The ATO has made a change to the FBT rules, set to take affect for the 2019 FBT year and beyond, that will give businesses that supply employees with motor vehicles (that are not cars) a prescriptive method to apply to get an exemption to FBT. It is a change from the objective test that has been in place.
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”.
The ATO’s practical compliance guideline on the matter (PCG 2018/3) says there has been demonstrated inconsistency in the application of exemptions, leading to additional compliance costs, especially where private travel is relatively low.
“To reduce these compliance costs and provide certainty, this draft guideline explains when the Commissioner will not apply compliance resources to determine if private use of the vehicle was limited for the purposes of the car-related exemptions,” the PCG says.
The relevant part of the new guidelines state that an employee’s private use of a vehicle will be to travel between their home and their place of work “and any diversion adds no more than two kilometres to the ordinary length of that trip”. Also that “for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel more than 1,000 kilometres in total, and a return journey that exceeds 200 kilometres”.
Australasian Fleet Management Association (AFMA) executive director Mace Hartley says the change isn’t all that drastic, just new and more defined. “The rules have always been there, people have just taken a very liberal view of the law, whereas this tightens it up. Companies will have to start monitoring what personal usage looks like,” he says. “The draft ruling provides something you can adopt for clarity as a business, but you have to understand what kilometres your staff are using if you’re going to rely on it.”
Hartley says keeping track of vehicle use was something of a thorn in the side of fleet managers before the advent of digital in-vehicle logging systems, known as telematics. “At the very least, this will mean an employee declaration. The next step would be a logbook or telematics systems which would provide added benefits to the business as well as meeting those FBT personal usage compliance,” he says.
Hartley says considering telematics technology has just assumed greater importance. “The problem with FBT is the ATO can pick up something in the future and backdate penalties,” he says. “The guideline has been issued to help businesses know better what minor and infrequent usage is, but in making it more specific, businesses need to make sure they comply.”
He says old paper-based methods of record keeping can be susceptible to human error and, at the very least, employees will be held more accountable for their use of company vehicles by the company. “They either need a logbook, which nobody does accurately and they’re flawed, or they need to sign a declaration saying they won’t go over the restrictions,” Hartley says.
The ATO’s clarity will also test company policies. “There’s no point putting policies in place and letting them sit in a drawer – they’ll need to test the veracity of them. The guideline presents some potential opportunities and clarity for businesses, but they’ll have to review and determine how people have done their mileage.”
He says the definitions have long been murky and that has led to both the popularity of dual-cabs and the increase in personal use. “If someone’s doing 50,000 work kilometres a year, the school drop-off each day certainly fails the ‘infrequent’ definition but by percentage it might be okay on the ‘minor’ definition. It’s grey,” he says.
“It might make a situation where even more dual-cabs like the Hilux are sold, rather than single-cab – because they’re both FBT exempt but you can’t take the family in the single-cab, and it also makes sense that more than two employees may need to be driven around.”