Uncertainty about the accuracy and completeness of some car log books, or missing logbooks, should no longer be an FBT headache for employers applying the operating cost method.
ATO Practical Compliance Guidelines PCG 2016/10 issued on 19 October 2016 permits an employer to use a single average business use percentage across all work fleet cars calculated from the log books that are in fact valid.
Conditions for application of the average are that:
- the cars are required to be used predominantly for business (ie they are ‘tools of trade’), and are not salary packaged;
- the fleet has at least 20 cars, none of which cost over the luxury car threshold;
- the employees are required to keep log books for the fleet for each log book year, and valid log books are in fact held for at least 75% of the fleet in that year; and
- the employer either picks the type of fleet cars or allows the employee to pick from a limited list.
The average can be applied to the fleet for a period of 5 years, including to new and replacement cars in the fleet. There are certain limited circumstances where the average may need to be revised during this period.
Application of the average means much higher FBT costs under the 20% statutory fraction method need not arise for the odd car with a missing or incomplete logbook. Similarly, we expect that where journey descriptions in a log book are inadequate to identify trips as business or private, the whole log book could be disregarded as invalid. That is, instead of assuming the inadequately described trips are private and therefore reduce the business use percentage for that log book.
The guidelines are not a tax ruling but can still be relied on in so far as the ATO will not take compliance action for periods that have already passed if they later change their position.
Log book good practice
Keeping a proper 12-week log book for a year should not be onerous. As a re-cap, good practice for line entries for each business journey would be to include:
- the date, as well as starting and finishing times for the journey;
- odometer readings at the start and end of the journey, together with the kilometres travelled; and
- the reason for the journey in sufficient detail to identify it as a business trip , eg travel from office to client at destination (suburb X).
The starting and ending dates of the 12-week log book period together with the opening and closing odometer reading and total kilometres travelled in the period should also be recorded.
Reportable fringe benefits on payment summaries
The average business use percentage can also be used for reporting individual fringe benefits amounts on employee payment summaries.
Often though, the business use percentage will mean the value of the reportable benefits for the employee are below the $2,000 reporting threshold. And if the car is driven privately by more than one employee, the benefit will not count as a reportable benefit anyway.
However, where an amount does need to be reported on a payment summary, be wary of using the averaging for that purpose if it results in a higher reportable benefit. That is because of the adverse impact on Government transfer payments for some employees.
Other cars, including all cars provided by the employer and held predominantly for private use (eg cars used by executive employees), would need to be considered under the existing rules.