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Motor vehicles and fringe benefit tax
Find out who needs to pay fringe benefit tax (FBT) on motor vehicles, how to work out their taxable value and what records you need to keep.
What's on this page
As an employer, if you make a vehicle available to an employee to use privately you’ll have to pay FBT.
You pay FBT on vehicles made available to:
- employees (and their associated persons), and
Sole traders and partners in a partnership don't pay FBT on business vehicles they use. Instead they make income tax and GST adjustments for private use.
Misconception: You only pay FBT on a motor vehicle if an employee uses it privately
The reality is that as long as a motor vehicle is available for private use, FBT is payable, whether they actually use it or not.
Vehicles with a gross laden weight of more than 3,500 kilograms are not subject to FBT.
Vehicles are also exempt from FBT if they meet all of the following conditions:
- The principal design of the vehicle isn’t for carrying passengers.
- The exterior of the vehicle permanently and prominently displays business signage.
- You notify employees in writing that the vehicle is available only for travel between home and work and travel incidental to business, eg passing by the bank on the way home from work.
- You carry out regular record checks to make sure employees are following vehicle restrictions.
You don’t have to pay FBT for the days a motor vehicle is:
- on an emergency call
- used for out-of-town travel, or
- unavailable to the employee for at least 24-hours, for example if the vehicle has broken down or is being repaired.
For the 2017-18 and later income years some close companies can elect to opt out of the FBT rules if they have one or two motor vehicles available for private use by their shareholder-employees. If you choose not to use the FBT rules you'll have to:
- apply the rules for vehicle expenditure in your income tax return, and
- make an adjustment for private use under the rules for motor vehicle expenditure.
You can make an election in your income tax return for the year the motor vehicle is:
- acquired, or
- first used for business use.
An election is only valid if it is included in the income tax return by the due date for filing.
Once you make an election for a motor vehicle you can't return to using the FBT rules for that vehicle unless the vehicle is disposed of or the close company stops using the vehicle for business use.
Adjustments for private use may also need to be made for GST. Find out more in our GST guide (IR375).
The taxable value of a motor vehicle is based on the GST-inclusive cost, or tax book value, of the vehicle and the number of days it is available for private use.
If you provide a vehicle to your employee that's available for their private use, you need records that:
- identify the specific motor vehicle
- support the market value or cost price
- show how the liable days are calculated for each quarter, with supporting documentation for any exempt days. If there are no exempt days in a quarter you don't need to keep a record of days
- outline any private use restriction (usually a letter or notice), and
- include working papers showing how the total of any employees' contributions for each quarter was calculated, with supporting documentation.
Work-related vehicles partially available for private use
You need to keep a copy of the written notice explaining a vehicle is partially available for private use.
The written notice must have the actual days the motor vehicle is available, eg Saturdays and Sundays or statutory holidays. These days must be specific. For example, they can't be “any two days per week”, as this would mean the vehicle is available on any day, and full FBT would apply.
Vehicles exempt from FBT
You need to keep the following records for any motor vehicle exempt from FBT:
- a description of the vehicle to show that it qualifies for the exemption
- a copy of the written private use letter or notice
- records of the quarterly checks required to ensure the vehicle isn't used for unauthorised private use.
These records provide evidence that a vehicle meets the requirements of a vehicle exemption.
Daily exemption test period
If you claim daily exemptions, you must keep records to prove the days you claim.
You can use a three-month test period instead of recording every daily exemption. To use the test period, keep full records for three months then use the results to calculate FBT for a three year period. After three years you’ll need to run a new test period.
You need to run your test period over a specific time depending on your filing frequency. If you file each:
- quarterly - run your test over a full quarter
- annually - run your test over one full quarter in the year
- income yearly - run your test over any three consecutive months in the year.
Start using the results to calculate your FBT from the first day in the quarter or income year the test is in, or 1 April of the year the test is in for annual filers.
If the actual number of exempt days is 20% higher than the test period result, the application will end on the last day of the quarter, year or income year and you’ll need to run a new test period.