Fringe Benefits Tax and Cars

The end of the Fringe Benefits Tax (FBT) Year is upon us, it is a good time to look at some forgotten areas of FBT and how decisions you make during the year could significantly impact your FBT liability particularly in relation to motor vehicle benefits.

When an employer provides an employee the use of a car it has potential to give rise to FBT.  The amount of FBT payable can be determined in two ways, using the Log Book Method or the Statutory Method.  

As the name suggests the Log Book Method requires you to maintain a log book providing an indication of your private use of a vehicle.  FBT is then determined with reference to the private use percentage on all running and maintenance costs of the car.  In general terms the lower the private use of a car the lower the FBT payable will be.

The Statutory Method is a lot less onerous and only requires you to keep track of your total kilometers travelled for the FBT year.  A rate is determined by reference to the total kilometers you travel, this rate is then multiplied by the ‘base value’ of your car to determine the FBT liability.  In short the more travel you do the lower the FBT. However, in this day and age of environmental awareness it is thought that this encourages pollution and from May 2011 the government commenced phasing out the sliding scale.  From 1 April 2014 only one statutory rate (20%) will apply irrespective of the amount of travel you do. If after 10^th May 2011 you continue with your pre existing arrangement the pre 10^th May 2012  rates will continue to apply.

The Benefits of holding a vehicle for more than 4 years – reduction of base value under the statutory method

 Although it’s nice to trade in your vehicle for the latest model, if it’s not necessary, there can be significant FBT advantages from holding on to the old car for a bit longer. On the 4^th anniversary of the date on which you first owned or leased the vehicle, the base value of the car is reduced by one third. This can have significant savings particularly for luxury cars. For example, if an employer purchases a car for $90,000 on 1 July 2013, the employer can reduce the base value of the car by 1/3 ($30,000) in the FBT year beginning 1 April 2018, the FBT is calculated on a base value of $60,000 instead of $90,000.

Swapping cars between employees – be careful

So you’ve just promoted one of your long-standing employees to a manager, and you’ve generously upgraded their two year old car to the latest model. You decide to give the old car to your office assistant and then sell their four year old car.

This scenario gives us a couple of things to consider. Firstly, the changing  of motor vehicles may mean the new transitional statutory rates apply immediately. So if either employee was travelling over 40,000 km a year, they will be worse off as the statutory rate increases from 7% to 20% of the base value of the car. But, if they were travelling less than 15,000km, they will be better off as the rate decreases from 26% to 20%. Please note that the use of an employer’s fleet car by different employees will not be considered to be changes to a pre-existing arrangement.

Secondly, as noted above, the assistant’s vehicle would have been entitled to a 1/3 cost base reduction, which would have reduced their FBT liability.

Therefore, it’s worth discussing with your accountant the FBT consequences of moving vehicles between employees before undertaking the transaction.

Similar Vehicles – different FBT consequences

Choosing what new vehicle to purchase can sometimes be a difficult decision – what make and model, petrol or diesel, what accessories etc? The choice of vehicle can have a significant impact on the amount of FBT you pay. 

First and foremost is the notion that not all cars are actually “cars” by definition of the FBT legislation.  According to the FBT legislation a “car” is designed to carry less than one tonne or fewer than nine occupants.  The Tax Office provide a comprehensive list of what is and isn’t a car for the purposes of FBT.

For a vehicle to be exempt from FBT, it must be primarily used for work related purposes, it’s private use is minor, infrequent and irregular and the vehicle is not an ineligible vehicle.

For example, if you were considering purchasing a Mitsubishi Pajero GLS diesel or the GLX diesel, it is worth knowing that only one is considered to be an eligible exempt vehicle .

It is important to note, that just because a vehicle is listed as an eligible exempt vehicle, it does not mean that it is automatically exempt from FBT. The pattern of use and availability of a second vehicle are also factors that will be taken into account when considering if  a fringe benefit will arise.  Assuming these conditions are met, the GLX is exempt, however the GLS is not as it is listed on the ATO’s ineligible vehicle list.

 It should also be noted that where an employee maintains a personal vehicle and is provided a work vehicle and the only personal travel the work vehicle does is travelling from home to work and back again, the work provided vehicle will still be subject to FBT.

So, next time you look at buying a new vehicle please contact one of our Accountants on 9316 7000 to ensure that there are no FBT surprises!

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How do you size up as a Leader?

An experience to share

It is the dark of the early morning, no sun, no wind, no movement on the water, complete stillness. The chatter subsides, the feet clip in, as one unit we begin to glide through the stillness of the morning. Each pedals pushing harder than the next, a shortness of breath as the speed builds with the rising of the sun. It is the morning of a brand new day which you have just completed 32km on the bike, what an achievement by 6.00am !

In today’s increasingly obese society, have you ever considered the impact this may have on your workforce or more importantly, on you as a leader ?

As published in a recent article by the University of South Australia, a fit leader can be a better leader, and here are five reasons why:

1. Energy and Productivity – a regular exercise routine will give you more energy. Being the leader is tough enough, make sure you have the energy to face challenges effectively and efficiently.
2. Confidence and Creativity – some of the best ideas come directly after exercise. Studies show that our cogitative ability increases with moderate levels of exercise. A fit leader will have more confidence and be able to think and solve problems more creatively.
3. Facing Challenges – people in high pressure roles face challenges every day. Pushing yourself through an exercise routine provides you with a sense of achievement. As a leader you will be able to face tough challenges every day while maintaining mental focus on priorities.
4. Mental Wellness – Exercise is one of the best ways to manage stress because it boosts your brain’s “feel-good” neurotransmitters called endorphins. Also, by solely focusing on your body’s motions for a period of time, you focus less on the day’s stress, at least for a while. Let’s not take the smart phone !
5. Influence – It is widely believed that healthy employees are happy employees. A fit workforce is also less likely to get sick. This, of course, takes us back to leading by example. You can’t expect to foster a culture of fitness unless you, as the leader, are physically fit and promote overall wellness.

Many top CEOs are known for keeping to rigorous fitness regimens, despite the demands of their job. Some even go so far as to compete in ironman triathlons in their spare time.

As a business leader what are you currently doing to ensure a happy, healthy, and productive workforce, not only for you but your team?

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