Fringe Benefits Tax and exempt vehicles

One of the most common fringe benefits provided to employees is the use of a vehicle such as a utility or a van.

These vehicles are exempt from FBT provided the following conditions are met:

1. They must meet the definition of an exempt vehicle i.e. they must be designed to carry a load of one tonne or more, or not be designed with the principal purpose of carrying passengers. Most single and dual cab utes generally meet these requirements and;
2. The vehicle is used for work related travel and home to work travel, with only “minor, infrequent and irregular” private use.

The ATO has recently issued a draft Practical Compliance Guide (PCG 2017/D14) which outlines its proposed treatment of exempt vehicles under certain conditions, with a view to reducing compliance requirements. The PCG is intended to apply from the 2018 FBT year onwards in the following circumstances:

1. You provide an eligible vehicle to a current employee (as discussed above);
2. The vehicle is provided to the employee to perform their work duties;
3. You take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use (e.g. employment contracts, policies);
4. The vehicle has no additional non-business accessories (such as a bull bar or alloy wheels);
5. The vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired;
6. 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
7. Your employee uses the vehicle to travel:

1. between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip
2. no more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and
3. no single, return journey for a wholly private purpose exceeds 200 kilometres.

Examples of how these guidelines will operate in practice are illustrated in PCG which can be found here¹.

The PCG states that if an employer chooses to rely on this draft guideline, there is no need to keep records which demonstrate that the private use of the vehicle is “minor, infrequent and irregular” and the ATO will not review an employer’s treatment of exempt vehicle under these conditions. It is therefore important that employers have a policy in place to ensure the above criteria are met. This should also be monitored to ensure compliance by employees. One method of doing this would be to regularly check odometer readings to ensure that private use is limited as described above.

In practice, the above guidelines may be difficult to meet. We therefore expect in many cases, employers will not be able to rely on this PCG. However, the same methods of proving compliance with the requirement for “minor, irregular and infrequent private use” can be employed.

We recommend that all employers who provide exempt vehicles consider the following:

1. Ensure employment contracts with individual staff specify that use of the vehicle is limited to home to work travel and work related travel;
2. Have an internal written policy which also outlines these requirements in relation to any exempt vehicles provided to employees;
3. Obtain odometer readings on all exempt vehicles at regular intervals to ensure that the vehicle has not been used for private travel. Odometer readings should also be taken at 31 March each year.

Whilst the above practices do not guarantee that the vehicles will be exempt if the ATO proves otherwise, they will assist in establishing an expectation of vehicle use with your employees.

It is also important to note that FBT is an employer liability. If any vehicles which are treated as exempt are subsequently found by the ATO to not be exempt, any resulting FBT will be payable by the employer. It may be prudent for employment contracts to make allowances for the employee to reimburse any FBT cost to the employer in the event that unauthorised private use of the vehicle results in it not meeting exempt vehicle requirements.

If you have any queries or concerns regarding your FBT exempt vehicles, please contact your Pitcher Partners representative to discuss further.

¹As of January 2019, this is the final PCG and is now called PCG 2018/3.