FBT ON MOTOR VEHICLES
Outlined below is a high level overview of the FBT rules that apply to vehicles. This outline is general in nature and is not intended to constitute tax advice. You should seek independent tax advice on how the FBT rules apply to your particular circumstances.
When does FBT apply?
FBT arises on vehicles that are owned or leased by an employer that are made available (regardless of any actual private use) for private use by an employee. Private use includes travel between home and work
Charitable organisations are generally exempt from paying FBT for employees private use whilst they are carrying out the organisation’s charitable activities.
Vehicles with a gross laden weight exceeding 3,500 kg are not subject to FBT.
Exemptions from FBT
There are a number of exemptions that may reduce the FBT liability that is imposed on motor vehicles.
No private use
Where a vehicle is not used at all for private use, usually no FBT liability is incurred. An example would be a pool fleet of cars, used for specific tasks and kept at the employers premises when not being used for work purposes.
Work related vehicle exemption
The work related vehicle exemption covers situations where the employee stores the vehicle at home and the employer doesn’t allow the vehicle to be available for general private use. To qualify as a work-related vehicle, all three criteria need to be satisfied:
The first requirement that must be satisfied to qualify as a work related vehicle is that the vehicle must not be designed principally for the carriage of passengers. This means that cars cannot qualify for the work related vehicle exemption. Station wagons will also not satisfy the first requirement to qualify as a work-related vehicle exemption unless they have been permanently altered so that they can no longer carry passengers (for example, the back seated have been removed, welded down or otherwise made permanently unusable).
Utes, including double cabs utes, are not considered to be designed principally for the carriage of passengers therefore, provided the other two criteria are satisfied, they will qualify as work-related vehicles.
The second requirement is that the employer’s name, logo or acronym be prominently and permanently displayed on the exterior of the vehicle. There are no exemptions to this and this requirement will not be satisfied even if there is a health or safety reason for the lack of a logo or company name. The vehicle will also not satisfy this requirement if the signage can be removed (for instance, magnetic signs).
The third requirement that needs to be satisfied to be a work related vehicle is that the employer must notify the employee in writing that the private use of the vehicle is limited to the following types of travel:
a. Travel between an employee’s home and work
b. Travel in the course of and as a condition of the employee’s duties
c. Private travel incidental to business travel
The employer must also carry out regular checks to ensure the restrictions regarding the use of the vehicle are complied with.
It is possible to qualify for a partial exemption if a vehicle meets the first two criteria and private use of the vehicle is allowed on certain days (for instance, weekends and public holidays). If a vehicle qualifies for a partial exemption, FBT is only payable on the days that private use is allowed.
Where a vehicle is available for private use, the vehicle may still be exempt from FBT on particular days.
Work travel - If an employee is required to travel, the travel including the day of departure and the day of return are exempt, provided the trip is longer than 24 hours. Private use of the vehicle that is incidental to the trip is exempt, however if there is a significant element of private travel involved in the trip a FBT liability will arise.
Emergency calls - If a vehicle is used to attend an emergency call-out the vehicle is exempt from FBT on that day. It is not sufficient to merely be on call on a particular day – there needs to be an actual call-out for the exemption to apply.
The emergency visit needs to be to attend to some essential plan or service or be in relation to the health and safety of a person. The emergency call-out must also be between 6pm and 6am or at any time on weekends or statutory holidays (unless it is for personal health and safety reasons).
Other non-availability - There are other times that a vehicle may be unavailable for private use by an employee and therefore not liable for FBT. Examples of situations where the vehicle will not be subject to FBT if it is being repaired or left at an airport car park if the flight is business-related.
Any contributions made by the employee towards running costs (for instance, contributions towards petrol) will reduce the taxable value of the fringe benefit.
Where a daily exemption is claimed, records must be retained showing the reason why the vehicle is not subject to FBT on the particular day. It is possible to use a three month test period and apply the results for a three-year period.
Determining the start of an “FBT day”
Employers can elect a start time of and FBT day to reflect their business needs. If no election is made a default start time of midnight will apply. Any election made for a different start time will normally last for a two year period.
Calculating the value of the fringe benefit
There are two options open:
Cost price option - Under the cost method the value of the fringe benefit each quarter is 5% of the GST inclusive cost of the vehicle, multiplied by the number of days the vehicle is available for private use.
Tax book value option - Under the tax book value option the value of the fringe benefit each quarter is 9% of the GST inclusive tax book value of the vehicle at the beginning of the quarter, multiplied by the number of days the vehicle is available for private use.
If the vehicle is leased by the employer, the value of the fringe benefit should be calculated based on the cost price of the vehicle (including GST) to the lessor, which is required to disclose the relevant value to the lessee. The cost price is taken to include on-road costs and accessories other than those accessories identified as business accessories.
Calculating the FBT liability
Once the value of the benefit has been determined there are two options to calculate the fringe benefit tax liability:
Single rate method – based on 49.25% of the value of the fringe benefit.
Alternate rate method – based on the marginal tax rate of the employee. This requires an annual wash up of payments.
FBT is generally an allowable business expense.
The IRD produce an FBT Guide Booklet (IR409)
FBT is a complex matter. This outline is general in nature and is not intended to constitute tax advice. You should seek independent tax advice on how the FBT rules apply to your particular circumstances.