A car fringe benefit occurs when an employer offers an employee the opportunity to use a vehicle for personal reasons, resulting in a taxable benefit for the employee. This applies particularly when:
- the vehicle is designed to carry fewer than nine passengers, including the driver. This covers regular cars and 4-wheel-drive vehicles, excluding motorcycles.
- the employee uses an eligible commercial vehicle for personal purposes beyond a certain limit, triggering a liability for Fringe Benefits Tax (FBT). The rules around the car FBT are outlined in the FBT Act.
Exemptions from fringe benefits tax
However, there are exceptions where FBT might not need to be paid:
- If the private use of an eligible commercial vehicle falls under specific exempt categories
- If an eligible electric car is provided for personal use by an employee, and it meets the eligibility criteria
- If the benefit falls under the category of minor benefits and its taxable value is below $300. This applies when it’s unreasonable to consider it a fringe benefit.
- If an employee’s work is directly related to a public hospital and the benefit’s value doesn’t exceed a particular threshold, it could be exempt from FBT.
- When a car is provided for compassionate travel—travel arising from exceptional and sensitive circumstances—it might be exempt from FBT.
Distinguishing private use from business use
It is important to understand that Fringe Benefits Tax applies to an employee’s private use of the car provided, rather than their business use.
A simple way to differentiate between the two is to determine: if the employee were responsible for paying the costs associated with using the car—like fuel expenses—could they claim a deduction for the entire cost on their income tax?
If the answer is yes, it means the car’s use is considered business-related.
Thus, the potential eligibility for an income tax deduction covering the full costs implies that the car is primarily being used for business purposes. This, in turn, exempts it from the scope of Fringe Benefits Tax.
Private usage and FBT implications
- home garaging (except emergency service cars)
- work tasks during commute
- car in workshop for repairs
- car hiring, triggers FBT
Home garaging and FBT
If an employee parks a car at or near his home, even if it’s only for security reasons, it’s considered available for their private use.
This holds true regardless of whether they have been granted permission for private use or not.
Similarly, if the employee’s workplace and residence are at the same location, the car is regarded as accessible for their private use. In either situation, FBT is applicable.
Special rules for emergency service cars
FBT doesn’t come into play if the employee keeps an emergency service car at his home. Such cars are typically used by ambulance, police, or fire services, bear noticeable exterior markings as emergency vehicles, and are equipped with flashing lights along with horn, bell, or alarm systems.
Work tasks between home and work
Even if the employee stops to perform work-related tasks, such as picking up mail, while commuting between home and work, it still counts as private use. This means FBT applies.
However, certain situations might arise where travel between home and work could be considered as business use.
Car in workshop
- Routine Servicing or Maintenance: Remember that even during routine servicing or maintenance, the car remains available for the employee’s private use. This means that FBT is applicable.
- Extensive Repairs (e.g., after an accident): If the car is undergoing significant repairs, such as those required after an accident, and is thus unavailable for private use, FBT doesn’t apply.
Hiring a car
If the employer chooses to hire a car and offer it for his employee’s private use, the FBT treatment is the same as if the employer is the owner of the car. The categorization depends on the duration of the car hire:
- For hires lasting less than 3 months, it falls under the classification of a residual fringe benefit.
- For hires lasting 3 months or more, it’s considered a car fringe benefit.
Business use
In cases where FBT isn’t applicable due to employee’s exclusive business use, the exemption extends to road or bridge tolls that is covered by the employer for his employee’s car usage.
Business Use for Home-to-Work Travel
Usually, travel between home and work is considered private, even if the employee engages in work-related tasks during the journey.
However, it’s important to recognize that such travel could be regarded as business use when:
- The employee is on-call, and upon receiving a call, they commence work.
- The employee’s job nature involves being itinerant, meaning travel is a core part of his work.
- The nature of the employee’s job demands car usage for effective duty performance, and he has multiple workplaces.
- The essential nature of the job mandates travel for task completion.
- While the employee’s job isn’t inherently itinerant, he must visit clients or customers in the ordinary course of his duties.
