Importance of Lodging Fringe Benefits Tax (FBT) Returns for Motor Vehicles
As part of our ongoing commitment to ensuring that your business remains compliant with Australian Taxation Office (ATO) regulations, we would like to remind you of the importance of lodging your Fringe Benefits Tax (FBT) returns, particularly concerning motor vehicles owned by your business.
Brief History of FBT
The Fringe Benefits Tax was introduced in Australia in 1986 as part of tax reform efforts to capture the tax value of benefits received by employees from their employers that are not in the form of cash salary or wages. This tax ensures that such benefits are subject to taxation, maintaining fairness in the tax system. The most common benefit provided is access to a company owned vehicle.
FBT and Associates
It is crucial to understand that owners, directors, and their family members are considered associates under FBT regulations. Therefore, providing vehicles to yourself, your spouse, or your children is still subject to FBT.
Compliance for Motor Vehicles
When motor vehicles are owned by a business, it is crucial to report these annually to the ATO. At Prowess Partners, we employ the Employee Contribution Method (ECM) to compensate for personal usage of these vehicles as calculated by the ATO. This includes:
– Personal usage vehicles where the statutory rate is treated as additional income for the business;
– Operating cost or logbook method for vehicles with high business usage vehicles (e.g. sales roles)
– Exempt vehicles such as dual cab utes, provided their use is limited to minor and infrequent personal trips. It is vital to note that exempt vehicle usage should be less than either 200km per trip or 700km annually. Minor deviations such as picking up children from school or occasional trips to the store are permissible. The major benefit is that to/from work trips in exempt vehicles are still counted as work related.
Special Exemptions for Electric Vehicles
100% personal usage electric vehicles are currently exempt from FBT, marking a significant shift in tax policy. Additionally, Petrol Hybrid Electric Vehicles purchased under a lease agreement before March 31, 2025, are also exempt from FBT for the term of the lease. This unprecedented opportunity allows for considerable savings on vehicle costs—buying a $60,000 electric vehicle may effectively cost you only $32,000 after considering FBT exemptions and tax and GST claims. Please note that the vehicle must be under the Luxury Car Tax Limit to qualify for these exemptions – so the Porsche Taycan is off limits.
Electric Vehicles and Reporting
The rising adoption of electric cars brings a new consideration into FBT compliance. Exempt electric vehicles must still be reported to the ATO on the FBT return but also the exempt value is included in the Single Touch Payroll (STP) finalisation at the end of the financial year as the electric cars affects the Adjusted Taxable Income of employees (used for Centrelink and Medicare Levy Surcharge).
ATO Compliance and Data Matching
The ATO uses sophisticated data matching techniques with state vehicle registries and analyses various tax return labels to identify discrepancies. Noteworthy is the ATO’s practice of verifying the use of vehicles claimed as business expenses through various means, including physical checks (such as attending football games and taking registration plates of utes to verify and review),social media investigations (e.g. photos of dual cab 4WD utes on Frazer Island holidays) and information requests (from e-tag companies and service records to verify log books). These measures underscore the importance of accurate logbooks and usage records. Failure to accurately complete a logbook or relevant employee declaration can result in significant employer tax liabilities: remember that it is the employer’s responsibility to ensure the vehicles are being used within the law, not the employee – examples might include a current or former employee using a company car outside company policy; but only the employer is still liable for FBT to the ATO.
Why Lodging FBT is Crucial
Lodging your FBT return is not just a regulatory requirement; it also provides legal protection. Timely FBT submission limits ATO reviews of these benefits to two years. In contrast, failure to lodge can allow the ATO to initiate reviews up to five years later. The FBT rate at 47% is significantly higher than the corporate tax rate, emphasizing the importance of compliance to avoid hefty penalties.
We urge all our clients to maintain diligent records and ensure timely lodgement of their FBT returns. Doing so not only complies with the ATO regulations but also protects your business from potential future complications and financial liabilities.
Should you have any questions or require assistance with your FBT returns, please do not hesitate to contact us. Our team is here to support you in navigating these requirements smoothly and we look forward to supporting your ongoing success.
