Practical Implications of FBT
We talked last week about what fringe benefits are.
Most people who choose to take a benefit as part of their salary package will take a car.
The benefit arises when you have private use of that car:
- Travel from work to home is private
- Use of the car on the weekend when not working is private
- Use of the car when on holidays is private
- Any other travel in the car doing personal things is private
The amount of fringe benefits tax that is paid (which your employer will factor into your employment package, so that you’re really paying the tax) is determined by this private use.
So, it’s important to establish well the amount of private use to ensure that no more fringe benefits tax is paid than is necessary.
There are two methods to choose from to work out what the fringe benefit value is:
- Operating Cost Method
- You must keep a log book to establish the business & private use %
- The log book must be kept for a continuous period of 12weeks once every 5years (unless the % changes significantly)
- If the car changes, the same logbook can carry over
- You must keep a track of all of the operating costs for the car:
- Original cost for depreciation
- Financing costs
- If that’s all too hard you can use the Statutory Formula Method
- Worked out by multiplying the base value of the car x 20% x number of days car available for you
- You can also reduce the taxable value of the fringe benefit by contributing to the private % of the vehicle’s use i.e.
- You pay for some of the running costs out of your own pocket
- You pay your employer something for the running of the car