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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Lodgement Program

When you use a tax agent such as GeersSullivan to prepare and lodge your Tax Returns, Fringe Benefits Tax Returns and Activity Statements you benefit from an extension of the due dates to lodge these documents. For example, if you prepare your own tax return using the Tax Pack or e-Tax software you will have to lodge your return by the 31st October each year. Depending on your circumstances you can have this extended to as far out as May the following year if you are with a registered tax agent. Another example of this is the automatic four week extension on the due date for lodging quarterly Business Activity Statements.

These lodgement concessions serve a number of important purposes and assist us in spreading our workload throughout the year. They can also be used to assist in managing the cashflow of your business by deferring lodgement and payment to the latest possible date.

We at GeersSullivan work with our clients who may for whatever reason are unable to meet the Tax Office’s due dates. However a recent legislative change has put more onus on us to act as the Tax Office’s ‘police’.

From 1 July 2013, tax agents will be required to lodge 85% or more it’s clients’ current year returns by the lodgement program due date, or by the deferred due date if a deferral is granted. It should be noted at this point that even if you don’t think you need to lodge a return with the Tax Office for whatever reason (i.e. your income is too low or you have moved overseas), you still need to lodge a form to advise them of this otherwise you will be considered an overdue return. Overdue returns are charged a flat penalty of $110 per month for each month they are overdue up to a maximum of $550 plus any interest on overdue tax.

If the agents’ yearly averaged performance percentage does not meet the 85% benchmark, the Tax Office can remove access to the concessional lodgement program. As these concessions are fundamental to the functioning of a tax agents business, the threat of losing its concessions has forced many agents to review their client lists and remove those clients that aren’t actively working with their agents to bring their outstanding returns up to date. The Tax Office has encouraged this by providing a mechanism to delete bulk clients from lodgement lists.

Although the majority of our clients are up to date, if you do have concerns that you are behind or unable to meet the upcoming due dates, we encourage you to discuss this with us prior to the due date so we can make alternate arrangements with the Tax Office and allow us as a firm to continue to provide you with the extended dates to lodge your returns.

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