Motor vehicles can be a common benefit provided to an employee, however, doing this may attract an FBT liability for the employer. There are two methods available when determining the taxable value of the benefit provided: the statutory method and the operating cost method.
Keep in mind that these rules apply to cars only. Motorcycles, vans and other motor vehicles that do not meet the FBT’s definition of a ‘car’ will fall under another category of FBT and will require different calculations to be made.
Record keeping requirements
The operating cost method requires more records to use, namely, keeping a 12 week logbook to establish the business use percentage and supporting documentation to justify the operating costs of the motor vehicle. Changing from the statutory formula method to the operating cost method only requires keeping the relevant documentation. No formal election is required.
Statutory Formula Method
The default method used to value motor vehicles for FBT is the statutory method. From a broad perspective, this method values the motor vehicle at 20% of its base value multiplied by the proportion of days the car is provided, less any payments made by the employee.
Operating Cost Method
This method considers the GST-inclusive operating costs and the percentage the motor vehicle is used for business purposes by the employee. This method values the motor vehicle by adding the operating costs, apportioning this by the employee’s business use then reducing the resulting figure by any payments made by the employee.
The above two methods are both acceptable ways to determine the taxable value of a motor vehicle. Keep in mind that the outcome from each formula will need to be grossed up then taxed by the FBT rate in order to find out the tax liability payable due to providing this fringe benefit.