FBT arises when a car the employer ‘holds’ (either by ownership or by lease) is made available for employee for his/her private use. For employers the below are some valuable tips that can help them understand and comply with the accurate usage of FBT
A. Below are some guidelines regarding ‘holding’ of a car
- If a car is at employee’s garage or is being used by employee, then it is assumed to be made available for private use by employer
- As a general rule (but not limited to this point), the car is being made available when employee uses it to and from work
- If a car is at workshop (for repairs or maintenance), it is deemed not available for private use by employee
- A car ‘held’ for more than three months will attract FBT
- Stamp duty and registration charges are not included while computing FBT
- GST, customs duty or dealer delivery fees are included while computing FBT
B. FBT is usually calculated on taxable value of a car. This can be determined in one of the two ways as below –
1. Statutory formula method – A single statutory rate of 20% of taxable value is applied irrespective of distance travelled by the car.
Taxable value = [(Cost of car X Statutory rate x No. of days of private use) / 365 ] MINUS Employee contributions
Data required –
- Cost of car
- Date of purchase
- Distances travelled at beginning and at end of the term
- Employee contributions (if any)
2. Operating cost method – Here the percentage is determined by extent of usage of the car.
Taxable value = (Total Operating costs X % of private use) MINUS Employee contributions
Data required –
A. Operating costs – these include
- Repairs not arising out of motor crash or accident
- Fuel and maintenance
- Leasing costs
B. Deemed costs – this is applicable only when car is owned and not leased. It includes depreciation and interest charges.
C. For both ways, ‘employee contribution’ would mean –
1. Amount paid directly by employee or deducted from employee’s income for use of the car. This is computed on employee’s post-tax income. This contribution is included in employer’s taxable business income.
2. Amount paid by employee to third party (e.g. fuel provider, workshop for repairs etc.). This contribution is not included in employer’s taxable business income.
D. Employers can determine one of the two methods to use for their employees. While statutory formula is the default approach, they can also use the operating costs method if they maintain proper FBT records (fuel/oil expenses and its receipts, base value of car, proof of total kilometres as per logbook, number of days car available for private use).
E. Base value of the car can be reduced by one-third in the FBT year that begins after employer own/leases car after four years. So if an employer purchases a car on 1st Jun 2008 for $30000, then he/she can reduce the base value by $10000 in the FBT year that starts from 1st April 2013.