Know the rules on farm ve­hi­cle use

Matamata Chronicle - - Rural Delivery - By IMRAN RAZA,

Can you use your farm ve­hi­cle for pri­vate travel? When a ve­hi­cle on the farm is be­ing used for both busi­ness and pri­vate pur­poses there are rules on how you deal with this pri­vate use.

Gen­er­ally speak­ing, if you are a sole trader or in a part­ner­ship you, as the owner, sim­ply make an ad­just­ment for the pri­vate use based on your ve­hi­cle log book. (Note: any em­ploy­ees will be treated the same way as a non­share­holder em­ployee (see be­low).

If you are op­er­at­ing through a com­pany struc­ture, then ac­tual pri­vate use, or even sim­ply be­ing avail­able for pri­vate use, will trig­ger Fringe Ben­e­fit Tax (FBT). (Dif­fer­ent rules ap­ply for Look through Com­pa­nies).

The FBT rate is 49.25 per cent and is charged on the fringe ben­e­fit value.

The an­nual fringe ben­e­fit value is cal­cu­lated at 20 per cent of the GST in­clu­sive pur­chase price of the mo­tor ve­hi­cle.

When you pay FBT on a mo­tor ve­hi­cle, you will be able to claim the full amount of GST, de­pre­ci­a­tion and all run­ning ex­penses as­so­ci­ated with that ve­hi­cle.

For FBT pur­poses a mo­tor ve­hi­cle is a ve­hi­cle with a gross laden weight of less than 3500kg.

Non- share­holder Em­ployee Use

If a ve­hi­cle is avail­able to non-share­holder em­ploy­ees, then FBT will ap­ply. There are limited ex­emp­tions for work-re­lated ve­hi­cles.

A work-re­lated ve­hi­cle must not be a car. A ute, truck or van would qual­ify as work-re­lated ve­hi­cles.

How­ever sedans, sta­tion wag­ons and four-wheel drives de­signed for the car­riage of pas­sen­gers in most cir­cum­stances won’t qual­ify.

Sta­tion wag­ons with the rear seat per­ma­nently bolted down or re­moved may be el­i­gi­ble.

To be ex­empt from FBT the work-re­lated ve­hi­cle must have the em­ployer’s logo or name promi­nently and per­ma­nently dis­played on its ex­te­rior.

A work-re­lated ve­hi­cle is ex­cluded from FBT on days where the em­ployee’s only pri­vate use (ac­tual or avail­able) is:

Travel be­tween work and home, which is nec­es­sary and a con­di­tion of their em­ploy­ment; and

Any other travel which is in­ci­den­tal to the busi­ness use.

Suf­fi­cient records must be main­tained by the em­ployer to sub­stan­ti­ate the days claimed as FBT ex­empt un­der the workre­lated ve­hi­cle ex­clu­sion.

It is not just the type of ve­hi­cle that pro­vides the ex­clu­sion from the FBT regime; it is also how that ve­hi­cle is used, or is avail­able to be used, on that par­tic­u­lar day that ex­cludes it.

This is of­ten mis­un­der­stood, with the as­sump­tion be­ing made that there is an au­to­matic ex­clu­sion from FBT for ve­hi­cles with the phys­i­cal at­tributes of a work-re­lated ve­hi­cle.

For the days that the ve­hi­cle is avail­able for pri­vate use, the com­pany will need to pay FBT on that at 49.25 per cent.

Share­holder-Em­ployee Use

If pri­vate use of a ve­hi­cle is made avail­able to a share­holder em­ployee then you have the fol­low­ing op­tions:

1. You can cal­cu­late the value of the fringe ben­e­fit, and then charge that to the share­holder.

This re­duces the fringe ben­e­fit payable to the depart­ment to nil. The amount charged is treated as com­pany in­come (which you will pay in­come tax on) and will be off­set by de­duct­ing all run­ning costs as­so­ci­ated with that ve­hi­cle.

2. The com­pany pays fringe ben­e­fit to the depart­ment at 49.25 per cent.

If you are as­sessed for FBT, here are some ways you may be able to re­duce that cost:

1. You can ei­ther use the Cost Method or the Tax value method depend­ing on the cost of the ve­hi­cle.

2. There may be sav­ings by us­ing dif­fer­ent cal­cu­la­tion rates that are avail­able, the ‘‘Al­ter­nate Rate’’ and ‘‘Sin­gle Rate’’ op­tion. This will de­pend on the cash re­mu­ner­a­tion and the value of the car.

3. Ac­cu­rately track nonusage days for mo­tor ve­hi­cles which are un­avail­able for pri­vate use due to out-of-town busi­ness trips. To qual­ify as a nonusage day, the busi­ness trip has to be for at least 24 hours but where that cri­te­rion is sat­is­fied, the part-days at the start and end of the 24-hour pe­riod also qual­ify.

For any ve­hi­cles that are in your as­set reg­is­ter, it is a good idea to have a chat with your ac­coun­tant as to the best way to han­dle how these should be treated and the im­pact on FBT.

At Coop­erAitken we have a cal­cu­la­tor that demon­strates the im­pact on your cash flow if the ve­hi­cle is pur­chased in the com­pany name or pri­vately.

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