ARE you maintaining your log book correctly? If you're not, you may be faced with additional tax and penalties to pay.
Log books are not only important for individuals claiming motor vehicle deductions in their personal income tax returns but equally important for employers who provide vehicle's to their employee's or associates.
Many employers do provide a vehicle to an employee or associate. Changes have occurred over the past few years in relation to the calculation of car fringe benefits, namely statutory formula method, which has potentially led to the increase in fringe benefits tax (FBT) payable in relation to car fringe benefits.
The statutory formula method uses the cost base of the vehicle (including GST) and applies a statutory fraction to this (now fixed at 20 per cent) to calculate the taxable value of a car benefit for FBT purposes.
In the past this method was far more generous with vehicle's that travelled many kilometres throughout the year. This method was also very popular because it is simple to use and does not require a great deal of record keeping.
Since these new measures have been in place, employers are now considering the operating cost method as an alternative method to calculate the car benefit in the hope of producing a lower tax result.
The operating cost method requires the use of a log book for at least 12 weeks to record the business use of the vehicle. It calculates the car fringe benefit based on the operating costs of the vehicle for the year and applies the business use percentage (obtained from the log book) to determine the taxable value.
There are certain requirements that must be met for a logbook to be effective. It must contain certain information, including the following:
- Car's details, such as make, model and rego;
- Date log book period begins and ends;
- Car's odometer readings at start and end of logbook period;
- Total number of kilometres the car travelled during logbook period;
- Number of kilometres travelled for work activities;
- Date of each journey;
- Opening and closing odometer reading of each journey;
- Number of kilometres of each journey;
- The purpose of the trip ( the use of the word "business" is simply not enough);
- The business use percentage calculated based on the information above.
A log book has an effective life of five years. However, if there is a variation of pattern of use during the FBT year, a new log book will be required.
Therefore, you cannot keep a log book during a period of unusually high business use to inflate the percentage for the next five years. An employer actually has a legal obligation to adjust the business use percentage to include any variations in business use during an FBT year.
At the end of each FBT year (March 31) an employee must also record the closing odometer reading until a new log book is required.
There has been recent increase in audit activity by the ATO in relation to log books maintained by taxpayers, in particular luxury cars. Therefore, employers should ensure they are maintaining their log books correcting.
In some situations, the ATO have ruled a log book ineffective because it was not maintained at the time, and therefore applied the statutory formula method to calculate the car benefit provided.
Since this method is less beneficial for some taxpayers this created a higher taxable value and therefore increased taxes to pay, including penalties.
With continual development of log book phone apps and GPS devices, it is becoming much easier to record this information quickly, in spite of our ever increasing busy schedules.
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