Member Q&A: Can the operating cost method be used even if no logbook has been kept?

Question

We have had many staff home garage cars due to COVID lockdown and these cars were only driven for maintenance purposes. The ATO has indicated that for the purpose of operating cost method the cars will not be ‘held’ for the purposes of providing fringe benefits during that period. Are we able to choose the operating cost method for these cars even if no logbook was kept in the current year or previous 4 years?

Answer

We are aware of certain ATO guidance indicating that if no logbook records are maintained, the statutory formula method must be used to value the car fringe benefit.

However, technically this position is not correct.

Section 10 of the FBT Act allows an employer to elect to use the operating cost method to value a car fringe benefit. However there does not appear to be anything in the legislation requiring that a logbook be kept.

Of course, if no logbook is kept, there is no reduction for any ‘business use percentage’ meaning the taxable value will be equal to 100% of the cars operating costs for the year (noting that where the car is accepted as not being held for the purposes of providing fringe benefits during some or all of a year the operating costs included in taxable value will not include costs related to that period).

It is often overlooked that an employer can use the operating cost method despite not holding a log book. Only in rare circumstances will it produce a better outcome however for older cars and in the type of situation raised by the question (refer ATO position) this possibility should not be overlooked.

It is important to remember that an employee must elect to use the operating cost method and there is a provision in the law that overrides the election where the operating cost taxable value exceeds the taxable value that would be determined using the statutory formula method.

The ‘override’ provision is reproduced below.

10(5) [Election deemed not made if lower taxable value results]

Where:

(a) an employer elects that this section apply in relation to all the car fringe benefits in relation to the employer in relation to a year of tax that relate to a particular car; and

(b) the taxable value, or the aggregate of the taxable values, as the case requires, of the car fringe benefits that relate to the car ascertained under subsection (2) of this section exceeds the taxable value, or the aggregate of the taxable values, as the case requires, that would have been ascertained under section 9 if that election had not been made;

This Act (other than section 162G) applies, and shall be deemed always to have applied, for the purposes of ascertaining that taxable value, or the aggregate of those taxable values, as the case requires, as if that election had not been made.

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