Company Cars and FBT: What You Should Declare

Company Cars and FBT: What You Should Declare

Company cars are one of the most common fringe benefits provided by Australian employers, but they also represent a significant area of Fringe Benefits Tax (FBT) compliance. Understanding what to declare for FBT purposes is crucial for both employers and employees to avoid unexpected tax liabilities and penalties. This article explains how company cars are treated under FBT, what benefits you need to declare, and tips for accurate reporting.

Understanding Fringe Benefits Tax and Company Cars

Fringe Benefits Tax is a tax employers pay on certain non-cash benefits provided to employees, including company cars. When a business allows an employee to use a car for private purposes, this creates a taxable fringe benefit.

What is a Company Car for FBT Purposes?

A company car generally refers to any vehicle owned, leased, or hired by a business and provided to an employee for their use. This can include:

• Passenger cars
• Utes and vans
• Electric vehicles
• Vehicles leased or financed through salary packaging arrangements

Even if the vehicle is only available for private use occasionally, it may still be subject to FBT.

Why Does the ATO Tax Company Cars?

The ATO considers private use of a company car as a benefit because it has value to the employee beyond their salary or wages. FBT ensures this non-cash benefit is taxed fairly, preventing tax avoidance through fringe benefits instead of cash remuneration.

What You Need to Declare for Company Car FBT

Employers are required to calculate and declare the taxable value of car benefits on their FBT returns. Accurate declaration depends on correctly understanding the types of use and calculating the taxable value.

Types of Car Use to Consider

When assessing the FBT value, employers must distinguish between business use and private use. Private use includes:

• Commuting to and from work
• Personal errands or leisure trips
• Use by family members or associates

Business use generally involves trips directly related to work activities and does not attract FBT.

Methods for Calculating the Taxable Value of a Company Car

The ATO allows two primary methods for calculating the taxable value of car fringe benefits:

1. Statutory Formula Method

This method applies a flat statutory rate to the car’s base value (usually the purchase price). The taxable value is calculated as:

Taxable Value = Base Value × Statutory Percentage × Days Car Available / 365

The statutory percentage is fixed at 20% for cars available for private use, regardless of the distance traveled.

2. Operating Cost Method

This method calculates taxable value based on the actual operating costs incurred by the employer, adjusted by the percentage of private use as shown in logbooks.

Taxable Value = Total Operating Costs × Percentage of Private Use

Operating costs include fuel, maintenance, registration, insurance, and depreciation.

Choosing the Right Calculation Method

Employers may choose the method that results in the lower taxable value. However, whichever method is used, detailed records such as logbooks and invoices must support the calculations.

Reporting and Declaring Company Car Benefits

Once the taxable value of the car benefit is determined, employers need to report it properly to the ATO.

Lodging the FBT Return

The employer must declare the taxable value of company car benefits on their annual FBT return, which covers the FBT year from April 1 to March 31. This return is separate from income tax returns and must be lodged by the relevant deadlines.

Employee Reporting Obligations

If the grossed-up taxable value of car fringe benefits provided to an employee exceeds $2,000 in the FBT year, the employer must include the reportable fringe benefits amount on the employee’s payment summary or through Single Touch Payroll (STP). This affects the employee’s reportable income for tax purposes but does not increase their taxable income directly.

Common Issues and Mistakes to Avoid

Company car FBT compliance can be complex. Here are common pitfalls to watch out for:

1. Incomplete or Inaccurate Logbooks

Logbooks are essential for the operating cost method and to substantiate the business vs private use split. Inaccurate or incomplete logbooks can lead to incorrect FBT assessments or penalties.

2. Failing to Account for All Private Use

Employers sometimes overlook family or associate use of the company car, which is still subject to FBT. All private use must be considered.

3. Misclassification of Vehicles

Not all vehicles are subject to the same rules. For example, vehicles with a carrying capacity over one tonne (like some utes) may be exempt from FBT if primarily used for work.

4. Late or Incorrect FBT Returns

Delays or errors in lodging FBT returns can lead to penalties and interest. Ensure you meet deadlines and review calculations carefully.

Tips for Effective Company Car FBT Management

Employers can take proactive steps to manage company car FBT efficiently:

1. Maintain Detailed Records

Keep comprehensive logbooks, receipts, and agreements related to car use. Digital logbook apps can simplify tracking.

2. Educate Employees

Ensure employees understand the FBT implications of company car use, especially for personal travel.

3. Review Car Policies Regularly

Review your company car policies and lease arrangements annually to ensure they remain tax-effective and compliant.

4. Consider Electric or Low-Emission Vehicles

The ATO offers concessions for eligible electric or low-emission vehicles, which can reduce FBT liabilities.

5. Seek Professional Advice

Consult a tax professional or accountant familiar with FBT to help with accurate calculations, lodgement, and strategic planning.

Conclusion

Company cars are a valuable employee benefit but come with significant FBT responsibilities. Employers must understand what to declare, how to calculate the taxable value accurately, and how to comply with ATO reporting requirements. By maintaining thorough records, choosing the right valuation method, and keeping up to date with FBT rules, businesses can manage their company car benefits efficiently and avoid costly penalties.

Remember, professional advice can provide tailored guidance suited to your business needs, making company car FBT compliance less daunting and more cost-effective.