The ATO has provided more certainty around the FBT exemption for small business owners that have commercial vehicles and provide these to their employees for work purposes.
Home to work, and work to home travel is exempt from Fringe Benefits Tax (49% tax rate on the employer) for commercial vehicles, including ‘incidental’ travel and ‘minor and infrequent’ private travel.
The ATO has watered down some of the restrictions that must be met to have some level of comfort that the ATO won’t pursue employers for FBT where the commercial vehicles meet the exemption criteria set out in their practical guidance PCG 2018/3.
A few key points:
– it only applies to eligible commercial vehicles – e.g. utes with 1 ton carrying capacity, panel vans, etc (vehicles not designed principally for carrying passengers);
– the employer is still required to look at the actual use of the commercial vehicle as the FBT exemption only applies to to ‘home to work, work to home travel’ and ‘incidental travel’ and ‘minor and infrequent’ private travel;
But what are these two types of travel specifically?
– Allowable Incidental travel – is a diversion of not more than 2kms in the travel from home to work or work to home (or other business trips) e.g. school drop offs, a surf that don’t add more than 2Kms to the trip.
– Minor and infrequent private travel exemption – actual private travel – this must be not more than 1000kms in the FBT year and no single return journey can be more than 200Kms.
Also note the safe harbour won’t apply to salary sacrifice arrangements;
Record keeping –
– Requirements have been relaxed since the last guidance as there is no longer an expectation to regularly monitor employee travel and use by reference to odometer readings etc;
– Now the employer must ensure they have an internal policy that severally limits private use and this has been communicated to the employees who use these commercial vehicles; (suggest this is done as part of staff starter packs and annually after FBT year end);
– the ATO says that the employer requires assurance from employees after the end of the 31 March FBT year that their private use meets the exemption criteria; (This would best take the form of an employee declaration each year)
The employer must therefore still consider this issue, and it may be prudent in some cases to keep odometer records;
The employer needs a reasonable basis to rely on the employee making correct assertions; possibly test odometer readings against expected travel plus a little private and incidental travel as a sanity check. (it may also be harder in cases where staff do not have a 2nd family car)
If the safe harbour doesn’t apply – it doesn’t mean the commercial vehicle is not exempt from FBT, but the employer would need active management and review and employee contributions for any taxable private use to eliminate FBT.
Warning – the ATO are looking at this area as a compliance risk.