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Keep your expensive car and save FBT 21 May 2012

IT’S nice to update your company car from time to time. However, if you hang on to it for more than five years, there’s a reward. There are two options for calculating fringe benefits tax (FBT).

  • 20% of the original cost
  • 36% of the reducing book value shown in your annual accounts, assuming you use tax rates to calculate this. The minimum figure is $8333.

Say my car cost $42,000. Fringe benefits tax calculated at 20% is $8400 a year. This works out better, in total, than the 36% book value option over a five-year period.

At the end of five years, I may switch from the 20% cost option to the 36% book value option and save FBT. In my case I’ll be paying the tax on $3000 a year instead of $8400.

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