- The employee takes the car home exclusively for a business trip from home the following morning.
What to do when providing a car fringe benefit
When an employer provides a car fringe benefit, the employer should:
- Calculate the value of the car fringe benefit subject to taxation.
- Calculate the amount of FBT he needs to pay based on the calculated taxable value.
- File his FBT return, providing the necessary benefit and value details.
- Make the payment for the determined FBT amount.
- Assess whether he needs to report the fringe benefit through Single Touch Payroll or include it on his employee’s payment summary.
Tax Deductions for Claiming
Employers can claim tax deductions for expenses linked to vehicles (including cars) used for their business. If they are responsible for FBT:
- The Fringe Benefits Tax they pay is eligible for a tax deduction.
- They can also claim tax deductibility for private use expenses of the car on which they pay FBT.
Car leasing and FBT
Understanding how the type of car lease affects the amount of FBT paid is important. Here’s how FBT applies to leased cars:
When an employer leases a car for his employee’s private use, it triggers the application of FBT. Car leasing is often carried out through a novated lease, usually as part of a salary sacrifice arrangement.
The FBT amount the employer is required to pay, and the method for calculating it, depend on whether the lease qualifies as a bona fide lease:
- Bona Fide Lease: If the lease is deemed bona fide, the arrangement falls under the category of a car fringe benefit. Consequently, the payment made as FBT is determined based on the taxable value of the car fringe benefit.
- Non-Bona Fide Lease: If the lease doesn’t meet the criteria for being bona fide, the arrangement is categorized as either a property fringe benefit (related to the car itself) or a residual fringe benefit (concerning the car’s usage). This might result in a higher FBT payment.
Bona Fide Lease Conditions
To classify a lease as bona fide, three specific conditions must be satisfied. When all three conditions are met, the leased car is treated as a car fringe benefit.
Condition 1: arm's length and commercial terms
Under this condition, it must be checked that all the transactions involving employer, the lessor, and employee are conducted at arm’s length and on commercial terms.
An arm’s length interaction signifies that each party operates independently without exerting control or influence over the others.
If this condition isn’t fulfilled, the lease is considered either a property fringe benefit or a residual fringe benefit.
Condition 2: residual value based on car cost
Under the second condition, it must be ensured that the lease terms are rooted in the car’s residual value, which should be:
- determined through a reasonable valuation of the estimated market value at the lease’s end.
- not based on the reduced or net cost – this excludes the cost after any trade-in credit or employee cash contribution.
- at least equal to the minimum residual values outlined in the tax laws.
Also, if an employee provides a trade-in vehicle or cash contribution toward the car’s purchase, this shouldn’t reduce the lease payments or residual value.
If this condition isn’t met, the lease is categorized as either a property fringe benefit or a residual fringe benefit.
Condition 3: absence of pre-existing purchase agreement
- acquire the car following the lease term’s conclusion.
- continue using the car beyond the lease’s termination.
This prohibition includes using a trade-in credit or cash contribution as a deposit or down payment toward the car’s purchase at the lease’s end.
If such an agreement exists:
- the lease is categorized as a property fringe benefit or residual fringe benefit.
- payments made within the lease are seen as capital, not lease payments. They constitute installments within an arrangement to eventually buy the car.
How to calculate the taxable value of a car fringe benefit
Calculating taxable value
The employer manually calculates the taxable value of a car fringe benefit through either of these methods:
- Statutory Formula Method: This involves using a predefined formula.
- Operating Cost Method: For this approach, the employer needs comprehensive records like log books to determine car costs and the percentage of private use.
Once the employer has the taxable value, he can use it to calculate the precise FBT amount.
Choosing the appropriate calculation method
If he opts for the operating cost method, he must maintain sufficient records like log books. Otherwise, the statutory formula method applies.
The decision to opt for any of the above methods must be made before the due date of the FBT return or by May 21 if a return isn’t mandatory.
Additional considerations include:
- For fleets with 20 or more cars, there’s a simplified record-keeping option.
