FBT and Work Vehicles

Most business owners are aware that if a car is provided to an employee for the private use of the employee, Fringe Benefits Tax (“FBT”) is usually payable. For this purpose, “private use” means that the vehicle is applied to the private use by the employee or their associate.

Also, private use occurs where the car is taken to be available for the private use of the employee or an associate of the employee. On each day such private use occurs, FBT is payable. The amount of FBT payable depends on factors that include whether the statutory formula method or operating cost (“log-book”) method has been chosen to calculate the FBT taxable value.

However, there is a class of vehicles on which no FBT is payable if the private use of the vehicle is limited in a certain way.

Some definitions
For the purposes of the FBT law a “car” is defined to be a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

“Private use” of a motor vehicle occurs when the vehicle is not exclusively used for producing the assessable income of the employee.

“Work related travel” has a special definition for the purposes of the FBT law. This includes travel from home to work (and vice-versa). It also includes travel by an employee in a vehicle that is incidental to travel in the course of performing the duties of the employment.

Eligible vehicles
To obtain the FBT exemption for the use of a car or other motor vehicle, the vehicle must be of a type designated for the purpose of the exemption. The ATO website says such vehicles are:

• • A single cab ute
  • A dual cab ute that is designed to either:
    • Carry a load of 1 tonne or more;
    • Carry more than 8 passengers (including the driver)
    • Carry a load of less than 1 tonne but is not designed for the principal purpose of carrying passengers.
  • A panel van or goods van
  • A modified vehicle (such as a hearse) if, for the entire FBT year when the car is used by the employee, the modification permanently affects the inherent design of the vehicle.
  • A taxi
  • Any 4-wheel drive vehicle that is designed either:
    • To carry a load of 1 tonne or more
    • To carry more than 8 passengers (including the driver)
    • For a principal purpose other than carrying passengers, as indicated by its appearance, marketing specification or carrying capacity.
  • Any other road vehicle that is designed to carry either
    • A load of 1 tonne or more
    • More than 8 passengers

The Carrying Load
From the above, it can be important to know the designed carrying load of a vehicle. It can also be important to know whether a vehicle is designed principally to carry passengers, or not.

An ATO tax ruling says: “…the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up loaded weight), reduced by the basic kerb weight of the vehicle.

For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.”

When conducting this calculation, the ATO considers that the number of seats available in the vehicle should be multiplied by 68 kg to determine the amount of the carrying load that is devoted to people.

Here is an example:
Assume a vehicle has a gross vehicle weight of 2,000 kgs. It has a basic kerb weight of 1,400 kgs and a designed seating capacity of 5. The vehicle would be considered to be a vehicle designed principally for the carriage of passengers. This is because the total load capacity is 600 kgs of which the majority, 340 kgs [5 x 68], would be absorbed by its designed passenger carrying capacity.

Here’s another example:
A vehicle has a gross vehicle weight of 3,800 kg and an unladen mass/kerb weight of 2,720 kg. This means its designed carrying capacity is 1,080 kg. Let’s assume that this vehicle is a dual cab vehicle that seats 5 people. This means that the carrying capacity devoted to goods is 1,080 – (5 x 68) = 740 kg. As 740 is 68.5% (more than 50%) of the designed carrying capacity, the vehicle is not principally for the purpose of carrying passengers.

The private use condition
The other important part of the FBT exemption is that the vehicle is used for private use that is work-related travel (see above) or other private use by the employee or an associate of the employee that is “minor, infrequent and irregular”. The terms “minor, infrequent and irregular” are not defined. Put broadly, the private use must be limited to travel to and from work and any other use of the vehicle for private use needs to be relatively small.

The policy behind this FBT exemption/concession was to alleviate from FBT the many employers that use “work-horse” vehicles in their business from having to pay FBT. It is often more efficient for employees to drive the vehicle to and from home and garage the vehicle at the employee’s home after work so that it can be used as soon as the employee leaves home each day. However, the ATO has become concerned that the use of these vehicles for private purpose is not within its required parameters.

PCG 2018/3
In 2018 the ATO released a practical compliance guideline in relation to private use of the eligible vehicles. The purpose of this guideline was to provide employers with a “safe harbour”. If employers satisfied the various requirements of the ATO, they could be assured that the ATO would not investigate / audit the use of the vehicles. There are a number of requirements that employers must satisfy to come within this safe harbour. The ATO says:

“You may choose to rely on this Guideline if:

1. You provide an eligible vehicle to a current employee.
2. The vehicle is provided to the employee for business use to perform their work duties.
3. The vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired. [For the 2023-24 Financial Year, the luxury car taxthresholds are $89,332 for fuel efficient vehicles and $76,950 for other vehicles.]
4. The vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle.
5. You have a policy in place that limits private use of the vehicle and obtain assurance from your employee that their use is limited to use as outlined in points 6 and 7 below.
6. Your employee uses the vehicle to travel between their home and their place of work and any diversion adds no more than two kilometres to the ordinary lengths of that trip.
7. 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:
a. More than 1,000 kilometres in total, and
b. A return journey that exceeds 200 kilometres.

The key challenges for employers in satisfying the above conditions is having a vehicle private use policy and obtaining the necessary assurance from employees in relation to points 6 and 7.