By then multiplying the cars private use percentage against the car’s actual running costs (fuel, registration, insurance, etc.) as well as notional expenses (depreciation and interest) for the year, the taxable value can be determined. The vehicle’s private use is then calculated by dividing the total number of kilometres travelled for private purposes by all kilometres travelled during the 12 weeks recorded in the logbook. Importantly, the trips must be recorded in the logbook as soon as practically possible after the completion of each trip. However, each year there is a requirement for the employer to estimate the business use percentage After detailing the purpose of every trip for 12 weeks, the logbook is then valid for the next 5 years. The logbook must be maintained for a period of 12 consecutive weeks and detail the purpose of each trip undertaken in the vehicle, how many kilometres were travelled with each trip, and whether the trip was work related or private. The operating cost method is commonly referred to as the logbook method – a logbook detailing how much the car is used for work purposes and how much it is used for private purposes is a requirement. The operating cost method is used where an employee has a high business use of the car. So, the question now is, how does the ATO calculate the taxable value of a car fringe benefit? Through one of two calculation methods – operating cost or statutory formula. As such, employers can provide employees with extra value without incurring additional expenses.īe an employer of choice with little to no extra costs This effectively, allows a fringe benefit to be taxed at the employee’s marginal tax rate and not the FBT rate. Additionally, the FBT law allows ‘employee contributions’ to reduce the taxable value of the car fringe benefit to nil. The taxable value of a car fringe benefit is meant to reflect an employee’s ‘private use’ of the vehicle, as only the private use of the car is subject to FBT. The answer to this question lies in how the ‘taxable value’ of the fringe benefit (i.e. After all, this does translate to an additional 8% to 12.5% tax liability that could be avoided if the employee were simply given a pay rise. With the tax rate for fringe benefits set at 47%, the obvious question is why would small business owners grant an employee access to a company car? Considering that the great majority of Australian taxpayers are currently paying marginal tax rates of between 34.5% and 39% (for the 2023 financial year and including the Medicare levy) it seems counter-intuitive to allow this. Fringe benefits provided to employees and/or their associates are subject to Fringe Benefits Tax (FBT), which is currently set at a flat 47% of a benefit’s ‘taxable’ value. Granting employees’ access to company cars is treated by the ATO as a ‘non-cash benefit’, more commonly referred to as a fringe benefit.
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