Car Related Expenses

Question

My wife works for Feros Care Ltd (ABN: 50 104 452 271) as a COmmunity Services Worker providing transport to aged clients and also travelling to their premises for in-home care.

We are copnsidering purchasing a second vehicle to be used 100% for my wife’s work purposes.

As she will be using the vehicle effectively 100% for earning assessable income, would the running costs, interest payments on the loan and ‘depreciation’ (decline in value) fall under the otherwise deductible rule and therefore not be reportable fringe benefits if reimbursed by her employer?

I am basically relying on your mention of ID 2008/160 to allow the reimbursement to be made in installments as in the laptop case (notwithstanding that laptops are exempt items and I am relying on the ‘otherwise deductible rule’).

Also, I note that section 28.13(2)(b) of the ITAA 1997 includes decline in value of a car as a car expense. Would this allow the ‘depreciation’ or ‘decline in value’ of the car to be eligible to fall within the ‘otherwise deductible rule’?

As stated in previous correspondence, this is mosntly to minimise the impact on Centrelink payments.

Answer


I have looked at the Feros Care web site and they certainly fit the description of a public benevolent institution but as they don’t say so in those exact words it is worth asking the question of them. Nevertheless I am so confident that will be the case that I am answering on that assumption. This also means you would be better off reading our Public hospitals and PBI’s FBT booklet than the one you have been reading.
Because Feros are a PBI they are allowed to salary package $30,000 grossed up (about $17,000 in actual cash depending on the type of items paid for) without having to pay FBT. This means that your wife effective earns that $17,000 tax free. So if her wage was $57,000 a year her payg summary would only show around $40,000 in gross income but another $30,000 (because they must be grossed up) in reportable fringe benefits which do not go towards the calculation of taxable income but are taken into account by Centrelink though they use a formula that increase the family income by around $20,000 because they adjust back from the maximum tax bracket, which is used in the grossing up, to a more middle of the road tax bracket.
This $17,000 is spent by Feros on items you nominate. They cannot pay it to you in cash because then it would be a wage not a fringe benefit. This means that the nominated expenses are considered paid by them so you don’t want them paying anything you could otherwise claim as a tax deduction. Stick to mortgage repayments, credit card electricity bill etc.
The otherwise deductible rule is only useful to prevent the employer having to pay FBT. As Feros does not have to pay FBT on the $17,000 odd it pays out on your behalf there is no point in applying it here.
Accordingly, it would be better to either sacrifice the car in addition to the $17,000 or just claim the expenses in your wife’s tax return. To sacrifice the car expenses and obtain a tax advantage you would need to have a novated lease over the car. Further organizing this maybe a problem with Feros and finally these sorts of arrangements provide the greatest benefit when the car is used solely for private purposes. In your case I expect it will be simpler and probably more cost effective to just pay the expenses yourself, keep a log book etc (details in our claiming a motor vehicle booklet) and include the deduction in your wife’s tax return leaving Feros completely out of the picture. Centrelink will accept the deductions claimed and reduce your family income accordingly.
Make sure your wife takes full advantage of the $17,000 and don’t use it to make superannuation contributions.

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