By :- Daniel Pegdon and Varun Kumar
As the Fringe Benefits Tax (FBT) year-end approaches (31 March), it’s again time to consider all the benefits you have provided to your employees during the FBT year. In this article, we will focus on car fringe benefits and some common misconceptions out there in relation to FBT exemptions.
What is the Australian Taxation Office (ATO) doing in respect of FBT?
Over the last year the ATO have been releasing guidance on their website in respect of FBT and have also been releasing educational materials to ensure businesses are aware of their obligations. Furthermore, from the 2023-24 year onwards, the ATO will acquire novated lease information directly from certain lease providers. The information the ATO will receive includes lessee/employee identification details, employer identification details and the lease transaction details including information such as the category of vehicle i.e., whether it’s a sedan, utility, wagon etc. This will be in addition to current data matching programs the ATO has in place already with motor vehicle registries.
Most employers are on top of the income tax obligation but anecdotally, we have seen that many small to medium sized businesses do not spend enough time considering whether they are providing a taxable fringe benefit. Some common misconceptions in respect of cars include:
| Misconception | Correct treatment |
| My business provides a utility/work vehicle – therefore it’s exempt from FBT. | It could be exempt but there are additional requirements you need to satisfy. |
| I provide my employee with a car which they park at home, but it is used solely for work purposes as per company policy – it is exempt from FBT. | It is probably not exempt from FBT. |
| I provide my employee with a dual cab utility vehicle, and it is exempt from FBT. | It could be exempt but there are additional things you need to check in relation to the vehicle. |
To put things in perspective, let’s say the dual cab vehicle you believe is exempt from FBT costs $80,000. The FBT payable on the benefit could be approximately $15,600 per year if the exemption is unavailable and the benefit is a car fringe benefit.
Ensuring you consider the type of vehicle you are providing
The private use of a “car” as defined in the FBT Act gives rise to a car fringe benefit and any other vehicle (which is not a car) is considered a residual fringe benefit.
There is an exemption from FBT available for certain types of vehicles if the vehicle’s private use is restricted to home to work and other minor incidental private travel during the FBT year (“limited private use exemption”). This is a very limited exemption and if the employee uses the vehicle often for private purposes (e.g., a fishing trip or weekly trips to watch the footy), it is unlikely the requirements for this exemption are met. Furthermore, this exemption is only available to certain types of vehicles.
| Example An employer provides their employees with a sedan, dual cab and a single cab utility vehicle. The employer restricts the private use of those vehicles to home and work only and for other work trips. The employees park the vehicles overnight at their private residence. The following are the outcomes of this arrangement from an FBT point of view. Sedan Dual Cab Single CabCost of the vehicle$80,000$80,000$80,000Private use?Yes – home to work onlyYes – home to work onlyYes – home to work onlyPayload capacityLess than one tonneLess than one tonneMore than one tonneType of benefitCar Fringe BenefitCar Fringe BenefitResidual Fringe BenefitIs it exempt?No – the limited private use exemption does not apply to cars that are designed to carry passengers.Limited private use exemption would only apply if the vehicle is not designed to carry passengers (which requires a calculation using the specifications of the vehicle.)Yes – limited private use exemption would apply.FBT PayableApprox. $15,600 per year if no logbook is keptIf vehicle is designed to carry passengers – Approx. $15,600 per year if no logbook is kept.Nil. If vehicle is not designed to carry passengers – Nil. It may seem like semantics, but the type of vehicle will determine what options are available in valuing the fringe benefit provided and whether any exemption from FBT is available. As mentioned above, the ATO is getting information in respect of the type of vehicle from lease providers and motor vehicle registries, so their data matching capabilities increase the risk of reviews in the future. Another issue the ATO will probably challenge is record keeping and whether a business has undertaken any steps to ensure the employees have used the vehicle in line with the policy (e.g., odometer records). |
Electric Vehicles
As you may be aware, the Government previously legislated an FBT exemption for certain electric vehicles (EVs) from July 2022. If the EV does not meet the eligibility criteria – for example, if the cost of the EV exceeds the luxury car tax threshold you may be liable for FBT on the provision of the vehicle to your employee. Even if the EV you provide is exempt from FBT, you may still have a reportable fringe benefit obligation and you may need to include the reportable fringe benefits amount (RFBA) through Single Touch Payroll, and as such the taxable value calculations will still need to be performed for all EV’s provided to employees.
If you require further information in relation to FBT, please contact your Moore Australia advisor.
