Computation of FBT Liability on Car Fringe Benefits for Employers

TAXATION LAW
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Introduction
Fringe benefits are essentially non-cash benefits provided to employees. It is imperative to
note that these benefits are extended for personal use. There are various types of fringe
benefits that may be extended to employee such as employer paying private expense of
employee, providing loan at subsidised interest rates, waiver of debt, car parking benefits and
other benefits. One of the most common fringe benefits is the car fringe benefit. It is
imperative to note that the car fringe benefits would tend to arise when an employer owner
car is provided to the employee for personal purpose. The same would also be used for work
purposes but private usage is critical. The car fringe benefits are dealt with Division 2 in Part
III of the Fringe Benefit Tax Assessment Act, 1986 (FBTAA 86) (Krever, 2016). The
objective of the given report is to highlight car fringe benefits and the computation of related
FBT liability on employer. It is noteworthy that no car related FBT liability would arise on
the employee.
Car Fringe Benefits
In accordance with s. 7(1) FBTAA 1986, it is assumed that the car fringe benefit is extended
if the car provided by employer or an associated of the employer is used for private or
personal work by the employee or concerned associate of employee. Also, it is noteworthy
that the actual usage of the car for private purpose is not mandatory as the conduct of the
employer and employee in terms of car can also indicate that private usage of car is allowed
or not (Barkoczy, 2017). This has been highlighted in s. 7(2) FBTAA 1986 as per which if
the employer owned car is garaged at the employee or associate residence or near the same,
then it would be assumed that the vehicle is available for private usage irrespective of the
employee or associate actually engaging in the same. Further, it is noteworthy that there are
certain car benefits which are exempt as has been defined in s. 8 FBTAA 1986. Also, the
scenario, where the car is exclusively used only for business or work purposes, the underlying
FBT implications would not arise since private usage is absolutely necessary. (Sadiq et. al.,
2016).
Computation of car related FBT
As highlighted above, the entire FBT liability falls on the employer and no FBT liability has
to be borne by the employee. The computation of FBT liability is not a one-step procedure
and instead involves three different steps. The first of these relate to computation of the car

fringe benefits that are extended to the employee and the next step is to compute the taxable
fringe benefits while finally the FBT liability is computed using the taxable car fringe
benefits. The various steps related to computation of FBT liability for employer on account of
car fringe benefits are demonstrated in detail as highlighted below.
Step 1
The first step with regards to computation of car fringe benefits is the computation of the
taxable value of the car fringe benefits in accordance with subdivision B, Division 2, Part III
FBTAA 86. In this regards, there are two possible approaches which are highlighted below.
1) Approach 1 – Statutory Formula as highlighted in s. 9 FBTAA 86
The relevant formula under this approach is as highlighted below (Barkoczy, 2017).
The various key inputs are explained as follows.
 Base value of the car – As per s. 9-2 FBTAA 86, this is the sum total of the cost price of
the car (depreciation adjusted if holding period exceeds 4 years) and the capital
expenditure of any non-business accessory that has been installed in the car and remains
there when the car fringe benefits are extended to the employee (CCH, 2013).
 Number of days of fringe benefit being provided – As FBTAA 86, the number of days
essentially refers to the days for which the car was available to the employee for private
usage. It does not matter when the employee started the private usage or the days when he
did not use it on purpose. The availability is the key factor and not the actual usage. As a
result, if the car is parked in the airport parking while the taxpayer is away would not lead
to any deduction of provide usage since the employee or associate can potentially use the
car if they desire. Also, with regards to deductions of days in case of repair, these are only