FBT on Motor Vehicles – Consider Yourself Warned

Inland Revenue, in its August 2016 Business Tax Update, provided a reminder about FBT and work related motor vehicles.

FBT on cars is easy for IRD to identify. The sign written van at the kid’s weekend rugby is a giveaway.

The annual FBT and related taxes on a vehicle with a cost price of $40,000 is about $3,600. In itself that doesn’t seem so bad. However for a fleet of five vehicles the annual cost is $18,000. Inland Revenue can typically go back four years bringing the cost to $72,000. A 20% penalty adds a further $14,400. IRD interest will put the cost to about $100,000. Not many small businesses can withstand that sort of financial hit.

It’s not difficult to prevent FBT on work related vehicles:

  • – Vans, utes and similar qualify. Other types of cars can, but need to be modified.
  • – The business name/logo must be permanent displayed.
  • – Employees, including the owner, must be notified in writing that they cannot use the vehicle privately other than travel between home and work and if incidental to work. We prefer employees to sign an acknowledgement.
  • – Inland Revenue expects the employer to conduct regular checks that the restrictions are being followed.

Don’t make yourself an easy target for IRD. Talk to us to ensure your vehicles don’t expose you to tax risk or to explore options for minimising your FBT costs.