We had a little laugh recently when Chartered Accountants Australia & New Zealand (CAANZ) lodged a submission with the Treasurer (3 June 2020) noting “FBT has long been derided as an over-engineered, unnecessarily complex policy response to the undoubted need for a level playing field“.
The usual approach to determining FBT payable on cars is relatively straightforward (some would say!).
COVID-19, office closures, working from home and general restrictions/alteration to ‘normal’ private and business interactions including travel requires some thought as to how 2020/21 FBT compliance for fringe benefits should be approached.
The ATO has published a fact sheet titled ‘COVID-19 and car fringe benefits’ dealing with some of the issues that arise. The ATO has also dealt with other issues including ‘Car returned to employer’s business premises’.
In this article we explore some issues relevant to 2020/21 FBT compliance for cars. The reference in this article to cars is intended to cover only passenger vehicles, not utes, vans etc. which may attract an FBT exemption in circumstances where (amongst other things) the only private travel is home/work travel, and/or other travel that is minor, infrequent and irregular.
Issue 1: Don’t assume 2020/21 compliance is as per previous years.
The use of each car needs to be considered throughout the 2020/21 FBT year before a position can be reached.
For example, at any point in time in the 2020/21 FBT year was a car not available for private use by employees?
Where cars were returned to an employer’s business premises for some part of the 2020/21 FBT year (due to COVID-19 restrictions) the ATO accepts that the cars are (subject to certain conditions) not being used for, or available for private use. Meaning on those days no fringe benefit arises. However, we note that the ATO has previously stated this outcome does not occur for cars provided under novated lease arrangements (see Fringe Benefits Tax Working Group minutes of 16 September 2020 meeting).
Whilst garaging a car at home ordinarily deems a car to be available for private use, the ATO has also taken the view that where home garaging occurred due to COVID-19, and the operating cost method is used, if the employee was only permitted to drive the car briefly for maintenance purposes no fringe benefit arises on that day.
Issue 2: Is the business use % established by an existing log book ‘final’ when it comes to calculating FBT for 2020/21?
The short answer is no.
Where the operating cost method is used (or even being calculated for the purpose of comparing to the statutory method) a log book is necessary, however change in business driving patterns due to the effects of COVID-19 can be considered to adjust the business use %. The ATO accepts (see Logbook requirements for car fringe benefits) other records (odometer records etc) maybe used in conjunction with a log book to determine a reasonable business %.
For example, assume a logbook is held for a vehicle which shows 60% business use and the odometer records for FBT 2019/20 show 30,000 kms travelled. In FBT 2020/21 odometer records show 24,000 kms travelled. The employee’s usual home to work travel would be 20% of total travel. In FBT 2020/21 the employee has worked from home exclusively due to COVID-19. The employee’s business use of the vehicle could reasonably be expected not to have changed in terms of total business kilometres travelled based on nature of work performed. It would appear reasonable for the employer to increase the business use % to 75% (18,000/24,000) for FBT 2020/21.
Issue 3: The minor benefit exemption is available for car fringe benefits
Where ad hoc private use of a car has been provided to an employee it may also be possible to apply the minor benefits exemption and reduce any FBT otherwise payable on the car.
For example, a car generally garaged at the employer’s premises has, due to COVID-19, been made available to a number of employees during the course of FBT 2020/21 to allow them to undertake work travel. Each employee had the car for no more than 2 weeks and was allowed to home garage the car during the 2-week period and use it for private purposes.
TR 2007/12 confirms that a car benefit can be an exempt minor benefit (provided it does not arise under a salary sacrifice arrangement) and Appendices 2 and 3 there-of outline how this comes about and the consequence there-to when determining taxable value.
In the example given, assume 10 staff members used a car and each drove 300 business kilometres and 200 private kilometres during the 2-week period they were each permitted to home garage the car. In determining the ‘notional taxable value’ for each employee it would be appropriate to determine the notional value of the ‘benefit’ received by the employee as 200 kilometres @ 0.67 cents (for a car over 2500cc). The notional value of the benefit would therefore be below $300 and ostensibly within the section 58P minor benefit parameters. (Note – when determining the section 58P ‘notional taxable value’ of a benefit being use of a car it should be valued as if the car benefit is a residual benefit which may be done using the cents per km approach or an operating cost type calculation – refer MT 2034). We note that whilst MT 2034 applies to motor vehicles other than a car, the ATO considered in TR 2007/12 that it is appropriate to apply the methodology outlined therein for the purposes of calculating the notional taxable value.
How does this translate to the taxable value calculation for the car?
Under the operating method the otherwise ‘private use’ of home to work is treated as business use. Under the statutory method the fact that the use gives rise to an exempt benefit means the days on which the employee had use of the car/home garaged the car are not counted as days on which a fringe benefit arises.
It has certainly been a year to remember or forget, but either way, a little more grey matter may be required when calculating FBT payable on an employer’s car fleet.
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.