Company cars - don't forget your FBT obligations

If you run your own business and have bought or are thinking about buying or leasing a company car, make sure you consider your fringe benefits tax (FBT) obligations.

Recent checks of luxury cars by the Tax Office found that many company owned or leased cars used by employees didn’t account for FBT – resulting in some hefty tax bills for employers.

In a recent case involving an employee and an employer, an employer failed to lodge an FBT return for a number of years and when followed up by the Tax Office received a default FBT assessment of over $100,000 (including penalties).

The employer argued in the Administrative Appeals Tribunal that the assessment was excessive and that the car was only used for businesses purposes. However, because there were insufficient records to support this claim the AAT upheld the Tax Office assessment.

To avoid getting stung remember these key points:

Cars garaged near an employee's home are considered available for the employee's private use.

If a car is garaged at or near an employee’s home, the FBT law deems it as available for the employee’s private use, regardless of whether the employee has permission to use the car privately. As a general rule, travel to and from work is private use of a vehicle.

Keep accurate and up-to-date log books.

You need to be able to prove to the Tax Office that the car was used for business purposes so it’s important to keep these records up to date and accurate.

The Tax Office is not just checking on the private use of luxury cars. Last April the Tax Office announced a motor vehicle data match on vehicles with a value of $10,000 or greater sold or transferred between 1 July 2007 and 30 June 2008.

If you’re an employer and have an FBT obligation that you haven’t declared you’re better to lodge your return late than risk further penalties down the track.

Those who make a voluntary disclosure of an FBT discrepancy before being contacted will minimise their penalties.

More information about car fringe benefits is available from the Tax Office website www.ato.gov.au/businesses

Last Modified: Thursday, 20 August 2009

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