FBT on motor vehicles refresher

FBT on motor vehicles refresher

As a refresher, a fringe benefit will arise when an employer makes a motor vehicle available to an employee for their private use, in connection with their employment relationship.

The amount of FBT payable depends on the value of the motor vehicle benefit. This is calculated based on either the cost price or depreciated value of the motor vehicle, multiplied by the applicable FBT valuation rate. The rate varies depending on whether the GST inclusive or exclusive cost or tax value is used - with the tax value method applying a higher percentage than the cost price method. As a result, the cost price method is typically used from ‘day 1’, while the tax value method becomes more favourable for vehicles that are held for more than five years.

The value of the fringe benefit is also apportioned by the number of days the vehicle is “available” for private use. It should be noted that the employee does not actually have to be using the vehicle for a fringe benefit to arise, it only has to be available for them to use. For example, if a vehicle is being repaired and is unavailable to the employee, this is generally considered an excluded day and would reduce the value of the benefit. Other examples of exemptions from days counted as available for private are where the employee is away on a business trip with the car for longer than 24 hours, or they are required to attend an emergency call. However, if an employee goes on a private holiday and uses their work vehicle to get to the airport, parking it there for the duration of their holiday will likely to be subject to FBT unless the employer and employee have specifically agreed otherwise.

If a vehicle qualifies as a work related vehicle, travel between home and work and other incidental travel on work days is not subject to FBT. To qualify as a work related vehicle:
  • it must be sign-written,
  • cannot be designed to mainly carry passengers, and
  • employees must be notified in writing that the vehicle is not available for private use except for travel between home and work and travel incidental to business travel.

Close companies may also choose to not apply the FBT rules to motor vehicles. This is allowed where the only fringe benefit provided is the provision of up to two motor vehicles to shareholder-employees for their private use. In this case, they may choose to apply the rules in subpart DE of the Income Tax Act 2007, where expenses can be claimed based on the proportion of business use of the motor vehicle.