Hi, today we’re talking about ways to save you money so you can spend it on other things.  Are you in the market for a new car and you own a business? Wouldn’t it be great to buy it through the business? You can claim all the expenses, you can claim the interest on the loan, claim the GST and let’s face it, you’re using it in the business so it really does belong to the business. What a way to save some money and get you the thing that you want!

Buying a vehicle through your business can be a great because it can really help to reduce the profit in your business and give you a decent perk as well.  Not only this, you can claim the full amount of GST on the purchase of the vehicle in the quarter in which the vehicle is purchased so in terms of your cashflow, there’s a nice little boost.  If you’re buying the vehicle on finance you may also find it a lot easier to take out finance in the business’ name rather than your own.

But before you go rushing out and buy one, I have a question for you: what will you be using it for?

If like most of the rest of us, you’re going to use it to catch up with your friends, do the school run, go shopping, go on holiday: in other words keep it at home to use it for whatever you want to use it for, then we might have a bit sting in the tail in terms of Fringe benefits Tax.

Your first question to me might be “what is FBT”?  Fringe Benefits tax is a tax applied to certain non-cash items, you as an employer give to your employees.  The most common item being a car.

The ATO views the provision of non-cash benefits as an addition to your salary and as such, it should be taxed.  I did a video a little while ago on FBT in small business and I will leave a link in the description box below, but basically, the grossed up value of the benefit is taxed at 47% and the tax is paid by the employer.  FBT can become very pricey very quickly and is a bit of a sleeper tax in the sense it is overlooked very easily and catches many businesses out. 

So what type of vehicles are we talking about here because there are some notable exemptions. We are talking mainly passenger vehicles, like your Commodore’s, Camry’s, Falcon’s, Prado’s, Landcruiser’s, Tiguan’s, all of these vehicles are going to be caught up in the FBT net. 

There are however, some notable exemptions so if you’re really keen on buying a car through your business, stick to one of these and the rules to make them exempt and for now, you should be fine:

  • zero or low emission vehicles such as battery vehicles;
  • single cab utes,
  • dual cab utes provided they can carry a load of 1 tonne or more and can carry more than 8 passengers or carry’s a load of less than a tonne but cannot carry passengers either,
  • a panel or goods van,
  • hearses or other modified vehicles,
  • taxis,
  • a 4WD which can carry a load of 1 tonne or more and more than 8 passengers and
  • any other road vehicle designed to carry 1 tonne or more or more than 8 passengers.

Now, assuming you are not in the market for a vehicle on the exempt list, what can we do about buying this car.  Being honest here, offering perks in a business like the provision of a car can be really attractive when employing or retaining top talent and you yourself buying off the exempt list might not be practical.

But let’s go into this with our eyes open.  So for a $40,000 vehicle, you could be looking at a FBT bill of up $8,000.  What can we do to bring this down a bit?  Firstly, you can contribute to the running cost of the vehicle, so this would be paying for it’s servicing, the loan, insurances, fuel etc.  This could prove to be unpopular with an employee as part of the perk of the vehicle is not having to pay for it’s running costs.  The next thing would be to complete a logbook. 

There are two different ways FBT is calculated on a vehicle and for one of them we need to complete a logbook for the vehicle.  It only needs to be for 12 weeks, not the whole year and can be completed using an app on your phone which makes life a lot easier.  The higher the percentage of business use on the vehicle during that 12 week period, the more we can reduce the FBT bill. This is because it is a more accurate way of recording the actual use of the vehicle.

What other record keeping requirements are there for this vehicle?  We are going to need to know all the details for the it, so this would include the make, model and rego, the date it was purchased, it’s cost including any GST and how it was paid for.  I will leave a downloadable schedule listing all the information needed for each vehicle owned by the business in the description box to help you organise your information for FBT season.

We will also need to know the opening and closing odometer readings for each vehicle and a link for a schedule to help with this will also be left in the description box.

Whilst FBT is paid by the business as a whole, each individual employee, which includes directors, needs to have the amount applicable to them included on their income statement so it’s important all of this information is recorded on an employee-by-employee basis so it can be tracked.

What record keeping do we need if we go ahead and buy off the exempt list? Well, like most things tax-related, being exempt doesn’t mean to say you don’t have any paperwork to fill in! Where an exempt vehicle such as a dual cab ute, is taken home by the employee, a declaration will be required stating that they have only used the vehicle incidentally for private use that is: it’s done a trip to the tip and that’s about it. For electric or hybrid vehicles, we still need to report the value of the benefit provided on their income statement so whilst we don’t need to pay tax on these vehicles, we still need to go through the process of calculating the value of the benefit being provided.

Right, well, hopefully you have found this useful, FBT can be both complicated and costly if overlooked.  Thankyou so much for reading and I will catch you in the next one!

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