Advivo Accountants and Advisors explain the requirements of an FBT exempt vehicle… does yours measure up?
Published: February, 2020
Updated: July, 2023
My ‘ute’ is FBT exempt right? Wrong.
Well… not necessarily anyway. As business advisors in Brisbane, we often come across small business owners who have been told they should buy a ‘commercial vehicle’ such as a certain dual cab ute, because it will mean they can claim 100% of it as a tax deduction regardless of their private usage, and without having to worry about Fringe Benefit Tax (FBT) as these vehicles are exempt from FBT.
Whilst this isn’t entirely accurate, we believe many business owners have acted on such information without being aware of exactly what is required for a vehicle to be considered as exempt from FBT. As a result, many businesses are likely now sitting on sleeping time bombs.
The facts
It’s only in the below circumstances that a vehicle will be considered as exempt from FBT. The ATO provides:
“There are circumstances in which private use of a car may be exempt from FBT.
An employee’s private use of a taxi, panel van or a utility designed to carry less than one tonne, or any other road vehicle designed to carry a load of less than one tonne (that is, one not designed principally to carry passengers) is exempt if their private use of such a vehicle is limited to:
- travel between home and work
- travel that is incidental to travel in the course of performing employment-related duties
- non-work-related use that is minor, infrequent and irregular – for example, occasional use of the vehicle to remove domestic rubbish.”
Enforcing the rules
Those found not qualifying with the above rules are at risk of losing their FBT exempt status which could cost thousands of dollars in additional tax. The ATO Practical Compliance Guideline PCG 2018/3 clarified their interpretation of ‘private use’ as in excess of:
- 2 kilometres added to a trip between home and work;
- 1000 kilometres in total for an FBT year (1 April to 31 March), and where no single return journey exceeds 200 kilometres will be considered as not qualifying as exempt private usage.
What does that mean?
If your private usage falls outside of the above, the ATO is unlikely to consider your vehicle as an FBT exempt vehicle meaning it will be treated the same as a car for FBT purposes. Arguably one of the biggest impacts of this is that travel between home and work is considered personal and no longer exempt from FBT.
I provide utes to my employees and I know they use them for private use…
If you want to maintain FBT exempt status on your commercial vehicles, it is important you take action. The ATO guidelines are designed to help you when:
1. you allow employees limited private use of an eligible vehicle that:
a. adds no more than 2 kilometres to their trip between home and work
b. doesn’t exceed 1,000 kilometres in total for the FBT year, and where anyone’s return journey doesn’t exceed 200 kilometres
2. you provide the vehicle to the employees for business use to do their job and it isn’t part of their salary package arrangement; and
3. the value of the vehicle is less than the luxury car tax threshold at the time the vehicle was acquired
I don’t want to be penalised. What can I do to ensure my employees don’t exceed the guidelines?
To maximise the chances of maintaining FBT exempt status for your commercial vehicles, we recommend:
1. Put a policy in place that limits the private use of the vehicle; and
2. Obtain annual assurance from your employees stating their use is limited to that outlined above.
We recommend ensuring the policy is clearly documented and communicated to all as well as ensuring there is a clear understanding that employees will need to provide a signed statement assuring the private usage is limited to that described.
The latest updates: electric vehicles
Within the Draft Practical Compliance Guideline 2023/D1 presented by the ATO, there have been a number of additions to account for the increase in electric vehicle use. This presents the challenge of calculating electricity costs incurred when charging electric vehicles at residential premises, as this is combined with the total electrical consumption of the household, and often cannot be separately identified or valued.
If your business provides electric vehicles to your employees, use the ATO’s latest Guidelines for calculating the charging costs you are able to claim.
Advivo’s View
The ATO has stated that employers do not need to keep records on the usage of work vehicles if they continue to rely on the guidelines, however, we recommend employers should ensure copies of the communication, including the policy and annual employee assurance declarations, are maintained in the personnel files of the employees.
If you’re unsure about your new obligations in relation to the existing guidelines, or the new ones relating to electric vehicles, please don’t hesitate to contact us. We are expert business advisors in Brisbane and FBT specialists – we can help safeguard you and your business.