Motor Vehicles and Business: The FBT Trap

As we near the end of March 2021 and head towards 30th June, there are a number of key measures for businesses to consider particularly for entities where they use their Motor Vehicles for personal use. The provision of cars by employers to employees remains an issue that continues to create confusion for some business taxpayers. A not-uncommon situation is where the employer fails to identify that a car fringe benefit has been provided.

This is typically found in family companies or trusts where a car bought by the business is provided to one of the owners who is also an employee (or that person’s “associate” – say a spouse or child). Remember, a director is still considered an employee.

If your business currently provides a motor vehicle (including a dual cab vehicle) to a staff member including relatives and family members, it is imperative that the speedometer details are recorded as at 31st March 2021 as well as 30th June 2021.

The above requirement is particularly important if you operate your business through a Company or a trust as the vehicle is owned by a separate entity to which the employee has obtained a private benefit.

The above will also be applicable for entities that may not have employees and operate the business themselves. Why? The ATO provides that where a vehicle is AVAILABLE for use by a related party including a Director who is considered to be an employee along with their relatives and associates, the vehicle could be taken to be subject to the FBT provisions.

Can I limit my exposure to Fringe Benefits Tax on Motor Vehicles? If a vehicle is garaged away from the key individuals’ main residence, or the vehicle’s private use is limited, there are exemptions and concessions available that could reduce or remove the business’s exposure.

To assist in determining any concessions that may be available, it is important that a log book is maintained to record a business use of a motor vehicle. Again, this is most relevant for family businesses where record keeping may not be up to scratch. The ATO is reviewing log books being maintained for vehicles where there has been a high business use percentage.

This information along with the details of the vehicle and a breakdown of use, can help our accountants consider any reductions that can be applied.

If you would like to explore your business’s exposure to the FBT provisions, please contact our office so we can consider and provide guidance to your circumstances. Additionally please ensure the speedometer records for both March and June are provided to our office to assist in preparing your 2021 Income Tax Obligations.