A business was hit with Fringe Benefits Tax of $9,501.63/year after the ATO reviewed the car logbook and identified that the car was parked overnight at a home address, but the business use percentage did not account for the private use of traveling between work and home. The ATO deemed the logbook as invalid, which put the business use at 0%, and calculated FBT on the car based on annual kilometers traveled (in this case between 25,000 and 40,000, so 11% based on the car purchase price of $83,645) which amounted to fringe benefits tax payable of $9,501.63 by the company (fringe benefits tax is payable in a company or a trust, or when claiming a car in a partnership or sole trader, the actual car expenses claimed will be disallowed).
 
The way to obtain the largest tax deduction for your car is by completing a logbook – which needs to be current and valid. You need to log each business journey for a continuous 12-week period that is representative of your annual business kilometres traveled. You can keep the logbook for 5 years before you need to prepare a new logbook. The objective is to determine the business use percentage that your car is used for business purposes. If you have not completed a logbook since 2005/06, you must complete a new logbook for 2009/10.
 
If you use more than one car for business purposes you need to keep a logbook for each car. However, you don’t need a new logbook if you replace a car with another and use the new car the same way for business use.
 
In most cases, business travel does not include travel from home to a regular place of business, unless you have to significantly divert from your usual route for a work related tasks.
 
You cannot backdate a logbook. It must be a current logbook. The ATO indicates that about 70% of logbooks reviewed have technical errors, and they can also use sophisticated auditing techniques in proving that logbooks are incorrect or fraudulent. Some logbook errors include: claiming the logbook was written in a year before the log book was printed; forensic tests have identified when a logbook was completed on the one day using different colour pens, rather than completed as soon as possible after the specific day; the twelve weeks chosen was not indicative of business/private percentage, in that seasonal variations was not taken into account; business usage claimed when private trips undertaken; and logbooks unable to be located.
 
If an employer provides an employee with a vehicle, the obligation to comply with the Income Tax and FBT laws is with the employer, so the business owner needs to make sure they have considered car log books and private use in their total salary packages, otherwise the the business owner will incur any tax payable, and not the employee.
 
Other records that need to be kept each year to use the business use percentage method are car odometer readings and receipts of car running expenses (except fuel which can be estimated based on annual kilometers traveled).
 
So remember, you need to keep a logbook if you want the largest possible tax deduction for your car. Speak to your manager at LBW if you have any queries about your car logbook, and provide copies to LBW so they can review and record the logbook details.

If you wish to discuss this further please contact Patrick Hoey.