Operating Cost Method – importance of record keeping

In Prestige Form Group NSW Pty Ltd v Commissioner of Taxation [2026] ARTA 627, the Administrative Review Tribunal (ART) considered whether a construction business had correctly dealt with FBT obligations for fleet vehicles, and whether administrative penalties imposed by the Commissioner were justified.

Facts

Prestige Form Group NSW Pty Ltd operated a concrete formwork business in New South Wales. The company owned or provided several vehicles to employees and associates over multiple FBT years. Vehicles provided included luxury vehicles such as Range Rovers and a Jaguar.

The company did not lodge FBT returns for the relevant years.

The ATO audited the company and concluded that car fringe benefits had arisen in relation to a number of vehicles because they were available for private use, including being garaged overnight at employees’ homes.

Prestige argued that:

• some vehicles were exempt work vehicles,
• some vehicles were not used privately, and
• the taxable value should be calculated using the operating cost method rather than the statutory formula method.

The company relied on logbooks and other records to support the claimed business-use percentages.

However, the Tribunal found substantial deficiencies in the records, including concerns about whether the logbooks were contemporaneous and reliable.

Decision

The Tribunal accepted that some of the vehicles were exempt or did not give rise to FBT liability, but it found that at least two vehicles clearly constituted taxable car fringe benefits.

Importantly, the Tribunal held that Prestige was not entitled to use the operating cost method because:

• the required logbook evidence was inadequate,
• the records were not sufficiently contemporaneous or reliable, and
• no valid and timely election had been made to use the operating cost method.

As a result, the taxable value of the benefits had to be calculated using the statutory formula method.

The Tribunal also refused to exercise the discretion to allow a late election to use the operating cost method. It considered that the taxpayer had failed to maintain the required records and had not demonstrated appropriate compliance behaviour.

Significance

The decision reinforces several important FBT principles:

• vehicles garaged at employees’ homes are deemed as available for private use;
• the operating cost method is only available where strict record-keeping requirements are met;
• contemporaneous logbooks are critical; and
• failure to lodge FBT returns can expose taxpayers to significant assessments and penalties.

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