Car benefit and client lunch: FBT method choice and exemptions
TechCo Pty Ltd provides a sedan to Priya, a sales manager, from 1 April 2024. The car cost $45,000 including GST and is available for private use. Priya pays TechCo $100 per month for private use. A valid logbook for a 12-week period in 2024-25 shows 8,000 km business and 2,000 km private. Total odometer readings for the year are 25,000 km. TechCo's total operating costs for the car, including deemed depreciation and interest, are $15,000. The car is not a taxi or panel van. TechCo also paid $400 for a restaurant lunch for Priya and three clients. Priya's employment package does not include salary sacrifice. TechCo is registered for GST and can claim input tax credits on the car and the lunch. The FBT year ends 31 March 2025.
1. Calculate the car fringe benefit taxable value under the statutory formula and the operating cost method. Which method should TechCo use?
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Statutory formula: taxable value = base value × statutory rate × days available / 365 less employee contributions. Base value is $45,000. The statutory rate is 20%. Days available are 365. Contributions are $100 × 12 = $1,200. Taxable value = $45,000 × 0.20 × 365/365 less $1,200 = $9,000 less $1,200 = $7,800. Operating cost method: taxable value = total operating costs × private use percentage less contributions. The logbook shows 8,000 km business and 2,000 km private, so private use is 20%. Total operating costs are $15,000. Taxable value = $15,000 × 20% less $1,200 = $3,000 less $1,200 = $1,800. The operating cost method gives the lower taxable value, so TechCo should use it, provided the logbook is valid. A valid logbook must cover at least 12 continuous weeks, be representative of the year, and be retained. The car must be available for private use; it is not a taxi or panel van, so no exemption applies. The odometer reading of 25,000 km does not override the logbook percentage, but it should be consistent.
2. Calculate TechCo's FBT liability on the car and explain the gross-up and GST treatment.
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Use the operating cost taxable value of $1,800. The car is a GST-creditable benefit because TechCo can claim input tax credits on the car and its running costs. Use the Type 1 gross-up rate of 2.0802. Grossed-up taxable value = $1,800 × 2.0802 = $3,744.36. FBT rate is 47%. FBT = $3,744.36 × 47% = $1,759.85, rounded to $1,760. TechCo cannot claim a GST credit for the FBT itself, but it can claim GST credits on the car and operating costs to the extent they are for a creditable purpose. The employee contribution of $1,200 reduces the taxable value; if the contribution is GST-inclusive, TechCo should check whether it has any GST liability on the contribution. The FBT liability is separate from the car's depreciation and running costs, which are deductible to the extent of business use. TechCo should record the logbook, odometer, contributions and operating costs.
3. How should TechCo treat the $400 restaurant lunch for Priya and three clients?
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The lunch is meal entertainment. Only the benefit provided to Priya, or an associate, is a fringe benefit; the cost attributable to the three clients is business entertainment and is not subject to FBT. The employee portion is $400 × 1/4 = $100. The minor benefit exemption may apply if the taxable value is less than $300, the benefit is infrequent and irregular, and it is not provided under a salary sacrifice arrangement. On the facts, a one-off client lunch for $100 is likely exempt. If the exemption does not apply, TechCo can use the actual method or the 50/50 split method. The actual method gives a taxable value of $100. Because TechCo can claim GST credits on the lunch, use the Type 1 gross-up: $100 × 2.0802 × 47% = $97.77. The 50/50 method would generally produce a higher taxable value and should only be used if the employer elects and it is supported by records. TechCo should keep the receipt, the names of attendees and the business purpose.