I’m going to purchase a car in my company name to get back the GST. Sounds like a good idea, but beware of the FBT consequences. You know there will be some private use on that car, so it is good to consider this up front, before the FBT bill becomes larger than the cost of the car.
Most people that consider this as great idea are small businesses, especially with home as their registered business address. So the lines are already blurred between home and work or in FBT parlance – business and private use.
What are the factors to consider for FBT?
Firstly, you have two choices of method to use to determine the taxable value of the car for FBT purposes – statutory formula method (stat method) or the operation cost method (op cost method).
The stat method adjusts the taxable value for private use by “the number of days in the FBT year when the car was used or available for private use of employees”. This means that a FBT liability will arise on any day on which the car is available for private use, irrespective of any actual private use on that given day. Where your home is your office, your car will be available for private use for the whole year!
So with a statutory method percentage of 0.2, you could be paying tax on full price of the car over five years. With a FBT rate of nearing 50%, the FBT will be the full cost of the car in around 2.5years. This is just to get the 10% GST back on purchase. Hardly a wise move.
However, the op cost method is a little kinder, especially to these home businesses. The op cost method adjusts the taxable vale for private use by “the percentage of private use” being the private km over the total km travelled in the car. The private km is determined by subtracting from the total kilometres travelled in the car the number of kilometres travelled on business journeys. A logbook is used to substantiate the percentage claimed and needs to be maintained for a minimum of a 12 week continuous period.
In relation to claiming the GST back, a back of the envelop calculation suggests that business use needs to be in excess of 80% to make it cost effective. But do your own math!
The devil is in the detail!
You are permitted to chose the method that yields the lowest taxable value.
So, you have decided to chose the op cost method. By using this method, and paying sufficient personal contributions, your tax value to nil. No FBT liability. Awesome!
But, you haven’t finished yet – you must elect to use the op cost method. The stat method is default, so used if you “do nothing.”
To make this election, you must lodge your FBT return by 21 May.
There isn’t a box to tick for the election on the FBT return. You must keep records to support your calculation should an ATO review or audit be triggered.
It is FBT season, so get all your planning done by 31 March.
ATO have announced that car benefits will definitely be a focus area this FBT season.