if you give an employee a benefit they would have been able to claim as an income tax deduction if they themselves had paid for it. This is called the 'otherwise deductible' rule.
An FBT liability can also be reduced by having your employee contribute towards the cost of a fringe benefit. The contribution is usually a cash payment to you or the person who provided the benefit.
The Federal Government put forward a Treasury Laws Amendment (Electric Car Discount) Bill 2022 that passed royal assent last month. This means that new Electric Cars are now exempt from Fringe Benefits Tax.
For more information read Blake’s blog on FBT for electric cars.
If you have provided any fringe benefits to employees during the last twelve months, it is advisable to speak to a trusted accountant or business adviser on how the FBT rules apply to your business and what record keeping requirements need to be satisfied.
In addition, if your business offers salary packaging arrangements to employees, now is a good time to review those arrangements to ensure they are considered 'effective salary sacrifice arrangements'.
Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia. We are always available if you need some advice or guidance, so please talk with us today.