Easing of log book requirements

If your organisation runs 20 or more cars that are used extensively for business purposes, you may be struggling to get a properly completed log book for each one, and either spending hours chasing them down or be left paying more Fringe Benefits Tax (FBT) than you should.

If that sounds like you, here’s some good news!

The Australian Taxation Office recently set up Safe Harbour Working Groups with a mission to reduce red tape for taxpayers. Grant Thornton Australia Partner, Elizabeth Lucas, has been working with the FBT working group to come up with some solutions.

The first FBT safe harbour to get off the ground applies where:

• you have a fleet of 20 or more cars
• the cars are used extensively for business purposes
• the cars are not predominantly for private use (e.g. not executive team vehicles)
• the cars are not part of a salary package – i.e. the employee could not expect to be paid more if they didn’t have the use of the car
• the drivers are required to keep log books every five years
• the employer chooses the make and model of the cars (or a creates a limited list of cars from which the employee can choose); and
• the cars all fall under the luxury car limit applicable at the time of their acquisition

If all of the above conditions are satisfied and you are able to obtain valid log books for at least 75 per cent of the cars, then the overall average business use percentage evidenced by those log books may be applied to the total running costs of each car in the fleet in order to calculate its fringe benefits taxable value under the “operating cost method”.

The average percentage can be obtained by averaging the percentages calculated for each log book, or by averaging the total business kilometres recorded in all the log books as a percentage of the total travel.

The taxable value calculated under this safe harbour applies both for the purposes of lodging the FBT return and reporting fringe benefits on the employees’ payment summaries. However, remember that cars used for private purposes by more than one employee in the FBT year are not reportable on employees’ payment summaries.

Implications

To make the best use of this safe harbour, we suggest that you:

• determine which cars already have valid log books completed in the last five years
• if this is less than 75 per cent of your fleet, make sure you get to 75% by then end of the FBT year (end of March)
• if you already have log books for 75 per cent of your fleet, you can relax! (or at least spend your time on more useful activities than chasing log books!)

On an ongoing basis, we recommend a register be maintained to show when valid log books were maintained for each car, so you can easily see whether you’ve hit the 75 per cent target and when you might need to get a few more log books in for your fleet.