The provision of company cars to employees is a regular practice across the Australian business landscape. Generally, there are two
reasons to provide a car to an employee:
It’s a requirement of the job that employees travel regularly for work purposes, so providing a car will allow employees to
effectively perform their duties.
employers want to give themselves an advantage over their competitors being ‘employers of choice’, attracting the best and
brightest, by converting non-deductible private vehicles to tax deductible company cars for their employees.
Granting employees’ access to company cars is treated by the ATO as a ‘non-cash benefit’, more commonly referred to as a fringe
benefit.
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’.
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 32% & 39% (current for
the financial year and including the Medicare levy) it seems counter-intuitive to allow this. After all, this does translate to an
additional 8% to 15% tax liability that could be avoided if the employee was simply given a pay rise.
The answer to this question lies in how the ‘taxable value’ of the fringe benefit (i.e. the car) is calculated. 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.
Additionally, the FBT law allows ‘employee contributions’ to reduce the taxable value of the car fringe benefit.
If the taxable value of a car can be reduced to nil, then no FBT will be payable. As such, employers are inadvertently provided an avenue to
provide employees with extra value without incurring additional expenses.
How does the ATO calculate the taxable value of a car fringe benefit?
On 31 March, the Fringe Benefits Tax (FBT) year ends. With the ever increasing budget deficits, the ATO will be reviewing
whether all employers who should be paying FBT are, and that they are paying the right amount. Who needs to lodge a FBT return? Find out
here.
Paying off your mortgage is a significant financial milestone, but once you’ve reached the halfway mark, what’s the best next step? Should
you continue aggressively paying it down, start investing, or focus on building your superannuation?
Self-Managed Super Funds (SMSFs) offer Australians greater control over their retirement savings, and property investment is one way people
can take advantage of this flexibility.
On 31 March, the Fringe Benefits Tax (FBT) year ends. With the ever increasing budget deficits, the ATO will be reviewing
whether all employers who should be paying FBT are, and that they are paying the right amount. Who needs to lodge a FBT return? Find out
here.