Dispelling Myths and Setting Boundaries: ATO’s Mission to Clarify FBT Regulations for Employers & Small Business

In a bid to dispel misconceptions surrounding Fringe Benefits Tax (FBT), the Australian Taxation Office (ATO) has turned its attention to employers’ and small business owners’ practices regarding the personal use of vehicles. As the labour market experienced increasing competitiveness, many businesses ventured into the realm of fringe benefits (i.e. providing work vehicles) to entice and retain talent. Business owned vehicles were also very popular with the immediate write-off rules (accelerated depreciation).

In particular, the ATO has taken note of what it terms as “outrageous claims” made by some employers in their advertisements, particularly concerning the provision of utes, especially dual-cab utes, to employees for personal use over the weekends. The same misconception exists among many small business owners. The ATO have clarified that there exists no exemption for the private use of work vehicles beyond the defined limits. Any personal use exceeding the stipulated constraints is subject to FBT, thereby debunking the commonly held “myth” associated with Ute’s being exempt. The ATO now plan to commence reviews of businesses targeting this specific area.

Unfortunately, this will mean a lot of Small Business owners will be caught up in the ATO “reviews” where their company or trust owns a vehicle (particularly utes and 4WDs).

It is imperative for employers and small business owners to acquaint themselves with the ATO’s guidelines on exempt car benefits and FBT, especially as the festive season approaches.

Specifically, private use is acceptable under the following conditions:

• Provision of an eligible vehicle to a current employee for business use.
• The vehicle’s value falls below the luxury car tax threshold at the time of acquisition.
• The vehicle is not part of a salary packaging arrangement, and the employee cannot choose additional remuneration instead of the vehicle’s use.
• A policy is in place that restricts the private use of the vehicle, with the employee’s assurance of adhering to the stated limits.
• The employee’s use of the vehicle for home-to-work travel involves no more than a two-kilometre deviation from the ordinary commute, and for wholly private purposes, the employee does not exceed 1,000 kilometres in total, with no single return journey exceeding 200 kilometres.

That last point is far more restrictive than most realise, and “conveniently” rules out most camping and 4WD type holidays.

With the ATO taking proactive steps to ensure compliance and clarity, it is incumbent upon employers to remain well-informed about the intricacies of FBT regulations to avoid potential penalties or liabilities. Understanding the permissible limits of private use in the context of vehicle benefits is critical to maintaining a smooth and compliant business operation.

Of course, you should contact Holmans if you have any queries or concerns about your business’s vehicle arrangements.