Managing Fringe Benefits Tax (“FBT”) regulations is a key priority for any organisation with a fleet of vehicles. One of the most effective ways to reduce FBT costs is through accurate and compliant logbooks that track private versus business use.
FBT applies to benefits provided to employees, including the private use of company vehicles. Employers have two main options to calculate the taxable value of these benefits:
- Statutory Formula Method – applies a flat rate of 20% to the vehicle’s base cost.
- Operating Cost Method – calculates FBT based on actual running costs, factoring in the percentage of private use.
The Operating Cost Method can lead to substantial tax savings. However, it requires a compliant logbook to demonstrate how often the vehicle is used for business versus private purposes.
The Value of Logbooks
Accurate logbooks are essential under the Operating Cost Method. Without one, the ATO assumes 100% of vehicle use is private, which can inflate the tax bill significantly. For example, if a company car is used only 30% of the time for private purposes, the taxable value using the Operating Cost Method would be far less than using the Statutory Formula Method, leading to major savings.
To be valid, a logbook must include:
- The start and end dates of each journey
- Odometer readings at the beginning and end
- Kilometres travelled
- The purpose of the journey
Logbooks must be maintained for a continuous 12-week period and updated if usage patterns change. Many employers choose to collect logbook data year-round for added accuracy.
Save Time and Cost – Electronic Logbooks
Developments in technology have made obtaining employee logbooks to generate private use percentages easier than ever and what was once a pain point for fleet managers and tax managers is now relatively straightforward. Compliant logbooks can be produced without the use of a single sheet of paper! Electronic logbooks offer several advantages over traditional paper-based logbooks such as: accuracy, convenience, accessibility, availability of real-time data, GPS-backed integrity, integration with fleet management platforms and cost savings.
With electronic logbooks, fleet managers and employees can easily record and access journey details through a smartphone app, promoting consistent and timely data entries. Additionally, electronic logbooks provide real-time tracking of vehicle usage, allowing fleet managers to monitor and analyse data instantly, facilitating improved compliance management. This real-time data not only ensures that all journeys are accurately recorded but also helps in calculating the private use percentage with precision (which is crucial for determining FBT liabilities). By utilising electronic logbooks, fleet managers can reduce administrative costs associated with maintaining paper logbooks and improve the overall efficiency of their fleet management processes. Accurate business use recording helps in substantiating the business proportion of vehicle use, leading to significant FBT savings by reducing the taxable value of car benefits.
Practical Guidance for Fleet Managers
Even where best efforts are made to obtain a full set of valid logbooks, there can be instances where this does not occur.
Since managing a large fleet of vehicles can be challenging, the ATO has also introduced a simplified approach. For fleet managers responsible for fleets of 20 or more vehicles, PCG 2016/10 provides an easier way to calculate the business use percentage component of the Operating Cost Method. Fleet managers can take advantage of PCG 2016/10 if certain conditions are met, the main ones being:
- The cars are “tools of trade” cars (ie. used extensively by the employee in their job);
- Valid logbooks are held for at least 75% of the cars in the logbook year;
- Each car in the fleet had a GST-inclusive value less than the luxury car tax threshold applicable at the time the car was acquired; and
- The cars are not provided as part of an employee’s remuneration package.
Where the criteria are met, fleet managers are able to apply an average business use percentage to all tools of trade cars held in the fleet in the logbook year and the following four years. This simplified record-keeping approach can be applied for a period of five years provided the fleet remains at 20 cars or more, and with no substantial changes to the business use percentage of the fleet.
Note: this guideline only applies to fleets with 20 or more cars, not vehicles which are not considered cars for FBT purposes.
How does any of this help employees?
While the employer pays FBT on the benefits it provides, employees still have the amount of reportable fringe benefits they receive reported on their annual income statement as a Reportable Fringe Benefit Amount (RFBA). This can impact eligibility for certain means-tested benefits and superannuation, the amount of Medicare levy Surcharge someone pays and the amount of additional tax they pay on concessional superannuation contributions. As such, employees should be aligned with their employer in the benefits that can be achieved from reducing the amount of tax to the correct level calculated in reference to operating those costs, but only the percentage of those that relate to the private use of the car.
General ATO guidance and information on FBT, logbooks and cars, can be found here: Fringe benefits tax – a guide for employers | Legal database.
For more information on keeping accurate logbooks for FBT reporting, contact Geotab: https://www.geotab.com/au/
