The operating cost method of calculating the FBT payable on a car fringe benefit requires more onerous paperwork to be kept than the statutory formula method. Part of this paperwork includes maintaining a log book of travel undertaken in the car for a minimum period of 12 weeks.
The logbook that is kept is then used for the purposes of assisting the determination of the relevant business use percentage applicable to the car. Where an employer has a large fleet of vehicles for which the log book method is utilised this can be a compliance burden.
The ATO has recently issued Practice Compliance Guideline PCG 2016/10 – Fleet Cars: simplified approach for calculating car fringe benefits. PCG 2016/10 provides an optional, simplified approach to working out the ‘business use percentage’ component of the operating cost method for employers with a fleet of 20 or more cars.
If an employer meets certain criteria specified in the guideline, the employer can apply an average business use percentage to all ‘tool of trade’ cars held in the fleet in the log book year and the following four years. If the criteria are satisfied the approach can be used starting in the 2016-17 FBT year.
The Guideline will apply to an employer if all of the following criteria are met:
- The employer has a fleet of 20 or more cars.
- The cars are ‘tool of trade’ cars.
- The employees are mandated to maintain log books in a log book year.
- The employer holds valid log books for at least 75% of the cars in the log book year.
- The cars are of a make and model chosen by the employer, rather than the employee.
- Each car in the fleet had a GST-inclusive value less than the luxury car limit applicable at the time the car was acquired.
- The cars are not provided as part of an employee’s remuneration package (for example, under a salary packaging arrangement), and employees cannot elect to receive additional remuneration in lieu of the use of the cars.
In regards to the second criterion, at first instance one may think that the term ‘tool of trade’ cars refers to cars that are traditional workhorse vehicles such as utes, dual cabs, panel vans and the like. However, this is not the case. For example, cars provided to sales representatives where they are subject to extensive business use fall within the guideline.
For the purposes of the fifth criterion, a car will be taken to have been chosen by the employer if selected by the employee from a limited list of cars nominated by the employer, such as for the purposes of meeting work, health and safety requirements.
If an employer meets the above criteria, it can apply an ‘average business use percentage’ to all tool of trade cars held in the fleet in the log book year and the following four years.
The average business use percentage is calculated by:
- gathering all log books kept for each car in the fleet;
- determining which of those log books are valid;
- confirming the employer has valid log books for at least 75% of the cars in the fleet; and
- calculating the average of the business use percentages determined in accordance with each of the valid log books.
The calculation for the purposes of the last dot point can be undertaken by either summing the percentages determined by each of the valid log books and dividing by the number of valid log books, or by summing the business kilometres recorded in each valid log book and dividing by the total kilometres recorded in each valid log book. Whilst the Guideline does not explicitly state that the higher percentage can be used, given that the ATO accepts both methods it appears that this is the situation.
This simplified approach can be applied for a period of five years in respect of the fleet provided the fleet remains at a minimum of twenty cars.
The approach outlined in the Practical Compliance Guideline is commendable and should be a useful approach for employers with large car fleets that adopt the operating cost method.
Two matters that are not entirely clear in our view are the third and fourth criteria. Is it a requirement that employees are directed to keep a log book in the same year for all the cars in the fleet, or where log books are currently in existence, can these be used in addition to current year log books?
We are endeavouring to clarify this requirement and will advise any update in a future edition.