FBT - Log book method for private and business use with step by step calculations

FBT’s a really complex area and even the simplest questions have convoluted responses. For example, if I’m keeping a log book and I’m using the car 90% of the time for business but I drive less than 10,000km a year, what do I do? Can’t I just claim the 90% of running costs or do I have to register for Fringe benefits tax and do all the hoo-hah?

In relation to the question above, we’ll use a hypothetical business operating in Australia and refer to this business providing the fringe benefit as “FBT-Biz” and see how they, as a business should approach it. We’ve made some assumptions about FBT-Biz being:

  • It’s registered for GST.
  • It has an employee.
  • Operating costs for the car are $10,000 per year.
  • It has travelled 10,000 km for the FBT year (which runs from 1 April to 31 March).
  • It’s using the operating cost method of calculating FBT given its use of the log book.

We’ve got some facts about FBT-Biz being:

  • It provided a car to an employee to use.
  • Log book shows 90% business use and 10% private use.

So… here’s the short(ish) answer on the best way FBT-Biz should handle all of this:

Registration needed?

Yes – it would appear from the facts that this FBT-Biz would be providing a car fringe benefit (even if it’s 10% private use and even if it’s running less than 10,000 km) and it’s recommended by that ATO that you need to register for FBT if you’re providing a fringe benefit.

How to deal with it:
We first have to calculate the taxable value of this fringe benefit. Without any other information, $10,000 x 10% = $1,000. Therefore the taxable value is $1,000.

There are 2 scenarios for dealing with this now:

Scenario 1 – Reducing FBT (probably the easiest way).

FBT is reduced by the amount of employee contributions (these need to be after-tax contributions which means you can’t salary sacrifice. However, employees can contribute in terms of things like fuel etc…). Assuming the employee contributes $1,000 in cash directly from their after-tax income matching the full amount of the taxable value, this would effectively bring the FBT Taxable Value to NIL (zero) – this is actually a good idea considering that in Scenario 2 (see below), the FBT liability without any employee contribution is likely to be $960.

FBT-Biz would also need to pay GST on the employee contribution. As the employee contribution is inclusive of GST, the employer would also be liable to pay $91 in GST to the government (calculated as 1/11 of $1,000).

Scenario 2 – No reduction in FBT
From the facts and assuming no employee contribution, the FBT liability would be:

Grossed up taxable value = $1,000 x 2.0647 = $2,065 (assuming a Type 1 Aggregate Amount - GST taxable supply with an entitlement to a GST credit).

Multiply the total taxable value by the current rate for the FBT year ending 31 March 2014 being 46.5%. Therefore, $2,065 x 46.5% = $960.

Note that ‘Employers can generally claim an income tax deduction for the cost of providing fringe benefits and for the FBT they pay’ (ATO 2013).

What does FBT-Biz need to report on?

Record FBT payable (if any) on their activity statement.

Complete an FBT return for each FBT year which applies (FBT year is 1 April to 31 March) – according to the ATO ‘You must lodge a Fringe benefits tax (FBT) return if you have an FBT liability for the FBT year ending 31 March’. Strictly speaking, a zero FBT return should be lodged as good practice.

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