The Australian Tax Office has recently collaborated with industry representatives to develop a safe harbour for car fringe benefits. A safe harbour is a guideline that allows Australian businesses to make use of an efficient way to calculate tax where certain conditions are met.
This particular safe harbour will simplify the approach for working out the business use percentage of car fringe benefits for fleets of 20 cars or more. The new approach reduces the recordkeeping burden for businesses and allows them to use an ‘average business use percentage’ when using the operating cost method.
Businesses can access the safe harbour and use this new simplified approach if they have:
- a fleet of 20 or more ‘tool of trade’ cars, which are not part of salary packaging arrangements and cost less than the luxury car tax limit in the year acquired
- a mandatory logbook policy and hold valid logbooks for at least 75 per cent of the cars in the logbook year
Businesses can use the logbooks to calculate the fleet’s average business use percentage to all tool of trade cars held in the fleet in the log book year and can use that percentage for the following four years.
Employers can calculate the average business use percentage by:
- gathering all log books kept for each car in the fleet
- determining which of those log books are valid
- confirming they have valid log books for at least 75 per cent of the cars in the fleet
- calculating the average of the business use percentages determined in accordance with each of the valid log books
The simplified record-keeping approach can be applied for a period of five years in respect of the fleet (including replacement and new cars) provided the fleet remains at 20 cars or more, and subject to there being no material and substantial changes in circumstances.
An example of a substantial change would be a change in location of the employer’s depot that would substantially alter the business use percentage of the fleet.