What is FBT? Explainer & Implications for Car Finance

FBT may apply to vehicles provided by a company to an employee under all types of finance including some Novated Leasing. Where a vehicle is financed with Lease, Hire Purchase or Chattel Mortgage and the employee uses the vehicle for private purposes, FBT would apply.

FBT for vehicles financed with Novated Lease may not be subject to FBT depending on the salary sacrificing arrangements. Where the Novated Lease is subject to FBT under ATO rulings, this would represent a tax liability for the business. The business owner may or may not choose to include this liability in the employee’s salary sacrificed contribution.

Employers and employees are advised to refer to the ATO guidelines around the portion of the contribution by the employee through salary sacrificing which may or may not be subject to FBT.

When the Novated Lease is finalised and ownership of the vehicle transferred from the employer to the employee, no further FBT would be applicable.

• Some Novated Leases not subject to FBT.
• Novated Lease FBT subject to ATO rulings.

Let’s discuss it further.

The concept of FBT is straightforward – a tax on a non-salary, non-cash benefit provided to an employee by employer. Including, use of a business car for private purposes. Calculating the amount of FBT payable can be less straightforward.

As a simple guide FBT on motor vehicles, the percentage of mileage of a car used by the employee for personal purposes compared with the mileage for business use is calculated. FBT rulings typically require the car user to maintain a logbook over a set period to establish an average ratio of private to business use from which to calculate FBT payable. Depending on the calculation method opted for by the employer, the logbook may need to be maintained at all times, or for a set initial period after purchase of the vehicle.

This percentage is then applied to the total motor vehicle costs over the year made by the company– loan payments, registration, insurance, fuel, servicing and repairs. The amount of this benefit is multiplied by the grossed-up rate which is the income it would take the employee to earn that amount. Employers can refer to the ATO for the relevant grossed-up rate. This amount is then multiplied by the FBT rate of 47% to arrive at the tax payable.

• Private use multiplied by grossed-up value multiplied by 47% FBT rate.
• Mileage logbook to be maintained.
• Use ATO resources to assist with calculations.

Find out more about how it works.

There are some scenarios where use of a business vehicle for private purposes may be exempt or concessions applicable. These can include some Novated Leases depending on the type of employee contribution through salary sacrificing.

Sole traders are exempt from FBT as according to the ATO, benefits provided to yourself are not FBT taxable. But directors, owners and employees of other types of business structures such as companies, are subject to FBT.

Currently there are FBT exemptions on electric vehicles provided to employees for private use. The EVs must meet the conditions as set out by the ATO, including being used and held after July 2022 and Luxury car tax was not payable on the vehicle.

The exemption for EVs is subject to Government rulings and may change following a review in mid-2027. Business owners should refer to current ATO guidelines on exemptions.

• FBT exemptions for EVs subject to conditions.
• Sole traders exempt from FBT.

Jade brokers can help with more information.

Where FBT is applied to motor vehicle usage for vehicles owned by a business and used by an employee, there are a number of aspects to consider – both financial and administrative. This tax is calculated on the mileage for private purposes by the employee. To assess the correct mileage, employees will be required to maintain a logbook for their use of the vehicle. This may be seen by some as an onerous daily task, but it is necessary in order to accurately calculate FBT payable.

Employers have the financial impact of the tax payable, and the added administrative tasks to consider. These can include maintaining good records for efficient preparation of annual FBT returns and the associated ongoing accounting processes. Employers can claim a tax deduction on FBT and the relevant GST on the benefit.

At 47% FBT is considered a high tax rate. Although the amount is a tax deduction, it is still an expense for businesses, and they can consider ways to minimise the tax payable. For company structures where the business owner uses the vehicle for private purposes, the owner can pay some of the expenses for the vehicle such as fuel themselves, to minimise the FBT payable.

FBT payable can also be minimised with lower expenses for the motor vehicle and that can include lower finance repayments. We assist businesses with the best motor vehicle interest rate financing and structure loans to ensure lower, more workable repayments.

• Employees maintain a logbook.
• Administrative tasks.
• Minimise amount payable with lower car finance repayments.