Written by Nick Fedele:
During the last Fringe Benefits Tax (FBT) year, the Australian Taxation Office (ATO) released guidance outlining their compliance approach when determining whether the private use of eligible vehicles meet the requirements of the FBT car-related exemptions. Following public consultation, the ATO further strengthened its position by releasing updated guidance (PCG 2018/3) which applies to the 2019 and later FBT Years.
Generally, under the Fringe Benefits Tax Assessment Act 1986 (FBT Act), FBT will not apply where the private use of eligible vehicles by employees during an FBT year is limited to work-related travel and other private use that is minor, infrequent and irregular. The ATO guidance focuses on determining when the private use of an eligible vehicle falls outside what it deems to be minor, infrequent and irregular.
What is an Eligible Vehicle?
Taxi’s, panel vans and single cab utes are specifically defined the FBT act to be an eligible vehicle and meet the requirements of the FBT car-related exemptions. Other vehicles, such as dual cab utes and other four wheel drive vehicles, are eligible vehicles when either of the following tests in Miscellaneous Taxation Ruling 2024 (MT 2024) are satisfied:
- The vehicle is designed to carry a load of one tonne or more, or more than eight passengers; or
- The vehicle is not designed for the principal purpose of carrying passengers.
The designed load capacity is calculated as the maximum loaded vehicle weight (i.e. gross vehicle weight per the compliance plate) LESS the unladen vehicle weight, being the weight of the vehicle without any goods or occupants in it.
A vehicle has a principal purpose of carrying passengers when the majority of its designed load capacity is attributable to the total passenger carrying capacity. The passenger carrying capacity is calculated by multiplying the designed seating capacity (including the driver’s seat) by 68kg.
As an example, a vehicle with a seating capacity of five, a loaded vehicle weight of 2,000kgs, and an unladen vehicle weight of 1,400kgs, would be considered to be a vehicle designed principally to carry passengers and therefore not an eligible vehicle. This is because the designed passenger carrying capacity is 340kgs (5 seats multiplied by 68kg), which takes up the majority of of the total load capacity of 600kgs (2,000kgs less 1,400kgs).
Limitations on Private Use:
Under the ATO Guidance, an employee’s private use of an eligible vehicle must be limited to:
- Home and work travel with any diversions not adding more than two kilometres to the ordinary length of the trip; and
- For journeys that are for wholly private purpose (outside of home and work travel), the use of the vehicle should not exceed:
- 1,000 kilometres in total in the FBT year; and
- a return journey of more than 200 kilometres.
Any private use that is outside the scope of these guidelines would not meet the requirements of the car-related exemptions in the ATO’s opinion and may result in FBT consequences.
What should you do?
If your business owns an eligible vehicle, you should take care to ensure all private use is limited and the vehicle is predominately used for business activities only.
You should also maintain a logbook for the vehicle to prove that the private use is in accordance with the ATO guidelines and to keep a record of the closing odometer reading every year as at 31 March.