The Australian Taxation Office (ATO) has released new draft guidelines for the private use of Fringe Benefits Tax (FBT) exempt vehicles.
Fringe benefits tax is a tax paid by employers on certain benefits provided to employees as part of their salary or wages package. It is commonly applied to benefits such as company cars, car parking, entertainment, housing and electronic devices.
SMEs are able to claim an FBT exemption for some of these items. FBT exemption is commonly claimed for work vehicles provided the vehicle is designed to carry less than a tonne and any private travel is limited to “minor, infrequent and irregular” use.
Prior to the new draft guidelines being released, the ATO had not specified what “minor, infrequent and irregular” use was. While the ATO’s guidelines are not a change in tax law or rules, they do provide clarity on an issue that was previously a grey area.
Guidelines relating to private use of a vehicle
The following guidelines, once finalised, will apply to the 2019 FBT year (1 April 2018 to 31 March 2019) and onwards:
- Employees are allowed limited private use of an eligible vehicle that adds no more than two kilometres to their trip between home and work.
- Employees private use is not to exceed 1,000 kilometres in total for the FBT year
- Any single return journey for a wholly private purpose is not to exceed 200 kilometres
Conditions relating to the provision of a vehicle
- The vehicle is provided to the employee to carry out work duties.
- The vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of using the vehicle.
- The value of the vehicle is less than the luxury car tax threshold amount of $66,331.
- The employer takes all reasonable steps to limit private use of the vehicle.
- The employer has measures in place to monitor private use of the vehicle.
Impact of the new private use guidelines
Under the new guidelines released by the ATO, private use of company vehicles has been limited and many employers may find themselves exposed to FBT.
For example, the new rules would limit an employee from travelling from work to other activities on their way home without incurring a tax liability for the vehicle. The ATO uses an example of an employee using their company vehicle to travel to sports practice after work which is a distance of more than 2 kilometres.
“The employee’s travel from work to football training is not considered to be a diversion, as the primary purpose of the journey was for the employee to travel to football training, not from work to home, and exceeded two kilometres in distance,” the guidelines say.
When private use of a commercial vehicle in a particular FBT year is greater than the allowed limit, that vehicle is treated as either a taxable car fringe benefit or taxable residual fringe benefit for the whole of that FBT year.
Our advice for employers
We expect to see an increase in ATO audit activity in this area and therefore provide the following advice to employers:
- Review your ‘private use’ policies and administration processes to ensure they meet the requirements of the new guidelines.
- Provide employees with written policies regarding the private use of vehicles, referring to the ATO’s guidelines and conditions mentioned above.
- If you have provided a work vehicle to an employee who doesn’t own another vehicle, it’s going to be difficult to prove that the employee limits their private use of the work vehicle to less than 1,000kms per year.
- If your vehicle has business signage, be mindful that this makes it even easier to identify it in private use situations.
- Be aware that the ATO has in past audits used images posted on social media accounts as evidence of significant private use. For example, images posted on Facebook of a family trip to Fraser Island in the dual cab ute.
Further guidance for employers is set out in PCG 2018/3 which you can access here.
If you would like advice regarding your FBT obligations, or need assistance with setting up a system and processes for FBT record-keeping, please contact a member of our team on 07 3831 1055 or [email protected]
DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from Hall Browns Accountants. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.