Issue Number 30
March 2017

Car fringe benefits - are you paying too much?

The end of the fringe benefits tax year is nearly here so it’s a good time to review your fringe benefits and see if any savings can be achieved.

Car fringe benefits are the most common benefits provided to employees and arise when an employer makes a car available for the private use of an employee.  A car is treated as being available for private use if the employee is allowed to use it for private purposes or if the car is garaged at the employee’s home.  As a general rule, travel to and from work is considered private use of a vehicle.

Fringe benefits tax (FBT) for most vehicles is calculated using the statutory formula method which multiplies the car's base value by the statutory rate. The base value of the car is the cost paid (including GST) less registration and stamp duty.  If the car was acquired after after 10 May 2011, the statutory rate is 20%.  For cars acquired prior this date, the previous progressive statutory rates depending on kilometres travelled will continue to apply for all pre-existing commitments unless there is a change to that commitment, such as refinancing.

Outlined below are a number of options to be considered which may potentially reduce FBT payable on car fringe benefits:

  • Use the operating cost (log book) method if the car has a high percentage of work or business use.  This method calculates FBT by multiplying the private use percentage by the operating costs of the vehicle.  A 12 week log book is required to be maintained for this method.
  • Replace existing cars with lower cost vehicles. 
  • Replace cars with exempt vehicles ie. cars not designed to principally carry passengers and where the private use is minor and infrequent or limited to travel between home and work. Exempt cars include single cab ute or four wheel drives designed to carry more than one tonne.
  • Hold cars for more than four years so the car’s base value will be reduced by one-third.
  • Make employee contributions to offset the FBT payable.  This can be most effective for employees with salaries under $87,000.
  • Look at ways to reduce the number of days the car is available for private use. For example if a car is in the workshop for extensive repairs (say following a motor vehicle accident) or if an employee is away travelling and the car kept at the employer premises, then it may not be considered available for private use.

Salary sacrifice arrangements

Now is also a good time to review salary sacrifice arrangements to ensure they are still effective and result in overall tax savings for employees and employers. It may be appropriate to consider replacing taxable car fringe benefits with a car allowance which can help lighten the administrative burden. 

We recommend you seek advice before entering or changing salary sacrifice arrangements to ensure calculations are correct and to avoid paying more tax than you need to.

If you would like more information or wish to discuss your particular FBT issues, please contact our office.

Louise Bullock
Associate Business Services

Important: This is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly.

We therefore recommend that our formal advice be sought before acting in any of the areas. This document is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.

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