- If the employee extensively uses an eligible commercial vehicle for private purposes, the FBT calculation rules differ.
A. The statutory formula method
When the statutory formula method is used to determine the taxable value of car fringe benefits, following elements are incorporated:
- A – Base Value of the Car: This is the price te employer (or a lessor) paid for the car, excluding registration, stamp duty, and any trade-in or employee cash payment. It also includes costs for non-business accessories, dealer delivery charges, and applicable GST and luxury car tax.
- B – Statutory Percentage: Generally set at 20% (unless an arrangement was in place before March 31, 2015).
- C – Private Use Days: Count the days during the FBT year when the car was used or available for the employee’s private use.
- D – Total Days in FBT Year: Calculate the total days in the FBT year (365, or 366 in a leap year).
- E – Employee Contribution: Consider the contribution made by the employee.
The formula to compute the taxable value is (A × B × C ÷ D) − E.
B. Operating cost method
To calculate the taxable value of car fringe benefits using the operating cost method, following factors should be considered:
- A – Total Operating Costs: This covers all comprehensive operating costs, including deemed costs for depreciation and interest.
- B – Percentage of Private Use: Determine this percentage based on details from log books.
- C – Employee Contribution: Account for the contribution made by the employee.
The formula to establish the taxable value is (A × B) − C.
To use the operating cost method, an employee must keep and retain logbook records and odometer records. In a logbook year, a logbook must be maintained for 12 continuous weeks.
A logbook year is any year:
- that is the first year the employer uses the operating cost method;
- where none of the previous four years was a logbook year;
- the employer elects to do a new logbook; or
- the Commissioner requires the employer to treat the current year as a logbook year.
The period during which the logbook is kept must be specified. A logbook can be kept for up to five years (assuming there is no major change in the pattern of use).
Entries in the logbook must specify
- the date on which the journey began and ended;
- odometer readings at the beginning and end of the journey;
- number of kilometres travelled during the journey; and
- purpose(s) of the journey.
Exemption for eligible vehicle usage
There’s no FBT incurred when the employee utilizes employer’s vehicle under these conditions:
- The vehicle qualifies as an eligible vehicle.
- Private use of the vehicle is kept within specific limits.
There’s a separate exemption that applies specifically to eligible electric cars.
Eligible Vehicles for Exemption and Usage Restrictions
Certain vehicles qualify for an exemption based on limited private use. Here’s the list of eligible vehicles and the specific conditions:
1. Single Cab Ute: Qualified for exemption.
2. Dual Cab Ute: Eligible if designed for:
- Transporting a load weighing 1 tonne or more.
- Carrying over 8 passengers (including the driver).
- Carrying a load less than 1 tonne, but not intended primarily for passenger transport. To verify, consider if it’s similar in design to a panel van or goods van.
3. Modified Vehicle (e.g., Hearse): Eligible if the modification permanently alters the vehicle’s original design throughout the entire FBT year of employee use. Determine modifications that substantially affect the vehicle’s inherent design.
4. Taxi: Eligible.
5. 4-Wheel Drive Vehicle: Qualified for exemption if designed to:
- Carry a load of 1 tonne or more.
- Carry more than 8 passengers (including the driver).
- Serve a primary purpose other than passenger transport, as evident by appearance, marketing specifications, or carrying capacity.
6. Other Road Vehicle: Exempt if designed to carry either:
- A load weighing 1 tonne or more.
- Over 8 passengers (including the driver).
For the vehicle used by employee:
- If it’s eligible, its use must adhere to activities covered by the FBT exemption.
- If it’s a car and not an eligible vehicle, FBT is applicable to the employee’s private use. The taxable value for this use must be calculated as a car fringe benefit.
Qualifying uses for exemption
When the employer restricts the use of the eligible vehicle to the following scenarios, FBT can be eliminated:
- FBT is not levied when the employee utilizes the eligible vehicle for commuting between their home and workplace.
- If the employee employs the vehicle for tasks incidental to their work-related responsibilities, FBT exemption prevails.
