Allan’s employer purchased a car in March 2019 at a cost of $44,000 GST inclusive and provided the car to Allan on 1 April 2019. Allan garages the car at his home each night during the 2019/20 FBT year. Allan travelled 40,000 kilometres in the car during the year, and the odometer and logbook records show that 10,000 kilometres were for business purposes and 30,000 kilometres were for private purposes. The operating costs of the car (not including deemed depreciation and deemed interest) were $9,000 (GST inclusive). Allan did not make any contribution but provided all the necessary documents for his employer to calculate his FBT liability. Question Assuming the employer elects to use the operating cost basis, explain and calculate the taxable value of the car fringe benefit and the FBT consequences for Allan’s employer.
Car fringe benefits are an integral part of the Australian tax system, impacting both employees who receive the benefit and employers who provide it. To determine the taxable value of a car fringe benefit and understand the FBT consequences for Allan’s employer, we will explore the scenario provided, where Allan’s employer purchased a car for him in March 2019. Allan’s employer intends to use the operating cost basis to calculate the FBT liability.
Determine Operating Costs: First, let’s calculate the total operating costs of the car, excluding deemed depreciation and deemed interest. In this case, the operating costs are $9,000 (GST inclusive).
Calculate Business Use Percentage: To calculate the taxable value, we need to determine the business use percentage of the car. Allan traveled a total of 40,000 kilometers during the year, with 10,000 kilometers for business purposes and 30,000 kilometers for private purposes. Thus, the business use percentage is 10,000 (business km) / 40,000 (total km) = 25%.
Calculate Taxable Value: Using the operating cost basis, the taxable value is calculated as follows: Taxable Value = Operating Costs x Business Use Percentage Taxable Value = $9,000 x 0.25 = $2,250 (GST inclusive)
Now, let’s delve into the FBT consequences for Allan’s employer based on the calculated taxable value:
FBT Rate: In Australia, the FBT rate for the 2019/20 financial year was 47%. This rate is applied to the taxable value of the car fringe benefit.
FBT Liability: FBT Liability = Taxable Value x FBT Rate FBT Liability = $2,250 x 0.47 = $1,057.50 (GST inclusive)
Reporting and Payment: Allan’s employer must report the car fringe benefit on the FBT return for the 2019/20 FBT year. The FBT return should be lodged and any FBT liability paid to the Australian Taxation Office (ATO) by the due date, typically on or before May 21st of the following year.
In this scenario, Allan’s employer provided him with a car for which the taxable value was calculated using the operating cost basis. The taxable value, based on the operating costs and business use percentage, amounted to $2,250 (GST inclusive). Consequently, Allan’s employer would incur an FBT liability of $1,057.50 (GST inclusive) for the 2019/20 FBT year. Employers must accurately calculate and report car fringe benefits to comply with Australian tax regulations. It’s crucial for both employers and employees to understand the FBT implications of employer-provided vehicles to ensure proper tax compliance.
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