Fringe benefits are non-monetary perks an employer provides to an employee on top of their wages or in the case of a salary sacrifice arrangement – in lieu of a portion of wages. For example, if the employer provides a business-owned car for the employee’s personal use.

But whether it’s in addition to wages or as a salary sacrifice, provision of vehicle for personal use may be subject to fringe benefits tax (FBT).

What is a car fringe benefit?

As an employer, you may have to pay fringe benefits tax (FBT) if you provide an employee with private use of:

• a passenger vehicle designed to carry fewer than 9 passengers (including the driver), including a 4-wheel-drive vehicle but not a motorbike

• an eligible commercial vehicle, where the use exceeds limited private use (limited private use of an eligible commercial vehicle may be exempt).

Exempt car or vehicle benefits

You don't pay FBT if you provide an employee with private use of a vehicle and:

• it is an exempt use of an eligible commercial vehicle

• the vehicle is an eligible electric car

• it is a minor benefit – that is, the taxable value of the benefit is less than $300 and it would be considered unreasonable to treat it as a fringe benefit

• the employee's duties relate to a public hospital (unless the amount of benefit provided to the employee exceeds the relevant threshold)

• you provided the car for compassionate travel

FBT exemption for eligible vehicles

There is no fringe benefits tax (FBT) when an employee uses your vehicle if:

• it is an eligible vehicle, and

• private use of the vehicle is limited.

There is a separate exemption for eligible electric cars.

Vehicles eligible for the exemption

The following vehicles are eligible for the limited private use exemption:

• a single cab ute

• a dual cab ute that is designed to either

  carry a load of 1 tonne or more

  carry more than 8 passengers (including the driver)

  carry a load of less than 1 tonne but is not designed for the principal purpose of carrying passengers.

• a panel van or goods van

• a modified vehicle (such as a hearse) if, for the entire FBT year when the car is used by the employee, the modification permanently affects the inherent design of the vehicle.

• a taxi

• any 4-wheel drive vehicle that is designed either

  to carry a load of 1 tonne or more

  to carry more than 8 passengers (including the driver)

  for a principal purpose other than carrying passengers, as indicated by its appearance, marketing specification or carrying capacity.

• any other road vehicle that is designed to carry either

  a load of 1 tonne or more

  more than 8 passengers (including the driver).

If the vehicle your employee is using is:

• an eligible vehicle, check that their use is limited to uses that qualify for the FBT exemption

• a car that is not an eligible vehicle, FBT applies to the employee's private use of it. You calculate the taxable value of this use as a car fringe benefit.

Record keeping

You don't have to keep special records to be eligible for the exemption. However, you must be able to demonstrate that the use of the vehicle at all times meets the limited private use conditions.

For example, you could regularly compare the opening and closing odometer readings of the vehicle with the total distance you expect the employee to travel between home and work.

If you want to update your record keeping you can automate your logbook and use an app like GOFAR to help you stay on track with ATO compliant reports.

For more information on how FBT applies to cars read more here >>