Implications on fringe benefit tax
Scenario:
Our company provides short-term car hire (less than three months) to senior executive officers when their vehicles undergo major repairs at the workshop. The majority of these hire car costs are covered by insurance.
Due to a road accident, an employee Andrew ‘s vehicle has been sent to the workshop to undergo major repairs, and our company has provided him with a short-term hire car to use. Our company paid $660 (including GST) for the vehicle hire costs. The hire costs include rental charges and fuel. We received a refund in the amount of $400 for the car hire as insurance proceeds.
What is the type of benefit that has been provided? How does the taxable value of the benefit calculate? Will the insurance proceeds ($400) reduce the taxable value of the benefit as they are not costs ultimately incurred by the company? Does the above the advice change if our company’s insurer arranges and provides the car hire directly with no costs to be paid by us? Are there any exemptions available under the FBT legislation?
Explanation:
Section 7(7) of the fringe benefits tax Assessment Act 1986 provides that hire cars, such as cars hired from a commercial hiring company, are not covered by the car fringe benefit provisions unless there are successive hiring periods that result in a substantial continuity of hiring the car. If entities hire a car for less than three months, they are not considered to “own” the car and therefore, it will not result in a car fringe benefit. Cars that are hired for periods that do not result in substantial continuity of hiring of three months or more are taxed under the residual fringe benefit provisions where the hiring contract is in the employer’s name. FBT is payable in the following for such a vehicle:
- If the logbook is missing
- If the logbook data is incomplete
- If the logbook data has any discrepancies in its details such as gaps in the mileage recorded, and
- On all non-business use.
The presence of a fully completed logbook will reduce the taxable value of the residual fringe benefit. The benefit is calculated by taking the cost price (the cost of the provisions of the benefit) less any contribution from the recipient. Assuming the recipient has paid nothing, the cost paid by your company will be the cost of hiring the vehicle less any insurance contribution (the net cost). Only the private use part is subject to FBT, hence it is essential to keep a logbook in order to apportion the cost. If the insurer provides the car at their cost as part of the insurance policy, there would be no FBT since your company will have incurred no cost on which FBT could be levied. There are no exemptions from FBT in this case.