New ATO ruling on Fringe Benefits Tax
By Rebecca Cutler – Industrial Relations Manager
The Australian Tax Office (ATO) has made a change to the Fringe Benefits Tax (FBT) guidelines, set to take effect for the 2019 FBT year and beyond, that will give businesses that supply employees with utes and vans a prescriptive method to apply to get an exemption to FBT. It is a change from the previous “minor, infrequent and irregular use” test that has been in place.
What is FBT?
FBT is a tax payable by employers for benefits paid to an employee (or an employee's associate such as a family member) in place of salary or wages. This is separate to income tax and is calculated on the taxable value of the fringe benefits provided.
Fringe benefits are an important part of business and can be a useful way of attracting quality employees. However, if you're going to provide any fringe benefit to your employees, you need to be aware of your taxation obligations.
Generally, a fringe benefit arises where an employer makes a vehicle they hold available for the private use of an employee. Under subsection 8(2) and subsection 47(6) of the Fringe Benefits Tax Assessment Act 1986 (the car-related exemptions), a fringe benefit is an exempt benefit where the private use of vehicles is limited to work-related travel and other private use that is “minor, infrequent and irregular”.
If you provide fringe benefits to your employees, the ATO recommends that you register for FBT.
What the changes mean for you
Essentially, commercial vehicles (think ute or van) will now attract fringe benefits tax, unless:
• Your employee only uses the vehicle to travel between home and work – with no diversion that adds more than 2km to the trip
• Multiple journeys for private use account for no more than 1,000km for each FBT year (15km per week on average)
• No single return journey for a private purpose exceeds 200km
Bob works for Colossal Plumbing as a maintenance plumber and is provided a dual-cab work ute in order to do his job. The ute is garaged at the employee’s home and the employee uses the ute to travel between their home and the work site. The employer has a strict policy about limiting the private use of the vehicle and the ute is not provided as part of the employee’s salary package.
The employee usually stops at the newsagent to pick up a newspaper on their way to work, with the diversion adding no more than two kilometres to the total trip from home to work.
On 20 occasions during the FBT year, Bob took his kids to school in the work ute during the employee’s journey from home to work. The journeys from home to work generally do not exceed 20km (over the course of the FBT year these journeys totalled 400km).
At the end of the 2019 FBT year, the employer receives an email from the employee. The email outlines that multiple journeys were undertaken in the FBT year for a wholly private purpose and these journeys did not exceed 1,000km in total. The employee also outlines in the email that while driving to and from work, no diversions were undertaken that exceeded 2km.
The employer is satisfied that the employee has adhered to their policy about limited private use and does not have to pay FBT tax on the work ute for this employee.
If you haven’t been calculating FBT for work utes and vans up until now, it’s time to start! At the very least, you will require an employee declaration to confirm any private use did not exceed the thresholds detailed in the latest ATO guideline.
This email contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to your tax accountant who should assess its relevance to your individual circumstances. While the MPGA believes this information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk.