Are work vehicles exempt from Fringe Benefits Tax?

By Ali Suleyman - October 15, 2018

The Australian Taxation Office (ATO) recently released Practical Compliance Guidance PCG 2018/3 (PCG 2018/3) to help employers determine whether the private use of work vehicles is “minor, infrequent and irregular”. The guidelines are important because excessive private use of work vehicles disqualifies those vehicles from being fully exempt from Fringe Benefits Tax (FBT). Employers now have some clarity as to the ATO’s interpretation of minor, infrequent and irregular and can act to mitigate any possible FBT liability relating to the private use of work vehicles for the 2019 FBT year.

It is common for many businesses to provide motor vehicles to employees to perform their employment duties. In order to stay competitive and attract the best talent, businesses provide certain exempt vehicles, such as utes, as part of an employment package and make them available for the private use of their employees. These vehicles may be fully exempt from FBT notwithstanding some private use of these vehicles by employees.  However, where the private use of the vehicle exceeds certain thresholds, then the employer becomes liable to FBT in respect of all of the private usage of the vehicle.

Will your business be affected by PCG 2018/3?

PCG 2018/3 became effective on 1 April 2018 and clarifies the ATO view on minor, infrequent and irregular use of work vehicles and highlights the steps that employers need to take in order to mitigate the risk of additional FBT.  Listed below are some of the key questions that need to be asked following the issue of PCG 2018/3:

  • Does your business provide motor vehicles (e.g. panel vans, single or dual cab utes) to employees?
  • Are these vehicles being used by employees for their private purposes:
    • for more than 1,000 kilometres per year; or
    • for a return journey which exceeds 200 kilometres?
  • What is your company policy on the employees’ private use of these vehicles by employees?
  • How does your business monitor the private use of these vehicles by employees?
  • Do you have appropriate procedures in place to mitigate any potential FBT liability?

The Pitcher Partners Employment Taxes team would be pleased to assist you in any review of your exempt vehicle records and policies.

What are “eligible vehicles” for the purpose of the FBT concession?

"Eligible vehicles” which broadly include certain types of taxis, panel vans, single cab utes, dual cab utes, four-wheel drive vehicles, modified vehicles and other road vehicles.

Eligible vehicles may be exempt from FBT where, among other things, the private use of those vehicles by employees is limited to travel between their home and place of work and otherwise is minor, infrequent and irregular.

What constitutes "minor, infrequent and irregular" private use?

Until recently it was left to the discretion of employers to determine what level of private usage met the criteria to exempt an eligible vehicle from FBT.

The ATO released PCG 2018/3 to provide certainty to employers and outlined their compliance approach to the FBT exemption for exempt vehicles. While this guidance does not have legislative force, it acts as an important guide for employers to determine an acceptable level of private use for the purposes of the FBT exemption.

According to PCG 2018/3, the private use of an eligible vehicle is considered minor, infrequent and irregular where:

  • an employee uses the vehicle to travel between their home and their place of work and any diversion (e.g. to pick up children from school) adds no more than two kilometres to the ordinary length of that trip, and
  • for private journeys (other than travel between home and place of work), the employee does not use the vehicle to travel:
    • more than 1,000 kilometres per year in total; and
    • a return journey that exceeds 200 kilometres.

What is the risk for employers?

Where an employee’s private use of an eligible vehicle exceeds the thresholds as outlined in PCG 2018/3, the FBT exemption may not apply.  Accordingly, employers will need to account for all of the private use of exempt vehicles in these circumstances.

Where an eligible vehicle does not qualify for the FBT exemption, different valuation rules and substantiation requirements apply depending on whether the vehicle is a Car Fringe Benefit or a Residual Benefit. A brief summary of the FBT treatment of each type of vehicle is set out in the table below.

Benefit type

Car Fringe Benefit

Residual Vehicles

Carrying capacity

Under one tonne

Over one tonne

Valuation method

Statutory formula or Operating Cost

Cents per kilometre or Operating Cost

Substantiation requirements

Log book is required to use the operating cost method

Log book is advisable, but no legislative requirement to maintain.

Reasonable estimate of private kilometres substantiated by an employee declaration is acceptable.

 

Can an employer rely on PCG 2018/3?

In order to be able to rely on PCG 2018/3, employers and employees must satisfy the following conditions:

  • a current employee must be provided with an eligible vehicle;
  • the vehicle is to be used by the employee to perform their work duties;
  • the GST inclusive value of the vehicle must be less than the luxury car threshold (for 2018/19 $75,526 for fuel-efficient vehicles and $66,331 for other vehicles);
  • the vehicle cannot be part of a salary packaging arrangement;
  • there must be a policy that limits the private use of the vehicle is in place and assurance is obtained from the employee that confirms the minor, infrequent and irregular private usage of the vehicle;
  • the employee may use the vehicle for travel between their home and their place of work, but any diversion on that trip cannot add more than two kilometres to the total length of the trip; and
  • the vehicle is not driven for any wholly private purpose (other than travel between home and place of work) that exceeds:
    • more than 1,000 kilometres per FBT year in total; and
    • a return journey that exceeds 200 kilometres.

Where all of those criteria are satisfied, the employer can rely on PCG 2018/3.

Is PCG 2018/3 compulsory?

Employers do not need to apply this Guidance Statement. The advantages of applying PCG 2018/3 are:

  • the employer is not required to keep records about the use of the vehicles by employees that demonstrate that the private use of the vehicle is minor, infrequent and irregular; and
  • the ATO will not devote compliance resources to review the car-related exemptions claimed.

Where the employer chooses not to rely on PCG 2018/3, it nevertheless serves as an instructive guide on the acceptable level of private use for the purposes of claiming the relevant FBT exemption.

Pitcher Partner recommendations

We recommend that employers undertake the following:

  • understand the current treatment of eligible vehicles (e.g. utes) by the business from an FBT perspective;
  • review your current fleet and understand what is the carrying capacity of eligible vehicles (i.e. over/under one tonne);
  • review current practices, company policies and employment contracts in relation to the private use of eligible vehicles;
  • consider whether the use of eligible vehicles is minor, infrequent and irregular within the meaning provided by the ATO in PCG 2018/3 and whether the FBT exemption can be substantiated; and
  • consider how the business is currently monitoring the private use of eligible vehicles (e.g. logbook, employee declaration).

If you have any queries or would like more information, please contact a member of the Employment Taxes team or your usual Pitcher Partners expert.


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