Utes and commercial vehicles - the new safe harbour to avoid FBT
The ATO has shown its intentions in relation to Utes and commercial vehicles. Most taxpayers have assumed that as long as a vehicle has a carrying capacity of greater than one ton or carries more than 9 passengers that their Fringe Benefit Tax (FBT) obligations were easier to satisfy. However with the growing popularity of dual cab Utes and commercial vehicles for private use, the ATO is now placing some emphasis in reviewing this area.
In a nut shell, if you have a Ute or commercial vehicle, you need to prove that you are using the vehicle for and only for work purposes with minor and infrequent personal usage. The ATO has introduced safe harbor provisions that if satisfied may not require you to report a fringe benefit. If these provisions are not satisfied the FBT substantiation and reporting obligations will apply.
If as an employer you provide an employee with the use of a car or other vehicle then this would generally be treated as a car fringe benefit or residual fringe benefit and could potentially trigger an FBT liability.
However there are some exemptions in the FBT Act which can be applied when an employer provides certain vehicles (utes and other commercial vehicles for example) the private use of the vehicles is limited to work-related travel, and other private use that is 'minor, infrequent and irregular'.
One of the practical challenges when applying the exemption is how to determine if private use has been 'minor, infrequent and irregular'. The ATO recently released a compliance guide that spells out what the regulator will look for when reviewing the use of the exemption.
The ATO has indicated that in general, private use by an employee will qualify for the exemption where:
- The employer provides an eligible vehicle to the employee to perform their work duties. An eligible vehicle is generally a commercial vehicle or one that is not designed mainly for carrying passengers. The requirements are very strict.
- The employer takes reasonable steps to limit private use and they have measures in place to monitor this - this might be a policy on the private use of vehicles that is monitored using odometer readings to compare business kilometres and home to work kilometres travelled by the employee against the total kilometres travelled.
- The vehicle has no non-business accessories - for example a child safety seat.
- The value of the vehicle when it was acquired was less than the luxury car tax threshold ($75,526 for fuel efficient vehicles in 2017-18 and $65,094 for other vehicles).
The vehicle is not provided as part of a salary sacrifice arrangement; and
- The 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, they travel no more than 750 km 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 km.
If you meet all these specifications, the ATO has stated that it will not investigate the use of the FBT exemption further. However, the you will still need to keep records to prove that the conditions above have been satisfied and to show that private use is restricted and monitored.
If these conditions are not met then this doesn't necessarily prevent the exemption from applying, but you can expect that the ATO would devote more time and resources in checking whether the conditions have actually been met. Employers who do not take active steps to check the way commercial vehicles are being used are at high risk of significant FBT liabilities.
If you would like further help with determining how to use the new safe harbour, or ensure that you are not accidently breaching any exemptions then we recommend you contact our office.
Rob Lo Presti