Fringe Benefits Tax: Exempt Vehicles

The ATO has recently released a new draft practical compliance guideline (PCG 2017/D14) in relation to exempt vehicle fringe benefits which we believe is relevant to you and your employees. The PCG aims to relax the current FBT record keeping requirements for certain vehicles (for example panel vans, single cab utes and certain dual cab utes that are not designed principally to carry passengers).

Under the current FBT rules, where such a vehicle is provided to an employee for work related purposes and any private use is limited to ‘minor, infrequent and irregular’ travel, the vehicle is an exempt fringe benefit and not subject to FBT. Where private use of the vehicle is more than just minor, infrequent and irregular, the provision of the vehicle is a residual fringe benefit.

On this front, there has always been uncertainty on what exactly is ‘infrequent and irregular’ private use and how much private travel is more than ‘minor’, particularly because records such as odometer readings and logbooks are not mandatory for exempt vehicles. The onus is on the employer to be able to reasonably demonstrate that their employees do not use work vehicles for more than minor, infrequent and irregular private use.

The draft PCG in a nutshell

The draft PCG states that where certain conditions are met, no records are required to be maintained by the employer each year to demonstrate that the work-related FBT exemption applies to the vehicle provided to an employee. These conditions include:

  1. The vehicle provided to a current employee is an ‘eligible vehicle’ and is provided to the employee to perform their work duties . Please click here to view eligible vehicles;
  2. The employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use;
  3. The vehicle has no non-business accessories;
  4. The vehicle’s GST inclusive value is less than the luxury car tax threshold (ie $65,094 for the 2017/18 year for non-fuel efficient vehicles);
  5. The vehicle is not provided as part of a salary packaging arrangement;
  6. The employee uses their 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;
    • No more than 750 kilometres 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 kilometres.

Where the above conditions cannot be met, employers should continue to have employees maintain and provide records of the use of the vehicle to enable the employer to determine if the vehicle is subject to FBT and to what extent.

What the draft PCG achieves

There have been mixed responses from the industry in relation to the extent of the draft PCG’s effectiveness in easing the compliance burden on employers and employees.

In our view, while the draft PCG is well-intended, the difficulty with applying the draft PCG is that an employer must still be able to demonstrate the use of any relevant vehicles provided to employees meets the above eligibility criteria at all times.

This in itself requires record keeping, for example:

  • Regularly comparing the opening and closing odometer readings of the vehicle with the total distance the employees are expected to travel between home and work;
  • Obtaining declarations from employees which confirm that their private travel is minor, infrequent and irregular; or
  • Maintaining a valid log book, so work trips and private trips can be recorded.

The PCG suggests that ‘reasonable steps to limit private use’ include a monitored employment policy limiting the private use of work vehicles’. It is also important that it can be shown that the policy is enforced. Employment handbooks, intranets and contracts should therefore be up to date so employees are aware of the limitations on any work vehicle provided to them.

What to do next

Given that an employer and its employees still need to be able to demonstrate that the private use of a work vehicle is within the above rules, it is still unclear how much relief the PCG will actually provide. Until the PCG is issued as final, we recommend that you review your current employment and car travel policies to confirm whether they are in line with the PCG’s comments. You should also consider how effectively the current policies are monitored and enforced in practice.

Where you are satisfied that the private use of work vehicles provided to employees meets the draft PCG’s guidelines, in our view, the following records should be maintained at a minimum:

  • opening and closing odometer records should continue to be maintained by employees;
  • declarations should be obtained from employees to show that the private use of the vehicle is minor, infrequent and irregular;
  • estimates of home to work travel obtained for each employee and compared to odometer records on a periodic basis; and
  • evidence that the employer’s policy regarding limited private travel is enforced and monitored.

We will be monitoring any updates to the draft ruling closely as various industry submissions have been made to the ATO.

If you would like any further information, please do not hesitate to contact either Rachel Pritchard or Rebecca Lay of our office on (08) 6311 6900.