Minimise your Fringe Benefit Tax on Motor Vehicles

Fringe Benefit tax is triggered where there is an employee-employer relationship and an employer’s motor vehicle is either used for private use or is available for private use by an employee.

Here are some ways you can reduce your fringe benefit tax liability:

Consider buying a work related vehicle

A motor vehicle must meet certain criteria to qualify as a work related vehicle. Every day that the motor vehicle meets the criteria it will be an exempt day from fringe benefit tax.

Essentially a work related vehicle must be principally used (i.e more than 50%) for carrying goods as opposed to passengers. These can include a courier’s motor cycle, vans, minibuses, light trucks, utes and taxis. The rear seats must be permanently removed or bolted down and the employers name or logo must be prominently permanently displayed on the outside of the vehicle.

Reducing the number of days the motor vehicle is available for private use

The day an employee departs from home on an emergency call out is an exempt day. Generally an emergency call out has to be essential to the operations of the business and occur between 6pm and 6am during the working week or at any time on a Saturday, Sunday or statutory holiday.

Where an employee uses a motor vehicle away from home on work related business for a period of 24 hours continuously can be classed as an exempt day. Some conditions apply including that the travel must be in the course of employment and the nature of the employment requires the employee to be regularly away from home. If the motor vehicle is parked up at an airport and not available for private use for a period of 24 hours continuously then those days are also classed as exempt.

If the employee is not permitted to use the motor vehicle whilst on annual leave, sick leave, statutory holidays or weekends these days can also be exempt for fringe benefit tax. In this situation we would recommend that the employer write a letter to the employee confirming the arrangement and regularly check its being complied with.

Employee contributions

Any expenses the employee contributes towards the purchase or the running of the vehicle can be deducted from the fringe benefit value that calculates fringe benefit tax.

With shareholder employees the full value of the fringe benefit can be eliminated will the amount charged to their shareholder current account in the financial statements. This means there is a Nil fringe benefit liability in the fringe benefit tax return and an adjustment is made through income in the financial statement for the equivalent amount.

If you’re serious about minimising your fringe benefit tax speak to us now!

Shareholder Agreements

We recently presented a course on succession planning and one question to come out of it was “Do I need a shareholders agreement and what is it?”

In its simplest form, a shareholders agreement is a private arrangement among the shareholders of a Company. A Company Constitution is a public document that is registered with the Registrar of Companies.

The shareholders agreement is often viewed as a document in the negotiation phase of forming a Company, and as such it can isolate any differences that may occur downstream.

Take this example of a florist business that didn’t have a shareholders’ agreement.  There were 3 shareholders; one died (no pre-emptive rights). He left his shares to his daughter who didn’t want to be there, the other two shareholders couldn’t afford to buy her out, so she sold her shares to an opposition company. The opposition made things tougher, one of the other shareholders walked away, and the remainder of the original three was forced to borrow money to buy out the balance of the other two shareholdings, just to keep the doors open.

A shareholders agreement would have helped because:
- pre-emptive rights
- dispute resolution procedure
- insurance
- approval thresholds for major decisions.

So if you go into business and you do nothing else, always have a shareholders agreement, because they are worth their weight in gold.

  

Chasing Debt

Do you feel like you are sometimes at the bottom of your customers list to be paid?

Consider offering a discount (say 5%) for payments made within 7 days of you sending an invoice.

You may think “but I’d be losing 5% of my income”.

But consider this: Are you paying overdraft interest when your cash-flow isn’t moving positively?

Are you being charged late payment charges by your suppliers when you exceed their credit terms?

If your answer is yes to either (or both) of these questions, then it is likely that accepting 95% payment from your customers for paying within 7 days will give you a more positive position than waiting for 30, 60 or sometimes 90 days and incurring extra costs yourself.