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Fleet Vehicles: The Tax Implications For Employers And Employees

Before you finalise your 2020-21 tax return, take a moment to review this handy guide to the rules that apply to fleet vehicles.

By Shell on Jun. 23, 2021

A properly managed vehicle fleet can be a real boon to your business. But the paperwork is not always straightforward – and innocent mistakes can be costly. This guide outlines the key taxes and deductions that apply to company vehicles and explains what you and your employees need to do to satisfy the tax office. It’s information that could make a big difference to your business moving forward.

Understanding Fringe Benefits Tax

In addition to paying tax on income, businesses must pay tax on the benefits (other than salaries and wages) that they provide to their employees. This is known as Fringe Benefits Tax (FBT).

You need to pay FBT on cars in your fleet if your employees use those cars for private use. Generally, any driving that is not conducted as part of an employee’s professional duties is considered private use. This includes driving to and from the workplace.

However, if your fleet is garaged on-site and your employees do not use the cars outside of their professional duties, you may be exempt from paying FBT.

It’s important to speak to your accountant to determine whether your business needs to pay FBT and whether you can make changes to your business practices to secure an exemption.

Calculating Fringe Benefits Tax

If your fleet is used for private purposes, there are two valid methods you can use to calculate the value of the benefit that your employees receive:

  • The Statutory Formula Method, which is based on the car’s cost price; or
  • The Operating Cost Method, which is based on the cost of operating the car.

Businesses may use whichever method results in the lower taxable value. However, the Operating Cost Method requires employees to maintain a logbook of their vehicle use. If you can’t produce the required logbooks at the end of the financial year, you must use the Statutory Formula Method.

Preparing and managing logbooks

If you use the Operating Cost Method to calculate FBT, your employees will need to prepare logbooks. To create a logbook for a car, you must log every business journey for a 12-week period. This period should be representative of how the vehicle is used throughout the year. Once the logbook is created, you only need to update it every five years.

Capital Gains Tax and vehicle fleets

A Capital Gain is defined as a profit made when a company sells a non-inventory asset, such as property or stocks. However, some capital gains are tax-exempt – including any capital gain made when selling a company car.

Vehicle costs explained

Costs associated with operating fleet vehicles can be claimed as tax deductions. Example costs include fuel and oil, servicing and repairs, insurance and registration.

As a general rule, the entity that paid for the eligible expense can claim that expense as a tax deduction. For example, if an employee uses a company credit card to buy fuel, or your company directly pays a mechanic’s invoice, your company can claim those deductions.

If your employees pay for eligible expenses out of their own pockets, they can claim those deductions on their personal income tax returns. Tell them to speak to their accountants about how to keep a record of these expenses.

It’s important to remember that only expenses relating to business use can be claimed as deductions. If your fleet is used for both business and private use, you must keep records to determine what percentage of each expense relates to business use.

Disclaimer

Viva Energy Australia Pty Ltd (“Viva Energy”) has compiled the above article for your general information and to use as a general reference. Whilst all reasonable care has been taken by Viva Energy in compiling this article, Viva Energy does not warrant or represent that the information in the article is free from errors or omissions or is suitable for your intended use.

Where information, recommendations, opinions or ideas have been sourced from third parties external to Viva Energy (Third Party Information), Viva Energy cannot be certain that the Third Party Information is accurate, current or complete, nor should a mention of any business, product, service or website of a third party be taken as a recommendation, approval or endorsement of, or warranty or claim regarding, that business, product, service or website.