Close companies who provide a motor vehicle for the private use of shareholder-employees have been required to register and pay FBT on the value of the benefit provided. The value is based on the availability of the motor vehicle rather than the actual private use by the shareholder-employee. This approach can result in compliance costs being higher than they need be for these close companies as they are required to register and pay FBT.
Amendments made to the legislation provide an alternative to this and apply to new vehicles after 1 April 2017.
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 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. This involves either a log book to work out the percentage of business use OR a mileage calculation at the end of the year.
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.
It will depend on the percentage of use your vehicle is used for business as to whether the FBT or the percentage claim is better.
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