Guide: Has a motor vehicle been provided to an employee?
If a motor vehicle has been provided to an employee an FBT liability will arise if the motor vehicle is used or available to be used for private use by the employee.
“Private use” includes travel between home and work (and vice versa). There is a very limited exception if the home is also a place of work and the particular travel is in the course of performing work.
FBT on motor vehicles is calculated based on the number of days that the vehicle is available for private use. Some days are counted as the vehicle not being available for private use. These are as follows:
- • Emergency calls: FBT doesn't apply on a day on which the vehicle is used to attend emergency calls. For the exemption to apply, the visit must be to attend to some essential plant or service or be in relation to the health or safety of a person. The visit must take place between 6pm and 6am, except on Saturdays, Sundays and public holidays when the visit can be made at any time.
- • Regular business trips: If an employee is required to be away on business on a regular basis for more than 24 hours and the car is used as part of the business trip, the provision of the car on that day will not be subject to FBT. Any minor or incidental private use can be ignored. Both the day of departure and the day of arrival back home can be counted as days that the vehicle is not available for private use.
- • Work-related vehicles: If a car is a “work-related vehicle” for a particular day then the car is not subject to FBT on that day. The car must meet strict criteria to be a work-related vehicle.
- • There may be other examples of days when a car is not available for private use; for example, if the car is being repaired at a mechanic's workshop.
Two options to calculate FBT on motor vehicles
There are two options for calculating the taxable value of motor vehicles:
- • cost price method, or
- • tax book value method.
Under the cost price method, the employer can calculate the taxable value based on the GST-inclusive “cost” of the vehicle. The following table summarises the costs that should be included and excluded when working out what the cost is for FBT purposes:
Item | Included in cost price | Excluded from cost price |
GST-inclusive purchase price | ✓ | |
Cost of initial registration and licence plate fees | ✓ | |
Cost of ongoing annual vehicle re-licensing fees | ✓ | |
The cost of accessories, components and equipment (other than “business accessories”) fitted to the vehicle at the time of purchase or at any time thereafter. This would include accessories such as a sunroof, CD and DVD players, and a tow bar | ✓ | |
The cost of freight, insurance costs and any customs duty involved in transporting the motor vehicle to the place where it is to be first used | ✓ | |
Business accessories fitted to the vehicle at the time of purchase or at any time thereafter | ✓ | |
Signwriting the vehicle in the employer's colours or style (in physical terms, the addition of paint or other graphics such as magnetic signs, decals or transfers) | ✓ | |
Road-user charges | ✓ | |
The costs incurred in financing the purchase of the vehicle (eg interest) | ✓ |
The “tax book value” of a motor vehicle is:
- • The original GST-inclusive cost less the total accumulated depreciation of the motor vehicle as at the start of the tax or income year, or
- • The GST-inclusive cost of the vehicle if the motor vehicle was purchased in the relevant tax year.
When using the tax book value method, a minimum value of $8,333 applies. So even if the tax book value falls below $8,333, the book value of $8,333 has to be used to calculate the taxable value.
Calculating the taxable value
The formula to use when calculating the taxable value of motor vehicles is the same regardless of whether the cost or the tax book value option is chosen. For quarterly filers the formula is:
(Y × Z) |
90 |
Where:
Y is the lesser of:
- (i) The number of days the vehicle is available for private use (taking into account the exceptions listed above)
- (ii) 90
Z is either:
- (i) 5% of the GST-inclusive cost price of the motor vehicle if the employer owns the vehicle (or the cost price of the vehicle to the lessor if it is leased by the employer), or
- (ii) 9% of the GST-inclusive tax book value of the motor vehicle if the employer owns the vehicle (or the tax book value of the motor vehicle to the lessor if the motor vehicle is leased at the time it is provided to the employee).
For annual filers, the formula is the same as for quarterly filers above. The calculation is performed for the four quarters and added together.
For income year filers, the taxable value is calculated as follows:
(Y × Z) |
365 |
Where:
Y is the lesser of:
- (i) The number of days the vehicle is available for private use (taking into account the exceptions listed above)
- (ii) 365
Z is ether:
- (iii) 20% of the GST-inclusive cost price of the motor vehicle if the employer owns the vehicle (or the cost price of the vehicle to the lessor if it is leased by the employer), or
- (iv) 36% of the GST-inclusive tax book value of the motor vehicle if the employer owns the vehicle (or the tax book value of the motor vehicle to the lessor if the motor vehicle is leased at the time it is provided to the employee).
Example
During the quarter ending 30 September 2020, Jane had a work motor vehicle available for private use. The vehicle cost $25,000 (GST-inclusive). During the quarter, the vehicle was in the workshop being repaired for 10 days, was used to make emergency calls on three days, and was taken away on a selling trip for two weeks. Jane's employer uses the cost price basis to calculate FBT on the vehicle. The number of days a fringe benefit was conferred is:
Days in the quarter | 92 | |
less no availability for private use | 10 | |
less emergency calls | 3 | |
less business days away | 14 | (27) |
Number of days for the purposes of the formula | 65 | |
The taxable value of the vehicle is calculated as follows: |
(65 × ($25,000 × 5%)) |
90 |
= $902.78 |
Employee contributions
The taxable value of a motor vehicle is reduced if the employee makes a contribution.
Example
Following on from the example directly above, if Jane makes a cash contribution of $300 in exchange for private use of the car for the quarter ended 30 September 2020, the taxable value of the motor vehicle will be:
$902.78 − $300 = $602.78
If the contribution is by way of an adjustment to a shareholder current account, the appropriate journal entries must be made and be effective on or before the last day of the FBT period (that is, on or before the last day of each quarter, unless the employer is registered for FBT on an annual or income year basis).
Exempt reimbursement as an alternative to FBT
Instead of the employer providing a vehicle to the employee, an alternative is for the employee to use their own vehicle and be reimbursed for business-related expenses by the employer. If the employee uses their own vehicle for business purposes, FBT will not be an issue. However, any reimbursement that the employer makes to the employee will be taxable unless it qualifies as an exempt reimbursement. To be exempt the reimbursement has to relate to business-related travel (not private travel) and has to be based on actual expenditure incurred or a reasonable estimate.
Alternative option for close companies
With effect from 1 April 2017, an alternative has been introduced for close companies that provide motor vehicle benefits to its shareholder-employees. The close company can elect to apportion the motor vehicle expenditure between business and private use (using specific rules in the Income Tax Act) instead of paying FBT. Where that election is made, any private use by the shareholder employee will not be a fringe benefit.
The exclusion only applies to close companies where the total fringe benefits provided to all employees in the income year are one or two motor vehicles.