Fringe benefit tax: Private use of vehicles
Is your employee about to use a work vehicle for their Christmas holiday road trip? Such a perk is known as a fringe benefit – and is taxed.
Businesses often provide perks for employees in addition to their salary or wages. One example is having a vehicle available for private use by employees.
The most important point to remember is you’ll have to pay FBT, whether or not your employees actually use the vehicle. Just having the vehicle available for their private use makes it a fringe benefit. You will need to register with Inland Revenue for FBT and file FBT returns.
What is 'Private use'?
Private use includes travel by an employee from or to their home, and any other travel that involves a personal or domestic element.
If you're a sole trader or partner in a partnership and you use a business vehicle privately, you don't have to pay FBT. But you will need to account for the private use by making an adjustment in your income tax and GST returns. Use a logbook to keep track of your business use.
Keep records
If you allow private use of a work vehicle by an employee, you must keep records that:
- identify the vehicle, including make, model and registration
- support the market value or cost price
- show how you’ve calculated the liable and exempt days, with supporting documents for any exempt days
- keep copies of any private use restriction (usually a letter or notice to the employee)
- show how any employees’ contributions for each quarter were calculated, with supporting documents.
Case study
Michael’s employer gives him unlimited use of a company vehicle. He decides to visit his relatives in Taupo for Christmas. The petrol costs $170 for the trip and he pays for this himself.
He gives the receipt to his employer, as it’s needed to work out the taxable value of the benefit.
His employer can’t claim the GST on the petrol or include the amount as an expense against income.
When working out the taxable value of the benefit, Michael’s contribution, ie the petrol money, is deducted. If Michael’s employer reimburses him in full for the $170, that amount will not be deducted.
Employee contribution
If the employee pays towards having the fringe benefit, that amount is deducted from the benefit received when working out its taxable value. And it must be recorded as income for both GST and income tax purposes.
Exemptions
Exemptions can apply when the employee stores a work-related vehicle at home but isn’t allowed to use it privately.
Not all business vehicles are work-related vehicles for FBT purposes. To qualify the vehicle will generally have to be a ute, van or a truck that isn’t principally designed to carry passengers.
To qualify for work-related vehicle FBT exemptions you have to meet four requirements. Check Inland Revenue’s Fringe benefit guide (IR409)(external link) for details.
Partial exemption
If you let an employee use the vehicle on certain days, such as Saturdays, Sundays and statutory holidays you may be entitled to a partial rather than a full exemption from FBT. This means you only pay FBT for the days the vehicle is available for private use.
Daily exemption
Even if an employee can privately use a vehicle, it may still be exempt from FBT on certain days due to:
- emergency calls
- unavailability of the vehicle, eg when it’s being repaired.
