Fringe benefits tax (“FBT”) liability arises where an employer makes a vehicle available for the private use of their employee, however different rules apply for eligible vehicles that are not ‘cars’, examples being utes and vans.
While travel to and from the employee’s home and their place of work is generally considered private use, those trips can be treated as work-related travel for the purpose of the FBT exemption. This is in principal a subjective assessment, so it can be difficult to know when a trip crosses the business Vs private purpose line.
Because of the ATO continued focus on the Tax Gap, the ATO have recently issued draft guidelines on when they will undertake compliance activities (such as reviews or audits) on eligibility for the FBT exemption for utes and vans. (Refer link below)
Provided the following criteria are satisfied, the ATO will accept that an employee’s private use of their employer’s ute or van was minor, infrequent and irregular. The criteria are:
- you provide an eligible vehicle to a current employee;
- the vehicle is provided to the employee to perform their work duties;
- you take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use;
- the vehicle has no non-business accessories;
- the vehicle had a GST-inclusive value less than the luxury car tax threshold (currently $65,094) at the time the vehicle was acquired;
- the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle; and
- your employee uses the vehicle to travel:
- between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip;
- no more than 1,000 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose; and
- no single, return journey for a wholly private purpose exceeds 200 kilometres.
What does this mean on practical terms
When an employee stops to pick up a newspaper on their way to work this may be a mere diversion on their home-to-work travel (and hence a ‘business trip’ for the purpose of the FBT exemption). On the other hand, dropping the kids off to school on the way to work would be considered a private trip. This is the case under the revised guidance even if the school drop-off involves a detour of less than two kilometres. Similar rules apply to sporting events, fishing, or other similar diversions.
The ATO considers these trips to always be private, and not a mere diversion on the employee’s way to or from work. Under the revised guidelines, these trips along with all other private trips need to total less than 1,000 kms in an FBT year for the exemption to the work provided vehicle to apply.
For employers, they need to be conscious of the potential new pitfalls.
- Social media is an easy and increasingly common way for the ATO to build a case for significant private use and in turn deny the FBT exemption;
- The provision of a vehicle to an employee who has no other vehicles amplifies an argument of private use;
- Toll accounts which identify vehicles (such as Linkt, E-Toll or CityLink Tags) in use during weekends and public holidays.
The new ATO position is here to stay and the rules apply from 1 April 2018. Noting the new FBT year is already well underway, employers need to act now to minimise FBT exposure for employee provided work vehicles.
#FBT: exempt car and residual benefits – determining private use of vehicles – PCG 2018/3 https://www.ato.gov.au/law/view/document?LocID=%22COG%2FPCG20183%2FNAT%2FATO%22&PiT=99991231235958
Practical Compliance Guideline https://www.ato.gov.au/law/view/document?LocID=%22COG%2FPCG20183EC%2FNAT%2FATO%2F00001%22&PiT=99991231235958
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