Neil Dowling investigates the gains and the losses of Fringe Benefit Tax
So, you expect your new ute in the driveway enables you to claim exemption from Fringe Benefit Tax? That might have been the situation when utes easily carried one-tonne payloads and tools for the tradie. But times, and definitions, are changing.
Understanding the complexity of Fringe Benefit Tax (FBT) now comes with a warning to users to correctly clarify what dual-cab utes are being sought for exemption, and to ensure the private and business mix is in line with tax rules.
The Australian Taxation Office (ATO) late last year warned it would crack down on FBT on dual-cab utes, as it presumed some operators had extended private use periods while not declaring the tax.
It’s hardly an involving issue and is as tiresome to discuss as it is to write − but ignoring the changes are likely to be very costly to businesses and employees.
Accountancy practice BDO said there had often been a misconception that a single or dual-cab ute would be exempt from FBT when used by an employee. This resulted in some sedan owners trading in to purchase a ute in the belief FBT could be avoided.
BDO partner of business services, Randall Bryson, says this misconception had become more common in recent years as dual-cab utes improved in safety, equipment and comfort levels to the point where two utes − the Toyota Hilux and Ford Ranger − head up Australia’s top-selling vehicle list.
He says the misconception came about because FBT “is complicated, and arguably one of the more complicated of the taxes that business has to deal with”.
“When it comes to motor vehicles, there are many complexities that start with the definition of the word ‘car’ in reference to FBT purposes,” Randall says.
“Simply, the definition of a car for FBT purposes is a sedan, station wagon, panel van or ute, or similar vehicle designed to carry a load of less than one-tonne or fewer than nine passengers.
“If this is the case then the private usage of the motor vehicle is typically subject to FBT.”
Exemptions to this include a vehicle that is not principally designed to carry passengers, and that the employee’s private use is limited to travel from work and home; incidental travel for work purposes; infrequent and irregular private use.
If you think you’ve escaped on those grounds, there’s more clarification. For example, if the weight of the passengers exceeds the remaining load capacity of the dual-cab ute, then FBT applies to all private use including trips to and from work.
As an example: A Ford Ranger Wildtrak has a payload (load capacity) of 954 kg (but remember by adding a bullbar, canopy and other accessories, that payload will fall) and four 100kg passengers don’t exceed half the payload, so it can qualify for FBT exemption. If there is a 100kg (or more) weight in the tray, then it doesn’t.
Less-specified Ranger variants than the Wildtrak have more chance of escaping the FBT. The Ranger XLT has a 1054kg payload and the XL has 1115kg, allowing more passengers and more load to give a better chance of coming in under the FBT ruling.
Jump that hurdle, and the ATO will then look at the definition of minor, infrequent and irregular non-work-related travel.
Randall says the ATO last year issued its “Practical Compliance Guideline PCG 2018/3” which places further rules on the treatment of private and work-related vehicle operation.
The guide says that vehicles won’t be exempt if a vehicle has a two kilometer or more diversion from work to home (or home to work), or if this diversion exceeds 1000 km a year and no single return journey exceeds 200 km.
So, what do you do to reduce the risk of falling into the FBT ruling?
Randall says if people rely on the Practical Compliance Guideline (PCG), they will need to be able to clearly demonstrate how they control and monitor the private use of eligible commercial vehicles.
“One way to do this is to update your company vehicle policies so they are in line with the PCG,” he says.
“You should also ensure your employees sign an annual declaration declaring their usage is minor and infrequent and doesn’t exceed the PCG limits.”
Randall says the ATO accepts there will be some incidental private use of the vehicle. “But if there is no genuine work-related purpose or the vehicle is provided as part of a salary packaging arrangement, these exemptions cannot be applied, regardless of the type of vehicle it is,” he says.
“With the recent improvements in dual-cab utes in particular, we have seen an increase in the provision of these vehicles to employees who have no reasonable work purpose and are relying on the incidental private use exemption.
“Guidance from the ATO on this matter is well overdue, however they could have been far more practical with the private usage allowances.
“The ATO has stated in the PCG that if an employer chooses to rely on the guidance, then they do not need to keep records about the employee’s use of the vehicle that demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular’.
“Furthermore, the ATO commissioner will not devote compliance resources to review that you can access the car-related exemptions for that employee.
“Therefore, employers really need to ensure their policies and year-end declaration are robust for eligible vehicles.”
Further details are available from BDO Australia with local offices across Australia (1300-138-991).