April 2016 Edition

In this edition:

Welcome

ATO's ongoing focus: car fringe benefits

Property acquisitions from foreign residents

Valuing SMSF assets

Which two heads are better than one?

                                  The 31st March saw the year end for Fringe Benefits Tax. As one of the biggest contributors to the revenue generated by the FBT regime, car fringe benefits keep attracting the ATO's attention when they are conducting FBT audits on employers. It is important for employers to understand the fundamentals of car fringe benefits and to maintain the relevant documentation (e.g. log books and declarations) when calculating the taxable value of a car.

What is a car fringe benefit?

A car fringe benefit will arise where the following requirements have been satisfied:

1. There is a car & it is held.

A 'car' for FBT purpose means a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load less than 1 tonne and fewer than 9 passengers and it is held if the employer either owns or leases the car.

Generally, vehicles such as single cab Utes (1 tonne capacity or more) and mini-vans (9-seater passenger van) are not cars for FBT purpose and will be eligible for FBT exemption. An employer's ability to claim an FBT-exemption depends on the extent of the private use of the vehicle by the employee or their associate.

Where the vehicle provided to an employee is not a car for FBT purpose, these vehicles will be exempt from FBT where their private use is basically limited to:

• Travel between home and work; and
• Other private use which is minor, infrequent and irregular.

2. The car is available forprivate use

A car will be regarded as available for private use where any of the following applies:

• The car is actually used for private purposes by the employee;
• The car is not parked on business premises, and the employee is allowed to use it for private purposes or has custody and control of the car; or
• The car is garaged or kept at or near a place of residence of the employee's home.

Which evaluation method should I use?

There are two valuation methods can be used to calculate the taxable value of a car fringe benefit. Employers can choose whichever method yields the lowest taxable value.

1. Statutory formula method

In relation to car benefits provided, a single statutory rate of 20% is applied to the base value of the car to determine the taxable value of car fringe benefits.

The base values of a car you own is:

• GST-inclusive original cost or leased value of the car;
• Any non-business accessories such as window tinting and GPS navigation systems that are subsequently fitted to the car
• Dealer delivery charges
• A one-third reduction where a car is 'held' by the employer for four full FBT years.

2. Operating cost method

Under operating cost method, the taxable value is a percentage of the total costs of operating the car during the FBT year. The lower the private use of the car by the employee, the lower the taxable value.

In practical terms, the operating costs of a car include:

• Actual costs (including GST) such as Fuel, repairs and maintenance, insurance and registration, lease payments and car wash expenses.
• Some deemed costs such as deemed depreciation and interest which are deemed to be incurred.

The taxable value of car fringe benefits under the operation cost method is determined by applying the private use percentage against the total operating costs of the car.

Generally, ATO will assume that the car has been made available to an employee for private use for the whole FBT year unless the employer has maintained adequate documentation to evidence the contrary.

In practical terms, GCC recommends that employers maintain the following information to reduce 'days available for private use':

a). Log books;

b). Diaries of usages (e.g., an employee work diary of business trips); and

c). Fleet management records.

If you are interested in discussing FBT and car fringe benefits further please contact your GCC team member.