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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.