So you’ve got yourself a company car (well done!), but as with all good things in business it is important to clearly understand what that means and what your responsibilities are. Buckle up, as we take a quick look at everything you need to know about car fringe benefits as we kick into a new fringe benefit tax year.
WHAT IS A CAR FRINGE BENEFIT?
In short – a car fringe benefit is when an employee uses a company car for personal use. Whether you conduct your business as a company or a trust it is important to have a clear understanding of what this looks like for you and your business.
For example did you know that use of a car could be considered private on any day that the car is:
Used for private purposes
This is pretty much anything that involves the use of the car for non-income producing purposes. So things like that fun weekend getaway to Phillip Island.
Not located on the premises where business takes place
Basically anywhere outside of your usual place of work.
Garaged at an employee’s place of residence
Because how else are you going to get to work in the morning?
However when you are using the company car, it is crucial to follow procedures and keep thorough records of the cars use to ensure that accurate calculations can be conducted at fringe benefit tax time.
HOW DO I CALCULATE THE TAXABLE VALUE?
To ensure you don’t hit any unexpected roadblocks there are two key ways to prepare and calculate the taxable value of a car fringe benefit – by using the statutory formula method or the operating cost method. It is completely up to you as to which method you end up using, but it generally comes down to which one gives you the lowest taxable value.
Statutory Formula Method
By using this method the taxable value is calculated based on the cars cost price using the below formula. Your liability is reduced based on the number of days the car was not available for private use and any employee contributions made towards the running and maintenance of the car.
So what does that all mean?
Base Value: If you have owned the car for less than four years at the beginning of the fringe benefit tax year, the base value is the original cost price of the car. If you have owned the car for more than four years, the cost price is calculated at two thirds of the original cost.
Cost Price: This is calculated based on the original purchase including GST and luxury car tax but excluding, stamp duty, registration, acquisition costs such as delivery and non-business accessories like paint, fabric and rust protection or window tinting.
Statutory Fractions: From 1 April 2014, a flat rate of 20% is applied regardless of how many km’s were travelled in the financial year. With the only exception being where there is a pre-existing commitment in place prior to 7:30pm, 10 May 2011.
Operating cost method
By using operating cost method, the taxable value is calculated based on the costs of operating the car using the following formula:
Let’s break it down:
Operating Costs: Includes actual costs such as running costs (repairs, maintenance, fuel, registration and insurance), and deemed costs such as depreciation and interest.
Business Use: Using your 12 week logbook (see below), you are able to calculate a percentage of the car use that is business related as opposed to personal use.
Cost Paid By The Employee: Any unreimbursed car expenses or contributions made by the employee can be used to reduce the taxable value of the car fringe benefit.
A QUICK NOTE ON LOGBOOKS
While this may seem like a tedious task, it is incredibly important that you keep a thorough logbook during a continuous 12-week period to accurately represent the use of the car for the full fringe benefit tax year. This will prove crucial to determine the appropriate business percentage of the car.
WHAT ARE THE EXEMPTIONS?
Work Related Travel In Commercial Cars
A car benefit will be exempt where the vehicles use is specific to carrying out the income earning activity. Including things such as taxis, panel vans, utility or other road vehicles designed to carry a load, other than passengers of less than one tonne, and the employee’s private use is limited to incidental or minor work-related travel such as between home and work that is infrequent and irregular.
Cars Used For Emergency Services
Where a car is used for emergency services and is garaged or kept at or near an employee’s residence, these are exempt from car benefits. This includes vehicles that are used by police, ambulance or fire fighting services and that are fitted with flashing warning lights and a siren and has exterior markings, which indicate its use.
Cars Supplied By Personal Entities
A personal service entity is unable to deduct car expenses from more than one car used by an individual. The second car benefits are exempt in relation to the fring benefit tax year.
While the above may seem more intimidating than changing a tyre, if you keep clear records and take the time to log everything properly there is no reason why car fringe benefits should keep you from driving off into the sunset… and if all else fails, your trusty accountant is only ever a phone call away.