- Instances where the vehicle is sporadically used for non-work-related activities of minor and irregular nature are exempt from FBT. This includes occasional use of the vehicle for activities like disposing of household waste.
When employee’s use of the eligible vehicle is granted FBT exemption, this also extends to:
- Any road or bridge tolls the employer incurs while the vehicle is in use.
- The usage of the vehicle by the employee’s associate (e.g., their partner), provided the associate’s use aligns with the criteria of being infrequent, minor, and irregular.
Record Keeping
To qualify for the exemption, the employer is not required to maintain distinct records. Nevertheless, it’s essential that evidence must be provided showcasing consistent adherence to the limited private use criteria.
One method of demonstrating this is by regularly comparing the vehicle’s starting and ending odometer readings.
This allows an employer to monitor whether the total distance traveled by the employees between their home and workplace aligns with his expectations.
This evidence aids in substantiating that the vehicle’s use consistently meets the conditions for limited private use.
FBT exemption for electric cars
Starting from July 1, 2022, employers are not required to pay FBT on eligible electric cars and related car expenses. To qualify:
- The electric car must be a zero or low emissions vehicle.
- The car’s initial holding and usage must occur on or after July 1, 2022.
- The vehicle must be utilized by a current employee or their associates, such as family members.
- Luxury Car Tax (LCT) must never have been applicable to the car’s importation or sale.
This exemption includes benefits provided under a salary packaging arrangement.
The government plans to conduct a review by mid-2027 to assess the uptake of electric cars and the exemption’s impact. Updates will be shared when this review begins.
Zero or low emissions vehicle
A vehicle qualifies as zero or low emissions if it satisfies both these conditions:
- It’s a battery electric vehicle, hydrogen fuel cell electric vehicle, or plug-in hybrid electric vehicle.
- The vehicle is designed to carry fewer than 9 passengers (including the driver) and has a load capacity of less than 1 tonne.
An important point to note here is that motorcycles and scooters, regardless of whether they are electric, are not categorized as cars for FBT purposes, and thus, they are not eligible for this exemption.
Plug-in hybrid electric vehicles - changes from april 1, 2025
However, the exemption can still be maintained under two conditions:
- Prior Exemption: The plug-in hybrid electric vehicle’s use was exempted before April 1, 2025.
- Financially Binding Commitment: There is a legally binding commitment by the employer to continue providing private vehicle use both before and after April 1, 2025. It’s important to note that any optional extension of the agreement isn’t regarded as binding for this purpose.
"Held and used" for electric cars
In practical terms, the employer must make sure that the electric car is utilized for the first time on or after July 1, 2022, regardless of its acquisition date.
The electric car is considered as ‘held’ by the employer when he:
- Owns it (this includes cars obtained through hire-purchase agreements)
- Leases or rent it out
- Makes it accessible through another entity.
The term ‘used’ with respect to an electric car signifies its employment or availability for use by any entity or individual.
Determining luxury car tax (LCT) applicability
To qualify for the exemption, the value of the electric car must remain below the Luxury Car Tax (LCT) threshold designated for fuel-efficient vehicles during its initial retail sale and any subsequent sales.
If a second-hand electric car is acquired by the employer, it’s important to establish whether it was previously subjected to LCT at any previous instance.
Associated car expenses
The subsequent car-related expenses are exempted from FBT if they are extended to an eligible electric car:
- Registration
- Insurance
- Repairs or maintenance
- Fuel (encompassing electricity for charging and operating electric cars).
The FBT can potentially be decreased for expenses not categorized as exempt car expenses.
This applies if the expenditure would have qualified as a deduction for the employee had they incurred it personally. This principle is known as the “otherwise deductible rule.”
Home charging station
A home charging station doesn’t fall under the category of car expenses linked to providing a car fringe benefit for electric cars. However, it could potentially qualify as either a property fringe benefit or an expense payment fringe benefit.
