Fringe Benefits Tax on Cars: What Employers Need to Know
If your business provides a car to an employee, or uses novated leasing as part of a salary package, Fringe Benefits Tax (FBT) may apply. Many business owners are surprised to learn that even limited private use of a work vehicle can trigger an FBT liability. This article outlines the key considerations for employers when it comes to cars and FBT.
When does FBT apply?
A car fringe benefit arises when a car is made available for the private use of an employee (or their associate). This includes situations where the car is:
Used for private purposes, such as personal travel
Available for private use, even if it is not actually used (for example, parked at the employee's home)
Travel between home and work is generally considered private use, even if the employee uses the car for work during the day.
Valuation Methods for Car Fringe Benefits
Employers can choose between two methods to calculate the taxable value of a car fringe benefit. The choice can be made each FBT year, depending on which gives the better outcome.
Statutory Formula Method
This is the more commonly used and administratively simpler method.
Taxable value is calculated as:
Car's base value × 20% × (days available ÷ 365) minus any employee contributions
Key points:
The statutory rate is 20 percent (for most cars provided after 10 May 2011)
The base value includes GST and dealer delivery charges but excludes registration and stamp duty
No logbook is required
This method is predictable and easy to apply, but may result in higher FBT if the car is not used extensively for private purposes.
Operating Cost Method
This method calculates the taxable value based on the actual operating costs of the car and the proportion of private use.
Taxable value is calculated as:
Operating costs × private use percentage minus employee contributions
Operating costs include fuel, servicing, registration, insurance, leasing costs, and depreciation.
To use this method, the employer must maintain:
A valid 12-week logbook (renewed every five years or when usage changes significantly)
Odometer readings at the start and end of the FBT year
This method often results in a lower taxable value when the car is primarily used for business.
Employee Contributions
If the employee makes a contribution toward the cost of using the car from their after-tax income, this reduces the taxable value of the benefit.
To be effective, contributions must:
Be paid by 31 March (end of the FBT year)
Be supported by documentation
Exemptions for Work-Related Vehicles
Some work vehicles may be exempt from FBT if private use is limited.
Vehicles such as utes, panel vans and other commercial vehicles may qualify for exemption where:
The vehicle is not designed principally to carry passengers
Private use is limited to minor, infrequent, and irregular travel (e.g. occasional school run or weekend errand)
The ATO has issued Practical Compliance Guideline PCG 2018/3, which outlines a safe harbour approach to determine whether private use is minor and infrequent.
It is important to note that these exemptions are not automatic. Employers must ensure that actual use aligns with the criteria.
Key Dates
31 March – End of the FBT year
31 March – Deadline for employee contributions
21 May – FBT return due (later if lodged through a tax agent)
Practical Tips for Employers
Review all vehicles provided to employees to determine whether FBT applies
Choose the valuation method that delivers the lowest taxable value each year
Keep proper records, particularly if using the operating cost method
Check whether any vehicles might qualify for exemption
Consider how novated lease arrangements affect your FBT position
Need assistance?
FBT on cars can be complex, particularly when it comes to exemptions and method selection. We assist businesses of all sizes in managing FBT obligations, including reviewing existing arrangements, calculating FBT, and advising on documentation and reporting.
To discuss your FBT exposure or logbook strategy, please get in touch with our office.
