Find out when you need to pay fringe benefit tax (FBT) on motor vehicles, how to work out their taxable value and what records you need to keep.
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:
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.
The reality is that as long as a motor vehicle is made available for private use, FBT is payable, whether they actually use it or not.
There are 3 exemptions from FBT for motor vehicles that you may qualify for. There are explained below. For full details see the Fringe benefit tax guide (IR409).
Work-related vehicles are exempt from FBT if they meet all of the following conditions:
You should also carry out and record regular checks to ensure the restriction is being followed, such as reviewing logbooks and petrol receipts.
While vehicles with a gross laden weight of more than 3,500 kilograms are not subject to the FBT motor vehicle rules, in certain circumstances where a heavy vehicle has been provided to an employee for private use (eg transport), an unclassified benefit may arise.
If an employee uses the vehicle to attend an emergency call, an exemption from FBT may apply for that whole day. To qualify, the following criteria must be met:
There are no time restrictions when the visit occurs on a Saturday, Sunday or public holiday or the visit relates to health and safety.
Employees who are required to travel on a regular basis with a vehicle may qualify for the business travel exemption when:
A vehicle will also be exempt from FBT when it is unavailable to the employee for at least 24 hours, eg if the vehicle has broken down or is being repaired.
From the 2017-18 income year onwards some close companies can elect to opt out of the FBT rules. To qualify, they must have only 1 or 2 motor vehicles available for private use by their shareholder-employees, and provide no further benefits. If you choose not to use the FBT rules you'll have to:
You must make an election by the due date for filing your income tax return covering the year the motor vehicle is:
To make an election you can include a note that the company is opting out of the FBT rules with this income tax return
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 cost price, or tax value, of the vehicle and the number of days it is available for private use. Both FBT valuation methods may be calculated on a GST-inclusive or GST-exclusive basis.
If you provide a vehicle to your employee that's available for their private use, you need records that:
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 2 days per week”, as this would mean the vehicle is available on any day, and full FBT would apply.
You need to keep the following records for any motor vehicle exempt from FBT:
You should also conduct and record quarterly checks 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.
You can use a 3 month test period instead of recording every exemption. To use the test period, keep full records for 3 months then use the results to calculate FBT for a 3 year period. After 3 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:
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.