Car parking and FBT
An employer is considered to provide a car parking fringe benefit when the following criteria are met:
1. The employee parks their own car or a car provided by employer in a location:
- Owned, leased, or controlled by employer (employer’s business premises)
- Situated at or near their primary workplace
- Within 1 kilometer (via the shortest feasible route) of a commercial parking station with a full-day parking fee exceeding the car parking threshold (and similarly exceeded the threshold on the first day of the FBT year).
2. The car remains parked for over 4 hours between 7:00 am and 7:00 pm.
3. The employee commutes between their residence and workplace, or vice versa, at least once.
4. The employer is not exempt from car parking fringe benefits.
Primary place of employment
Determining the primary place of employment for FBT car parking purposes is important because FBT is only applicable where a car is used by an employee to travel between home and their primary place of employment and is then parked at or in the vicinity of that primary place of employment.
An employee’s primary place of employment on a particular day will either be:
- the business premises of an employer which are, or were, the “sole or primary place of employment of the employee”; or
- the business premises of an employer that are, or were, “otherwise the sole or primary place from which, or at which the employee performs duties of his or her employment”.
A broad test of primary place of employment has been used in this context, and primary has been given its ordinary meaning of first or highest in rank or importance, chief, principal. Considerations of whether a place is an employee’s primary place of employment may include the place at which duties are performed, and the place which is primary to the employee’s conditions of employment as contained in employment contracts and/or industrial instruments (ie rostering, allowances, and car parking entitlements).
Where an employee’s conditions of employment indicate that particular business premises are primary to their employment, those premises may satisfy the definition of primary place of employment even if the employee performs duties principally at another place on a particular day.
In addition, where an employee performs duties from, or at, more than one business premises on a day, the employee’s primary place of employment may be identified through a quantitative and qualitative analysis of the duties performed from, or at, the different business premises.
Exemptions
FBT is exempt when an employer provides an employee with car parking if:
- The employee has a disability
- The employer’s business is classified as a small business
- The employer falls under the exempt category.
In instances where the employer occasionally provides car parking, it might qualify for the minor benefits exemption if its value remains below $300 and it would be unreasonable to consider it as a fringe benefit.
Employees with disabilities
For employees with disabilities, the employer is not obligated to pay FBT if the employer offers car parking. In this case, the employee must:
- Be legally entitled to utilize a parking space marked with the international symbol of access
- Have a valid accessibility parking permit visibly displayed on the vehicle.
Small business parking exemption
Any employer meeting these criteria is exempt from paying FBT on car parking benefits:
a. The parking is not provided within a commercial car park.
b. In the income year preceding the relevant FBT year, either employer’s:
- Gross total income was under $10 million, or
- Aggregated turnover was below $50 million.
c. The employer’s business is not classified as a government entity, a publicly listed company, or a subsidiary of such a company.
Types of exempt employers
An employer is exempt from paying FBT on car parking benefits if the employer belongs to any of the following categories:
- A registered charity under the Australian Charities and Not-for-profits Commission (e.g., public benevolent institutions, health promotion charities, religious institutions)
- A scientific institution (excluding those operated for profit or gain to shareholders/members)
- A public educational institution
- A public or not-for-profit hospital, provided the benefit aligns with the employee capping threshold
- A public ambulance service, provided the benefit is within the employee capping threshold.
The taxable value of car parking
The taxable value of car parking fringe benefits is determined through these steps:
- Ascertain the value of a car parking benefit.
- Multiply this value by the total count of parking benefits provided.
- Deduct any amount contributed by the employee towards parking expenses.
Various methods can be chosen to calculate the taxable value of car parking fringe benefits, including:
- Commercial Parking Station Method: Based on the parking station’s daily fee and actual usage.
- Market Value Method: Determining value using prevailing market rates for similar parking.
- Average Cost Method: Calculating the average cost of each space’s parking over the FBT year.
- Statutory Formula Method: Using a set formula to calculate the taxable value.
- 12-Week Register Method: Recording employee parking over a 12-week period and extrapolating the FBT year value.
It is best to select the method that goes appropriate with the situation for calculating the taxable value of car parking fringe benefits
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.
