Are you allowing your employees to garage your business vehicles at their homes? There is a potential Fringe Benefits Tax (FBT) implication here. Read on.
With people spending more time at home than ever before, one unintended consequence is the garaging of work cars at home which may lead to FBT obligations for the employer. Generally, a car fringe benefit will occur where a business makes a car that it owns or leases available to employees for private use. Usually, if your employee is garaging a work car at home, you would be deemed to be providing them with a car fringe benefit.
The ATO understands that during this period, unintentional garaging of the car at an employee’s residence may create perverse FBT outcomes for businesses. As such, it noted that where a car has not been driven at all during the period that it was garaged at the employee’s residence, or has only been driven briefly for the purpose of maintaining the car, it will accept that you do not hold the car for the purpose of providing fringe benefits to your employee.
In these situations, according to the ATO, provided you elect to use the operating cost method, there will be a nil taxable value for the car and no FBT liability. Remember, to use the operating cost method, you will need to elect the method in writing before you lodge your FBT return for the year. Odometer records also need to be maintained to show that, during the period the car was garaged at the employee’s residence, it has not been driven, or has only been driven briefly to maintain the car.
If you do not elect to use the operating cost method, or don’t have odometer records, the statutory formula method would apply, and you may have an FBT liability for the year. The ATO notes that this is because the car was garaged at the employee’s home and is taken to be available for private use regardless of whether or not it was actually used.
Therefore, it may be beneficial for businesses currently using the statutory method to switch to the operating method for the 2020-2021 FBT year as it may reduce the taxable value of any car fringe benefits and any associated FBT liability. Particularly if the employees are driving the cars garaged at their residences for business purposes. However, to use the operating cost method, remember you will need to have logbook and odometer records for the period in question, the requirements of which vary depending on whether you’re electing to use the operating cost method for the first time.