The Fringe Benefit Tax On Company Cars
A company car is a car that is offered to an employee as part of their job package or compensation. It is an incentive for working for a company and has been around for a long time. While company cars have their benefits, they also come with additional tax considerations.
The fringe benefit tax (FBT) is a form of income tax, charged to employers on certain benefits they provide to those employed by the company. Specifically, FBT is applied to company cars and similar types of transport. This tax is used in order to discourage employees from taking up and utilising company cars. By tax-ing the benefit, the government and ATO can limit their affect on broader economic outcomes and also reduce their environmental impact.
The FBT on a company car is calculated in three stages and is based on a range of variables. Firstly, the taxable value of the car must be determined. This is done by calculating the original purchase price of the car and then subtracting the various associated costs such as depreciation, running costs and any other deductions. Once the taxable value is known, the FBT rate is applied. Finally, the FBT amount is used to calculate the employee’s tax liability for using the company car.
The FBT rate is dependant on various factors, such as the type of car, its cruising capacity, the length of time it has been in the company’s possession and the length of time that it is used by the employee. All these factors determine the FBT amount that needs to be paid by the company.
It is important for employers to understand the calculation of FBT on company cars, as this will help them minimise the amount of FBT they need to pay and also make sure that they are compliant with the laws and regulations. It is also beneficial for employees to understand the calculation of FBT, as they are ultimately liable to pay income tax on any benefits they receive from their employer.
The FBT Exemption
There are now certain exemptions from the FBT, which are designed to reduce the amount of tax that employers need to pay. Exemptions are available for cars that are used for business purposes and for cars that are seen as a necessary requirement for the job. In addition, there are exemptions for particular types of cars, such as electric and hybrid cars.
It is important for employers to understand these exemptions, as they can save them significant amounts of money when it comes to FBT payments. It is also beneficial for employees, as they may be able to receive the benefit of a company car without having to pay additional tax.
The Cost Of FBT On Company Cars
The cost of the FBT on company cars can vary significantly depending on the type of car and the length of time it has been in use. In general, the FBT rate can be anything from 20-48% of the taxable value of the car, depending on its categorisation. A higher FBT rate is then charged on cars with higher cruising capacities, such as luxury cars.
In addition to the FBT rate, companies should also take into account the various costs associated with a company car. These can include running costs, fuel costs, insurance costs, maintenance costs and registration costs. All these costs add up and can make owning and using a company car a costly endeavour.
The Benefits Of Company Cars
Despite the increased costs associated with a company car, there are still many benefits to owning and using one. These include convenience, a sense of company loyalty, access to better and more reliable transport, improved status, higher efficiency and an additional income stream.
The decision to offer a company car should be made after careful consideration. Companies should always seek professional advice when making decisions about these types of taxes and incentives in order to ensure they are compliant with all relevant laws and regulations.
The FBT Impact On Company Finance
The fringe benefit tax can have a significant impact on a company’s finances depending on the number of company cars in use. The higher the FBT rate, the higher the tax burden on the company and the more money that needs to be allocated to ensure compliance. For SMEs and start-ups, this can be particularly challenging, as the money set aside for FBT is money that cannot be spent on other business activities.
Companies need to ensure that any money allocated for FBT payments is kept to a minimum, while still ensuring compliance with the relevant laws and regulations. To do this, they can take advantage of the various exemptions and deductions that are available, as well as seek professional advice.
The Need For Professional Advice
Due to the complex nature of FBT on company cars, it is important for employers to seek professional advice when dealing with this issue. Doing so will ensure that the tax burden is kept to a minimum, while still ensuring compliance with the relevant laws and regulations.
Professional advisers can offer advice and assistance on a range of topics, such as how to calculate the FBT, how to take advantage of exemptions and deductions and how to ensure compliance with the law. They can also provide advice on how to ensure that taxes are kept to a minimum, while still providing employees with the necessary benefits.
Minimising The FBT Burden
The fringe benefit tax on company cars can be a significant burden for employers. However, there are a number of ways to minimise this burden. Firstly, employers should take advantage of any exemptions and deductions that are available, as this can help reduce the amount of tax that needs to be paid.
In addition, employers should consider the advantages and disadvantages of offering a company car. While they can provide certain benefits to employees, they can also be costly in terms of FBT payments. Employers should always seek advice before making any decisions about offering a company car.
The Impact On Employee Performance
In addition to the financial considerations of offering a company car, employers should also consider the impact it may have on employee performance. It is important for employers to ensure that any benefit paid is not excessive and does not result in an unfair financial advantage for the employee. Employers should bear in mind that offering a company car can motivate employees and boost their productivity.
Finally, employers should take into account the impact that offering a company car may have on their other employees. Doing so will help ensure that the benefit is fair and balanced, while also motivating employees to strive for better performance.
The Financial Impact On Employees
It is also important to consider the financial implications of offering a company car. While the benefit may seem attractive to employees, they should be aware of the tax implications associated with taking up the offer. Employees should seek advice from a professional to understand their tax liability and ensure that the offer is beneficial to both the employer and the employee.
In addition, employees should consider the cost of running and maintaining a company car. Fuel and maintenance costs can add up over time, and employees should ensure that they are prepared for these additional costs when deciding whether to take up the offer of a company car.
The Advantages Of Company Cars
Despite the costs associated with FBT on a company car, there are still a number of advantages to be had from offering one. These can include increased efficiency for employees, improved productivity, higher status and a sense of company loyalty. For these reasons, it is important for employers to consider the pros and cons of offering a company car before making a decision.
Ultimately, offering a company car can be a beneficial incentive for employees, as long as the costs associated with it are understood and managed properly. By understanding the calculations of FBT, employers can better manage their costs, while employees gain the advantage of a company car.
