Business use of a car in Australia — FBT vs logbook method explained

How you structure a business vehicle arrangement determines whether you deal with Fringe Benefits Tax (FBT) or claim a deduction using the logbook method under the income tax rules. The right approach depends on your business structure.

If you are a sole trader or individual: You claim car expenses directly as a deduction — either the cents per km method (up to 5,000km) or the logbook method. You do not deal with FBT on your own vehicle. You claim the business-use percentage of your actual costs.

If you operate through a company or trust and provide a car to an employee (or yourself as an employee): The personal use of the car becomes a fringe benefit and may be subject to FBT. There are two FBT methods for cars: the statutory formula method (FBT is based on a percentage of the car's cost regardless of actual use) and the operating cost method (FBT is calculated on the actual private-use percentage, similar to the logbook approach). The logbook method under the operating cost method can significantly reduce FBT if the car is predominantly used for business.

FBT year vs income year: FBT runs from 1 April to 31 March — different from the income tax year. FBT returns are due 21 May (or 25 June if lodged by a tax agent). FBT paid by the employer is deductible for income tax purposes.

Key tip: For owner-drivers operating through a company, providing a car can generate FBT liability that exceeds the tax benefit of the vehicle expense deduction. Run the numbers — or ask your accountant — before assuming the company-car approach is optimal.