In this blog, we’ll discuss how FBT applies to cars and the difference between business and personal use.
What Is a Car Fringe Benefit?
Employers are required to pay FBT if they provide an employee with personal use of:
- A passenger vehicle used to carry fewer than 9 passengers, including a 4-wheel-drive vehicle but not a motorbike.
- An eligible commercial vehicle, where the use of the vehicle exceeds limited personal use.
Exempt Car or Vehicle Benefits
You don’t have to pay FBT if you provide an employee with personal use of a vehicle and:
- it is an exempt use of an eligible commercial car
- the car is an eligible electric car
- it is a minor benefit, which means that the taxable value of the benefit is less than $300 and it’s not reasonable to treat it as a fringe benefit
- the employee’s duties are related to a public hospital
- you gave the car for compassionate travel.
A Car You Own or That Is Leased
When you check whether FBT applies, it doesn’t matter if the car is leased or owned. However, there may be a difference in the FBT amount you pay. If the car is leased and it’s not a bona fide lease, you may have to pay more FBT.
Private vs. Business Use
FBT applies when your employee uses a car for personal purposes, not for business use. You can assess this by asking whether the employee could have claimed a full income tax deduction for the car expenses (such as fuel) if they had paid them personally. If so, the use is classified as business use.
Private Use
If the car is used or available for personal use by your employee or their associate, then FBT will apply. This includes:
- Home garaging, unless it is an emergency service car. If your employee garages a car at their home, or even near their home, then it is considered to be use for their personal purposes. This is the case whether or not they are permitted to use the car for personal purposes.
- Carrying out work-related tasks while travelling to or from the workplace.
- A vehicle undergoing minor repairs or routine maintenance at a workshop.
- Renting a car.
Business Use
FBT doesn’t apply to your employee’s business use of your car. The car is considered to be used for a business purpose if an employee uses a car to go to a client’s premises from their workplace. If FBT doesn’t apply because the vehicle is used solely for business purposes, it also won’t apply to any road or bridge tolls you pay for your employee’s use of the car.
What Should You Do If You Provide a Car Fringe Benefit?
If you provide a car fringe benefit, you should:
- Check the taxable value of the car fringe benefit.
- Calculate how much FBT you are liable to pay.
- File your FBT return.
- Pay the FBT amount.
- Make sure to check if you are required to pay FBT through Single Touch Payroll.
Claiming Tax Deductions
You may be able to claim a deduction for costs for cars used in running your business. If you pay FBT, the:
- FBT you pay is tax deductible
- Personal use expenses of the car that you pay FBT on are tax deductible.
Conclusion
Now, you are aware of the possible conditions when FBT applies to cars. If you still have any queries, you can get in touch with Tax Consulting Partners.
