A Comprehensive Guide to How Fringe Benefits Tax (FBT) Applies to Cars in Australia

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Introduction

If your business provides cars to employees for private or mixed-use, you may be liable to pay Fringe Benefits Tax (FBT). Understanding how FBT applies to cars is essential to stay compliant and ensure proper tax planning. This in-depth guide explains how FBT works in relation to cars, what constitutes a car fringe benefit, how to calculate FBT, and what exemptions or reductions may apply.

1. What is a Car Fringe Benefit?

A car fringe benefit arises when an employer makes a car available to an employee (or their associate) for private use. This can include:

• Driving to and from work
• Weekend use
• Holidays or leisure travel

According to the ATO, a car is a motor vehicle (excluding motorcycles and similar) designed to carry:

• A load less than one tonne
• Fewer than nine passengers

If a vehicle meets these conditions and is provided for private use, it is subject to FBT.

2. When is a Car 'Available for Private Use'?

A car is considered available for private use if:

• It is garaged at or near the employee’s home (even if unused)
• The employee has access to the keys
• The employee can use the car outside work hours

Even if the vehicle is not used, the availability makes it subject to FBT.

3. When is FBT Not Payable on Cars?

FBT is not applicable if:

• The car is not used for private purposes
• The car is only used for work and kept at the business premises
• The vehicle is exempt (e.g., certain commercial vehicles with limited private use)

Exemptions Include:

• Taxis
• Panel vans and utes with heavy modifications
• Vehicles used strictly for business

4. Calculating FBT on Cars

There are two methods to calculate the taxable value of a car fringe benefit:

4.1 Statutory Formula Method

• Applies a flat 20% of the car’s base value (regardless of actual use)
• Simple, requires fewer records

Formula:Taxable value = (20% of car base value) x (number of days available / 365)

4.2 Operating Cost Method

• Based on actual operating costs of the car
• Requires detailed records including a logbook

Formula:Taxable value = (Total operating costs) x (percentage of private use)

Operating costs include:

• Fuel
• Insurance
• Maintenance
• Lease/loan interest
• Depreciation

Employers must maintain a logbook for 12 continuous weeks to use this method.

5. Record-Keeping Requirements

Proper documentation is key to substantiating your FBT calculations. Employers must keep:

• Logbooks (updated every 5 years)
• Odometer readings (start and end of FBT year)
• Receipts and invoices (fuel, repairs, etc.)
• Details of availability and use

Poor record-keeping can result in higher FBT liabilities.

6. Car Value and Depreciation for FBT

The base value of the car is generally the cost price, including GST and dealer delivery charges. This value remains fixed for four years unless a new car is provided. Depreciation plays a role only under the operating cost method.

7. Reducing FBT Liability

Employers can reduce FBT by:

• Requiring employee contributions
• Using logbooks to show high business use
• Providing exempt vehicles
• Limiting private use

Employee contributions (e.g., post-tax payments) reduce the taxable value of the benefit.

8. Special Cases and Considerations

8.1 Leased Cars

• Leased cars used for private purposes are still subject to FBT
• Employer lease payments are deductible

8.2 Change in Use

• If a business-use-only vehicle becomes available for private use, FBT applies from that point

8.3 Multiple Cars

• If more than one car is provided, FBT applies to each separately

9. Fringe Benefits Tax Rates and Due Dates

• FBT Year: 1 April to 31 March
• FBT Rate (2023–24): 47%
• Lodgment: FBT return due by 21 May (or later if using a tax agent)

Late or inaccurate reporting can lead to penalties and interest.

10. Common Mistakes to Avoid

• Assuming home-to-work travel is business use
• Not maintaining logbooks
• Forgetting to include all operating costs
• Not accounting for availability on weekends and holidays
• Providing multiple vehicles without tracking usage separately

11. How Trinity Accounting Practice Can Help

At Trinity Accounting Practice, we provide expert support to help businesses manage their FBT obligations efficiently. We offer:

• FBT planning and reporting
• Assistance with logbooks and odometer records
• Tailored advice on the best calculation method
• Help reducing FBT liability legally
• Year-round compliance and audit preparation

Let us take the complexity out of FBT so you can focus on running your business.

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Conclusion

Providing cars to employees comes with tax responsibilities. Understanding how FBT applies ensures you remain compliant, avoid penalties, and potentially reduce tax liabilities. By keeping accurate records and choosing the right calculation method, businesses can effectively manage FBT on cars.

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Contact Us

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 Weekend & after-hours appointments available!
📅 Booking Link https://calendly.com/ramy-hanna

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References:

• ATO. "How FBT applies to cars." https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/cars-and-fbt/how-fbt-applies-to-cars
• ATO. "Fringe Benefits Tax Guide for Employers." https://www.ato.gov.au
• Business.gov.au. "Understanding FBT." https://business.gov.au

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