Some of today’s most forward-thinking companies offer the perk of a company car to their employees as part of the compensation package that they put on the table. This can be an extremely attractive perk which helps to bring new talent into a company. For some, the option of being offered a company car can mean the difference between choosing one job opportunity over another. In this article, learn about the benefits of a company car in Australia.
What are the advantages of company cars to companies?
Company car – fringe benefit calculation
What are the advantages of company cars to employees?
Car company policy
Where can I find more information?
Company cars are an extremely visible and wildly popular reward. They are something that employees aspire to obtain and will work harder to access. From an employee point of view, the company car is something that they want to drive because it is extremely convenient and represents a cost savings to them.
A company car can be a valuable write-off to a company and allows the company to pay a lower salary to an employee because they are providing a perk in lieu of money. The company car and all of its associated costs can be written off by the employer but is taxable in the hands of the employee.
People driving company cars are providing free advertising to your business. The company name and logo create a rolling billboard that is highly visible to other drivers on the road. Whether the vehicle is parked or on the roadways, people can see the signage and may contact your company with new business. Of course, this also means that the car should be kept clean and driven in a safe and lawful manner. Employees should sign a contract which has them acknowledging that they will drive the vehicle safely, keep it clean and report any damage immediately.
A company investment in vans or other delivery type vehicles means that your business can take care of its own pick-up and delivery needs without incurring extra expenses. Monthly delivery charges can definitely add up and become a substantial business expense, so the company vehicle can help to curb some of those costs.
Company vehicles can be used as a substantial business tax write-off. Instead of providing increased salary to an employee, a company vehicle can be a substantial incentive. The wear and tear on the vehicle can be used as a tax write-off to the company while the “fringe benefit” is taxable in the employee’s hands. Employees who have a company car must register for FBT or Fringe Benefit Taxation.
The company car is considered a fringe benefit and an employer needs to calculate the taxable benefit of it to the employee. This can be accomplished in a couple of different ways. The statutory formula method is based on the cost of the car while the operating cost method is based on the costs required to operate the car.
You can decide on the method that will offer the lowest taxable value but you will need to keep the operating cost documentation including log books. These receipts are required for taxation purposes when the company files its tax return. Employees who drive company cars must keep all fuel receipts and log their mileage so that the costs of the vehicle are able to be claimed on the corporate tax return.
As an employee, a company car means not having to worry about new tyres, regularly scheduled maintenance, fuel, service or insurance. These are all major expenses that the employee would normally need to attend to but which would be taken care of by the company. If the employee leaves the company for another job opportunity, they must leave the car behind, however they may be offered another vehicle with a new company.
If a car allowance is provided to an employee rather than a vehicle, they have the freedom to select their own vehicle. This allows the employee to retain the vehicle, even if they do leave the company for a new opportunity. The downside to a car allowance is that the employee has to attend to all of the vehicle needs from fuel to insurance and repairs.
Many employees appreciate driving a vehicle that is one hundred per cent maintained by the company that has provided it to them. With a gas allowance and all repairs taken care of by the employer, this perk is worth its weight in gold to an employee. The vehicle can be driven to and from work and can be used to get to all meetings and other company functions.
As an employee, if you plan to log a great deal of personal mileage, it may be more advantageous to opt for the company car allowance instead of the company car. Some companies will over-value the company car and this can be at the employee’s peril. If the vehicle is a base model and has no options, it is not worth that much money. Some companies try to assign a larger value to the vehicle so that the employee believes that they are gaining a large benefit when in fact the company is simply saving money by over-valuing the vehicle.
As an employer, it is important to create a very clear policy and have every employee sign a contract with respect to these conditions. This will ensure that there is a clear understanding of the expectations on how the employee must treat the vehicle. This contract should include important highlights including who should handle running costs and who is allowed to drive the vehicle besides the primary driver.
Any additional drivers must be declared so that the car insurance covers their use of the company car. It can be a costly error to omit extra drivers from the policy when they could be driving the vehicle and may not be covered.
Every employer who offers a company car to an employee should go over their policy with their employee to ensure that they understand every term and nuance of the agreement. Have the employee sign the agreement, provide them with a copy and keep the original.
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