FBT and commercial vehicles

A common question, particularly from farming and tradesmen clients, at the start of the Fringe Benefits Tax (FBT) year is whether a work vehicle provided to an employee is FBT free, and if there is a difference between providing a car or a commercial vehicle (such as a dual-cab utility). 

The answer is somewhat complicated – but we’ll attempt to provide some clarity to assist you. 

CARS

Generally, if you provide a car to an employee (or their associate) and the car is either applied or deemed to be available for private use, a car fringe benefit will arise and therefore is subject to FBT. 

The term ‘car’ is defined to mean ‘a motor vehicle (eg. station wagon, van or work-horse vehicle) designed to carry a load of less than one tonne and fewer than nine passengers, and does not include a motor cycle. 

‘Private use’ means any use of the motor vehicle by the employee or associate (as the case may be) that is not exclusively in the course of producing assessable income of the employee. Whilst certain exceptions may apply, as a general rule, travel from work to home is regarded as private use. 

Use of a car by an employee in carrying out their employer’s business however, is not deemed as private use. Similarly, use of the car by the employee in carrying on a business in their spare time is also not private use, as the car is being used in producing assessable income of the employee. 

A car benefit will also arise if there is any deemed private use on a particular day, even if the employee (or their associate) does not physically use the car. Deemed private use can arise in two circumstances. 

1. Firstly, where the car is garaged at the employee’s residence there will automatically be deemed private use. 
2. Secondly, there will be deemed private use when the car is not at the employer’s place of business and the employee (or associate) is entitled to use or has custody and control of the car for private purposes. 

COMMERCIAL VEHICLES (EG. DUAL-CAB UTILITIES)

Use of certain commercial vehicles by employees may be an exempt benefit where the only private use (apart from minor, infrequent and irregular use by an employee or an associate of an employee) is for ‘work-related’ travel by the employee. 

‘Work-related’ travel is travel between home and work by an employee, or travel by an employee that is incidental to travel in the course of performing employment duties. 

The exemption applies to:   

• Taxis, panel vans or utilities designed to carry a load of less than one tonne, or 
• Other vehicles that are designed to carry a load of less than one tonne and that are not designed mainly to carry passengers.

One of the key elements to the exemption is that the commercial vehicle must not be principally designed to carry passengers. In deciding this issue, the ATO uses a number of factors to determine that a vehicle is ‘not principally designed to carry passengers’ – most importantly the available load for passengers must be less than half of the overall carrying capacity of the vehicle. Therefore, if 50% or more of the vehicle’s carrying capacity is not being devoted to passengers, then the FBT exemption may apply. 

The ATO annually publish guidance on which commercial vehicles may be eligible for this exemption (ie. they are not regarded as 

being designed principally to carry passengers). This list is updated annually and can be found on the ATO’s website www.ato.gov.au/content/00167339.htm 

A similar exemption applies to commercial vehicles that would other give rise to a residual benefit where used for private purposes. This exemption applies essentially to vehicles that are designed to carry a load of one tonne or more, or nine or more passengers. 

Whilst there are many factors to consider when deciding whether or not a FBT exemption may apply, Boyce recommends that you ask your employees to sign a ‘no private-use’ declaration each year. The ATO further recommends that a notice prohibiting private use be placed in each commercial vehicle stating: 

“This vehicle is not to be used for any private purpose other than home to work, or minor and infrequent private use. The penalty for the breach of this rule will involve withdrawal of the use of the vehicle for home to work travel.” 

The ATO is focusing on this area currently and are winning in a lot of cases. It has been rumoured that ATO officers have been known to select businesses for FBT audits based on the registration numbers of commercial vehicles parked at the local weekend footy! 

We recommend you consult your Boyce Accountant to discuss your specific circumstances and any FBT implications. 

Kathy Kelly, Director – Boyce Cooma & Lloyd Hart, Manager – Boyce Wagga Wagga 

Motor Vehicle Log Books - reminder re 30 June, click here for details.