FBT and older vehicles

In the vast majority of cases fringe benefit tax (FBT) on vehicles is paid based on the GST inclusive cost price of a vehicle. But it is worth considering application of the depreciated tax value (TV) method if you have older vehicles on which FBT is being paid.

Under the TV method, the value of the benefit for FBT purposes is calculated based on the depreciated value of a vehicle. It is typically not used from acquisition because it front loads the FBT cost into the first years of ownership and the benefit of its use doesn’t come until later.

The method chosen in the first FBT return for a specific vehicle, must continue to be used for that vehicle for five years. Hence, use of the TV method can only be considered after that initial five year period has finished. However, if FBT is being paid on vehicles that have been owned for more than five years, a comparison to the TV method should be made – it is likely to give rise to a lower FBT cost.

The fringe benefit value is calculated based on nine percent of a vehicle’s TV value (at the beginning of the year). The nine percent rate is based on a GST inclusive value. If GST was deducted on the cost of a vehicle and you wish to use your fixed asset register, the rate of 10.35 percent applies. The minimum TV value that can be used for a vehicle is $8,333.

It is worth checking your vehicle register and if the TV method is an option, run the numbers, the greater the original cost of the vehicle, the greater the potential saving.

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