Company Vehicles available for Private Use by Shareholders – Logbook or FBT?
Shareholders of companies often use their personal vehicles for business and private purposes.
To deal with that private use aspect - a Close Company (a company with 5 or fewer natural persons with voting or market interests in the company of more than 50%) has the option of using either a Logbook (actual use) basis or a Fringe Benefit Tax (FBT) basis.
For a company to be able to use the logbook method it must only have 1 or 2 vehicles available for private use by shareholder employees, and not provide any other fringe benefits.
When purchasing a new vehicle it is certainly worthwhile considering which of the two methods (logbook or FBT) will be more tax effective for you.
Logbook – Actual Use
To keep a logbook, you will need to record the kilometres of every trip in that vehicle over a three-month period, and then work out the percentage between business and personal use. You can then apply that percentage to the next three years vehicle expenses, (unless the usage changes by more than 20%). You can also claim that percentage of GST upon acquisition/introduction of that vehicle to the Company.
FBT - Shareholder Vehicle Contribution (SVC)
Under this method the company claims 100% of the vehicle expenses (including running costs, repairs, warrant, WOF, and depreciation) and it also claims all the GST available on purchase or introduction to the company.
There is no need for logbook records and no need to monitor private use, which makes administration easier under this method when compared with the logbook method. However, there is an FBT liability based on the availability for private use to the shareholder-employee.
The amount of FBT payable to the IRD is reduced by any contribution from the shareholders receiving the benefit. This is known as a ‘Shareholder vehicle contribution’.
When we calculate this value for you, we either use the Cost Price method (20% of the original cost), or the Tax Value method (36% of the book value). Generally, the Cost Price method works best, then after 5 years on that method we can switch to Tax Value method.
Both methods apply to the number of days the vehicle is available for private use. Availability is the key word here, as it does not matter if you do not actually use the vehicle privately or not. You can exclude any days the vehicle is not available for private use – if it is in for repairs or being used on work purposes out of town.
This contribution amount is income to the company (effectively offsetting some vehicle expense), and GST is returned on this amount.
What option is better?
When we look at what option is best for your company, we look at the percentage of use for business and the vehicle cost price, and run a comparison between the two methods.
In general, for a vehicle with a high business use percentage and/or a high price, the logbook method can work out better. If the vehicle will have a lower business use percentage, the FBT method will likely be better.
If there is not a large difference between the two, the decision may come down to using the FBT method purely because it has less administration.
So - when purchasing a vehicle for your company, make sure to check with us on the best option to use.