Introduction

If you offer cars to your employees for work-related use, it is worth knowing how Fringe Benefits Tax (FBT) may affect your business. What may be a minor benefit – like permitting an employee to drive a work car home – can result in large tax burdens if not handled properly.

At Tax NextGen, we assist companies in Melbourne to remain compliant with FBT requirements, handle business tax returns, and prevent surprise tax charges.

Let’s examine closely how vehicle use for personal purposes can impact your company and what you can do to prevent unnecessary FBT exposure.

Two business professionals reviewing company car and tax documents in a Melbourne office, analyzing Fringe Benefits Tax (FBT) compliance and business tax return details to avoid unexpected ATO liabilities concept of safeguarding businesses from FBT risks.

What Triggers FBT on Employee Vehicle Use

FBT normally comes into play when a company-owned vehicle is used for private travel by an employee. In most instances, FBT is incurred merely because the vehicle is accessible for private use  even if it’s not used for personal travel.

Personal travel that counts as private use:

  • Traveling in the car on weekends or holidays
  • Taking the kids to and from school
  • Shopping for groceries or running other errands
  • Providing lifts for friends or family
  • Leaving the car at home overnight

These circumstances may appear to be minor or incidental use, yet they may still be considered private use by the ATO and give rise to an FBT obligation.

Are Any Vehicles or Uses Exempt from FBT?

Yes – in certain circumstances, FBT concessions do exist. For instance, some commercial vehicles (such as utes and vans) will be exempt if their private use is only home-to-work travel, and the private use is irregular and rare.

The ATO has specific guidelines about what qualifies as “limited private use,” and these rules can be difficult to interpret without professional advice. This is where engaging a tax accountant in Melbourne can be valuable, especially if you’re unsure whether your vehicles or employee arrangements qualify for an exemption.

How to Stay Ahead of FBT

1. Check if an Exemption Applies: Before providing a car for private use, check if it’s FBT exempt. If not, make provisions and inform the employee of the tax implications.

2. Maintain Detailed Records: Whether claiming exemption or determining your FBT liability, records play an important role. You should maintain:

  • Odometer readings
  • Work vs personal use logbooks
  • Written records of the purpose of travel
  • Correct records will also enable you to stand your ground during an ATO audit.

3. Determine Your FBT Liability: Should an exemption not be available, you will need to determine the taxable value of the benefit. The ATO has an FBT car calculator, but engaging a competent Melbourne tax agent will make the calculation so much more accurate and convenient.

4. Lodge and Pay FBT On Time: FBT returns are to be lodged each year:

  • By 21 May if lodging with the ATO directly
  • By 25 June if lodging through a registered tax agent

It’s best to have reminders or use the services of an accountant to avoid missing these due dates, which may incur penalties.

5. Report FBT on Employee Income Statements: If an employee receives a reportable fringe benefit, it must be shown on their income statement or payment summary. This affects their personal tax position and must be done accurately.

Why This Matters for Melbourne Businesses

FBT is often overlooked during routine business tax return preparation, but it’s something the ATO takes seriously. Even unintentional personal use of a company vehicle can lead to a tax bill if you’re not careful.

At Tax NextGen, we’ve assisted hundreds of Melbourne business owners to identify and control FBT risks, put adequate record-keeping into place, and eliminate the anxiety of surprise tax bills. If you’re an owner of a small business or a larger business with a fleet of cars, FBT needs to be on your tax planning checklist.