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Providing employees with a company vehicle is now very common in Australia and is considered a perk of the job. However, it does come at a cost.
If your business provides work vehicles to employees for private use – then it is liable for Fringe Benefits Tax (FBT). But with so many changes to the FBT laws over the past five years, it’s possible you could now be paying too much just by using your old FBT method.
The taxable value of a car fringe benefit is designed to reflect an employee’s ‘private use’ of the vehicle, as only private use is subject to FBT.
A work vehicle is classified as any company car, van, 4WD, ute, goods-carrying vehicle (capacity under one tonne), or a vehicle that can carry up to eight people.
There are two ways to calculate FBT – either with the statutory formula or operating cost method. Most businesses have typically used the statutory method because it’s a straightforward way of calculating vehicle FBT and does not require the driver to keep a detailed logbook.
However, strict new limits on the private use of work vehicles in 2018 could mean you are paying more than you should under the statutory method.
The statutory FBT method is based on how much the vehicle costs rather than how much it is being used privately. It uses a flat rate of 20% of the car’s base value, taking into account the number of days per year the vehicle is available for private use.
Put simply, the base value is the car’s purchase price, less stamp duty and any registration costs incurred as part of the purchase.
The number of days available for private use is also taken into account. So if a car was not provided to the employee for the full year, the taxable value is reduced.
However, the downside of the statutory formula is that you could be paying tax on the vehicle even when it is parked in an employee’s garage.
The operating cost method is also commonly referred to as the ‘logbook method’. It requires a business to use logbooks to record how much each vehicle is used for work and private use.
Until now, keeping a logbook has always been seen as a laborious task and why many have opted to use the statutory method. However, thanks to advances in technology, such as EROAD’s electronic FBT Logbook, it is now a simple process that provides a more accurate calculation.
A key advantage of this method is that it provides for a lower taxable value when employees use their cars regularly for work purposes. This means if they use the car more for work than privately, you pay less in fleet FBT. A logbook must be maintained for a period of 12 consecutive weeks for each vehicle and detail:
The logbook is then valid for the next five years, provided there is no meaningful change in the business pattern of use.
A vehicle’s private use is calculated by assessing the number of private kilometres travelled divided by the total number of kilometres recorded in the logbook. This could either be by paper or electronic over a three month period.
To calculate tax, the car’s private use percentage (as above) is then multiplied by the car’s actual running costs (fuel, registration, insurance, repairs and maintenance*) as well as things like leasing costs, depreciation and interest costs for the year.
Check out this comparison of the two FBT methods. It is based on a $50,000 vehicle being used privately 20% of the time, with annual operating costs of $10,000.
|Operating Cost Method||Statutory Formula Method|
USING AN ELECTRONIC LOGBOOK
Taxable value = (A × B) - C
A = the total operating costs
USING A STANDARD STATUTORY PERCENTAGE TO ESTIMATE PRIVATE USE
Taxable value = ((A × B × C) ÷ D) - E
($10,000 x 20%) - 0 = $2,000
(AxB) - C = $X
(($50,000 x 20% x 365) ÷365) - 0 = $10,000
((AxBxC) ÷ D) – E = $X
Taxable value = $2,000
Taxable value = $10,000
The above table shows a potential saving of $8,000 simply by using the operating cost method.
*Note – outcomes may vary depending on a company’s individual situation.
Using paper logbooks can quickly become an administrative nightmare, which is the reason many businesses have traditionally opted for the easier, yet more costly, statutory FBT method. But this means you could be leaving money on the table.
But thanks to technology advances, such as EROAD’s electronic FBT Logbook, capturing journey data is now extremely simple.
EROAD’s electronic FBT Logbook automates the entire logbook process. It records time, data, mileage and the nature of the trip at the touch of a button – saving significant time and money. No more filling in paper logbooks and hours of admin!
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