Fringe benefit tax (FBT) must be paid for every day that a motor vehicle is available for an employee’s private use, even if they do not actually use it. Some businesses do not pay FBT or can opt out.
What is private use?
Private use includes travel from home to work and any other travel that benefits the employee personally, outside of their work.
However, if the vehicle meets the definition of a work-related vehicle for FBT, it is exempt if the only private travel is between the employee's home and work necessary for their employment or incidental to business use.
Who FBT applies to
Unless you have an exemption, you’ll need to pay FBT on your employees’ private use of motor vehicles. FBT may not apply if you’re a charity or close company.
Sole traders and partnerships do not pay
If you're a sole trader or a partner of a partnership, you do not pay FBT on business vehicles that you use privately. Instead, you can keep a logbook and make adjustments for private use in your income tax and GST returns.
Charities have special rules
Charities do not pay FBT on their employees' private use of work vehicles. However, if the charity runs a business outside their charitable purposes, they must pay FBT on any private use.
Close companies can opt out
If you're a close company, you can choose to opt out of the FBT rules for motor vehicles and apply income tax rules instead.
Exemptions
You may not need to pay FBT if a vehicle is work-related, is used for emergency call-outs or business travel, or is unavailable to the employee.
FBT exemptions for motor vehicles
Working out when a vehicle is available
Here are some ways you can work out how many days a vehicle is available for private use.
Start times for fringe benefit days
A fringe benefit day is a 24-hour period starting at midnight. However, you can choose the start time for a fringe benefit day based on your business needs.
This is called ‘making an election to start a 24-hour period’. It could stop you paying 2 days’ FBT when a vehicle is taken home overnight.
To do this, you can send a message in myIR or write to us, telling us the new start time and the FBT period that you want to use the new time from. If you choose to do this, the new start time is for a minimum period of 2 income years.
3-month test period
You can complete a 3-month test period for each vehicle instead of recording each exemption it qualifies for. You can use the results from a 3-month test period to calculate your FBT for each vehicle for the next 3 years. You must complete the 3-month test every 3 years, or until the vehicle is sold or otherwise disposed of.
The test period must fairly represent when you expect the vehicle to be available for private use by your employee over the 3-year period, not the actual days it is used privately during this time.
Vehicles owned by your employee
If you have an arrangement or agreement to use a motor vehicle that your employee owns, FBT applies when the vehicle is available for private use by the employee. This means any suspension clause (such as limiting use to 9am–5pm) is ignored. If the employee uses the vehicle privately, even outside the lease hours, FBT applies.
This also applies to your associated persons and vehicles owned by an employee’s associated person.
FBT is not payable if the vehicle is never available for the employee’s private use.
More information
Go to Part 2 - Motor vehicles in the Fringe benefit tax guide – IR409.