Does FBT Cost Base Include Luxury Car Tax?

When calculating the Fringe Benefits Tax (FBT) cost base for a vehicle in Australia, many businesses and individuals wonder whether Luxury Car Tax (LCT) should be included. Understanding the components of the FBT cost base is crucial, as it determines the taxable value of a car fringe benefit, which in turn affects the FBT liability.

What is Fringe Benefits Tax (FBT)?

Fringe Benefits Tax (FBT) is a tax imposed by the Australian government on employers for benefits they provide to their employees or their employees' associates, in addition to, or as part of, their salary or wages. The most common type of fringe benefit provided by employers is the use of a car.

What is the FBT Cost Base?

The FBT cost base is the starting point for calculating the taxable value of a car fringe benefit. It includes the car's purchase price, any improvements made to the car, and other associated costs, such as registration and insurance. The higher the cost base, the higher the taxable value, and therefore, the higher the FBT liability.

Understanding Luxury Car Tax (LCT)

Luxury Car Tax (LCT) is a tax imposed on cars that have a value exceeding a certain threshold. For the 2023-2024 financial year, the LCT threshold for fuel-efficient vehicles is AUD 89,332, and for other vehicles, it is AUD 76,950. If the price of the car exceeds these thresholds, a tax rate of 33% is applied to the amount that exceeds the threshold.

Does LCT Affect the FBT Cost Base?

The inclusion of Luxury Car Tax in the FBT cost base has been a topic of discussion. According to the Australian Taxation Office (ATO), LCT is generally not included in the FBT cost base. The ATO's view is that LCT is a separate tax and should not be considered part of the cost of the car when calculating the FBT taxable value.

However, there are some exceptions. For example, if an employer has incurred LCT when purchasing a car and passes this cost onto the employee, this could be considered when determining the value of the benefit. But generally speaking, LCT is not included in the FBT cost base calculation.

Impact on FBT Liability

Excluding LCT from the FBT cost base can significantly reduce the FBT liability for luxury vehicles. For instance, if LCT were included, the FBT taxable value would be much higher, leading to a higher FBT payable by the employer. By excluding LCT, employers can reduce their overall tax burden.

Example Calculation

Let’s look at an example to understand the impact better:

Item	Amount (AUD)
Purchase Price of Car	100,000
Luxury Car Tax (LCT)	7,000
Other Costs (Registration, Insurance, etc.)	5,000
Total Cost Base (Excluding LCT)	105,000
Total Cost Base (Including LCT)	112,000

In this example, if LCT were included in the FBT cost base, the total would be AUD 112,000, leading to a higher FBT liability. However, since LCT is excluded, the FBT cost base is only AUD 105,000, reducing the FBT payable.

Conclusion

Understanding whether Luxury Car Tax should be included in the FBT cost base is important for employers managing their tax obligations. Generally, LCT is not included in the FBT cost base, which can help reduce the overall FBT liability. Employers should be mindful of this exclusion to optimize their tax calculations and ensure compliance with ATO regulations.

Employers and tax professionals should always stay updated with the latest guidelines from the ATO to ensure accurate tax calculations. Excluding LCT from the FBT cost base can provide significant tax savings, particularly for businesses that provide luxury cars as fringe benefits.