Many employers let their employees use work vehicles for personal reasons. When this happens, it may be considered a car fringe benefit, and the employer might have to pay Fringe Benefits Tax (FBT). It’s important to understand what a car fringe benefit is and when FBT needs to be paid.
What is a car fringe benefit?
As an employer, you may be liable for Fringe Benefits Tax (FBT) if you provide an employee with a vehicle for private use. This includes:
- A passenger vehicle designed to carry fewer than nine people (including the driver), such as a sedan or a 4WD (but not a motorbike).
- An eligible commercial vehicle, if its private use goes beyond limited personal use. (Limited private use of an eligible commercial vehicle may be exempt from FBT.)
If you find it difficult to understand what counts as a fringe benefit, you can consider contacting one of the top accounting firms Melbourne, like our accounting firm, where you will be provided with accurate information to help you understand if you are liable for fringe benefit tax.
Exempt car or vehicle benefits
You won’t be liable for Fringe Benefits Tax (FBT) when providing an employee with private use of a vehicle if one of the following conditions applies:
- The vehicle is an eligible commercial vehicle and is only used for exempt purposes.
- The vehicle is an eligible electric car that qualifies for the FBT exemption.
- The benefit is considered minor, meaning its taxable value is under $300 and it would be unreasonable to treat it as a fringe benefit.
- The employee’s role is connected to a public hospital, and the value of the benefit does not exceed the applicable threshold.
- The car was provided for compassionate travel reasons.
A car you own or that is leased
When you work out if FBT applies, it doesn’t matter if the car is leased or owned. However, you may notice a difference in the FBT amount you pay. If the car is leased, and is not a bona fide lease, you may have to pay more FBT. It might be confusing to understand liability or meet tax obligations, that’s why it’s always suggested to seek help from a tax return accountant to deal with your tax matters.
Private vs business use
FBT applies to your worker’s private use of your car, not for their business purpose. A simple way to check out is to ask yourself: if the worker had paid for the expenses of using the car (such as fuel), could they have claimed an income tax deduction for the entire expense? If yes, it is a business use of the car.
- Private use
FBT applies when your car is available or used for personal purposes by your employee or their associate. This includes:
- home garaging, unless it is an emergency service car
- doing work tasks on the way to or from work
- a car in a workshop for maintenance or minor repairs
- hiring a car.
- Business use
FBT doesn’t apply to your employee’s business use of your vehicle. For instance, when your employee uses a car to go from their office to a client’s premises, it is a business use. If FBT doesn’t apply because your employee’s use is only for business purposes, it also doesn’t apply to bridge or road tolls you pay for your employee’s use of the vehicle or car.
What to do if you offer a car fringe benefit?
If you provide a car fringe benefit, you must:
- Calculate how much FBT you need to pay
- Check the taxable value of the car fringe benefit
- File your FBT return
- Pay the FBT amount
- Check if you need to report the fringe benefit through STP.
Conclusion
Now that you know how fringe benefits tax applies to cars in Australia. If you are still unsure about FBT rules and regulations, you can reach out to Reliable Melbourne Accountants.