In recent times, the Australian Taxation Office (ATO) has raised concerns about potential misuse of the Fringe Benefits Tax (FBT) exemption for utes and panel vans, particularly in cases where private use is claimed to be minimal. As utes, especially dual cabs, continue to dominate the Australian new car market, employers providing these vehicles to their employees need to be well-versed in the conditions surrounding the FBT exemption.
Understanding the FBT Exemption
The FBT exemption for utes and vans is not a carte blanche privilege; it comes with specific conditions. To qualify for the reduced record-keeping concession, the ATO mandates that the vehicle must be primarily supplied for work-related purposes, cannot be salary packaged and must fall below the luxury car tax limit. Employers must have a policy in place limiting private use, and employees must ensure compliance with this policy.
Reduced Record-Keeping Concession Conditions
The reduced record-keeping concession demands a strict adherence to guidelines. Employees using the eligible vehicle can only drive it to and from work or while performing work duties, with no diversions exceeding two kilometres from the direct route between home and work. Moreover, the total private mileage for the FBT year should not surpass 1,000 kilometres, with no return journey exceeding 200 kilometres.
Monitoring and Compliance
Employers are responsible for ensuring compliance with these conditions. Regular checks on the vehicle’s odometer reading are advised to confirm minimal private use. While employees provide assurances of adherence to the policy, employers must be satisfied on reasonable grounds that private use has indeed been minimal.
Indemnification for FBT Liability
To safeguard against potential FBT liability, employers may consider seeking an indemnity from employees. This involves obtaining a declaration from the employee acknowledging their responsibility for any FBT liabilities related to private vehicle use. This additional step adds a layer of protection in case the information provided by the employee is later found to be inaccurate.
Factors that May Compromise FBT Exemption
Several factors may jeopardise the FBT exemption, including travelling with family members, posting about significant family holidays on social media, or toll records indicating extensive weekend travel. Even seemingly innocent activities like dropping kids off at school may breach the minimal private use policy.
Challenging ATO Guidelines
While the ATO’s guidelines are not legally binding, challenging them could lead to a dispute with the ATO. Employers may argue that certain deviations or private kilometres still fall within the legal limits. However, taking such an approach can be expensive and time-consuming, making it crucial to weigh the potential benefits against the risks.
In a market where utes are a popular choice for both work and personal use, employers must navigate the FBT exemption rules diligently. Establishing clear policies, obtaining employee assurances, and periodically monitoring compliance are essential steps. For added protection, seeking indemnities and encouraging employees to maintain accurate logbooks can contribute to a smoother and dispute-free FBT process. Ultimately, understanding the intricacies of FBT exemptions for utes is not just good practice; it’s a necessity to avoid potential financial implications for both employers and employees.