There are two methods that an employer can use to calculate the fringe benefits tax (FBT) liability on a car: statutory method and the operating cost method.
Those employers that use the operating cost method are required to rely upon a car logbook kept by their employer. Care needs to be taken when using this method, as there has been recent ATO audit activity which has uncovered major problems with car logbooks.
The logbook is a daily logbook (or similar document) used to support the purported ‘business use percentage’ of a car when calculating the taxable value of car fringe benefits under the operating cost method. An employer (and, by extension, an employee) is generally required to maintain a valid logbook over a 12-week period, with a new logbook required at least once every five years.
Based on the logbook (as well as odometer readings and other records), an employer makes a reasonable estimate of the number of business kilometres travelled by the car (and, with that, its business use percentage), taking into consideration any variations in the car’s pattern of use.
A logbook should contain the date on which each business journey begins and ends, with odometer readings both at the beginning of the business trip and the end of the business trip. It should also contain the purpose of the trip.
If the above details are not included in the logbook, then the ATO may either disregard some of the entries or, the worst-case scenario, invalidate the logbook. If the logbook is invalidated, they will then deem the car to be used 100% for private purposes increasing the FBT payable.
As a saving grace, if this results in a higher taxable value than would have been the case under the statutory method, then the taxable value can be calculated under the statutory method (i.e. basically, being 20% of the car’s cost price, reduced by any employee contributions). Importantly, this is the case even if the higher taxable value under the operating cost method is due to the ATO disregarding part, or all, of an employer’s logbook.
It is also important to note, that an employer can’t simply use the valid logbook from year to year especially if the pattern of business use has changed, so an assessment is required to be made every year to ensure that the business percentage that is being used is still reasonable.
Our recommendation is that each year, the employer checks all logbooks kept by their employees (especially if they have kept them in the current year) to ensure that they comply with the requirements so that the risk of non-compliance is minimised.
This article was first published in the Winter 2023 issue of HLB Mann Judd Perth’s Client Alert.