FBT and Logbook Requirements

FBT – Log book requirements

With the FBT year-end fast approaching, it may be a good time to review your internal procedures to reduce the FBT liability for your business. As a firm, we prepare numerous FBT returns for clients across various sectors and one of our most frequent recommendations is for our clients to keep log books for their motor vehicles. With the change to statutory percentages in 2011, the costs of owning motor vehicles in an entity (companies or trusts) have increased and keeping a log book may be a better option than to use the 20% flat rate where the business usage for the vehicles are high.
This may increase administrative pressures on your staff and below we list some of the tips and traps of a valid logbook.
The following details must be recorded for each business journey:
  • the date on which the journey began and ended

  • the odometer reading at the start and end of each journey (see details of Commissioner’s discretion below)

  • the kilometres travelled

  • the purpose of the journey


When recording the purpose of the journey, an entry stating ‘business’ or ‘miscellaneous business’ is not sufficient. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey.
Log book records must be in English and entries should be made at the end of a trip or as soon as reasonably practicable afterwards.
The period during which the log book is kept must be specified. This continuous period may overlap two FBT years. You can keep your log book for up to five years (assuming there is no major change in the pattern of use). After the fifth year, you will need to keep a new log book.

Tips:
  • It is important to remember to keep a declaration on file stating the opening and closing odometer readings during the FBT year.
  • You must elect to use the operating cost method. Therefore ensure a declaration is on file.
  •  If the pattern of usage has changed in subsequent years (e.g. different employee uses the car), the log book may be invalid and a new one should be kept if the usage of the vehicle is substantially different from the log book kept on file.


Lack of Odometer records – what happens where the employees do not keep odometer readings for all trips?


As per ATO ID 2003/1099, the Commissioner can exercise discretion to waive the strict log book requirements. In the interpretive decision, the employer kept the following records:
  • opening and closing odometer readings for the start and end of the 12-week period
  •  the date and appointment time for each business journey
  •  the purpose of each business journey (including client detail)
  • precise start and end address details for each business journey, and
  • the distance travelled for each business journey.
The logbook did not contain the odometer readings at the start and end of each business journey. 

It is not possible to specify the nature and quality of supporting evidence that satisfies the Commissioner in all circumstances. Each case must be considered on its own merits and a common sense approach applied.

Regard has to be had to the overall purpose of a log book when calculating a car fringe benefit under section 10 of the FBTAA. The Explanatory Memorandum to the FBTAA at Clause 10 says that a 'log book or similar document is required to be maintained to substantiate the number of kilometres on business journeys...'

Accordingly, the lack of opening and closing odometer readings for each business journey does not impact on the overall integrity of the log book. The employer has in place a system which results in the accurate calculation of business kilometres. The Commissioner's discretion under section 123B of the FBTAA will therefore be exercised in these circumstances to waive the strict log book requirements, as the employer is able to substantiate the number of business kilometres travelled.

Therefore even though you may not have the start and end odometer readings for each entry, you may be able to gather such evidence using calendars on Outlook or any devices (mobiles, PDAs etc.) where your employee records such information. It is important to note that you must be able to show the distance travelled and the purpose of the trip.

Replacement cars

If a car was replaced during a FBT year, you can treat the replacement car as though it was the replaced car for the purposes of the operating cost method i.e. you can transfer the business percentage to the new car.

The following are the record keeping requirements:

  • make, model and registration of both cars; and

  • replacement date

If you dispose the original car, the log book can be used for both cars. However, if the original car is kept, you will need to start a new log book.

FAQs

Q. What is considered business and private use?

A. The following are the most common trips conducted by employees:
 

Home to Work

Private

Between two places of employment

Business

Workplace - client

Business

Home to client to work

Business



Q. We have a policy which allows an employee to have commuting (i.e. home to work) use of a car (carrying capacity less than one tonne and designed to carry passengers). The car is parked at the office lot and enters the office pool of cars. Other employees use these vehicles for business trips only but keep no record of the odometer readings. How do we substantiate the trips for log book purposes?

A. The employer should have a system in place where the employees record who has taken the vehicle during the workday and where they have gone. It would be easier if the cars had a booking system where the employee’s name, destination and purpose of visit would be recorded at the time of booking the car. Based on these bookings, you can estimate the kilometres travelled (possible using Google Maps or other such services.) As discussed in ATO ID 2003/1099, although the opening and closing readings are not required for each journey, it is important to have the distance travelled.

Lastly, it is important to note that cars such as these do not meet the pooled car exclusion for reportable fringe benefits purposes as only one employee has private use of the vehicle (i.e. the employee that has commuting use and parks the vehicle at home overnight.)

Tip: In situations like this, the employer may be able to save on FBT by providing the employee with a vehicle other than a car as commuting is allowed within the s47 (6) exemption along with minor and infrequent private travel. Therefore, the benefit provided to the employee could be exempt from FBT.

 

ENQUIRIES

CONTACT:     James Tng

EMAIL:        jtng@moorestephens.com.au

PH:            (08) 9224 0106
(08) 9225 5355