Provision of a motor vehicle for private use is, in general, a benefit which is taxable under the fringe benefit tax rules. A “motor vehicle” is any motor-powered road vehicle (including a 4 wheel drive vehicle).
Basic Exemption Conditions – ‘Work Related Travel’
Exemption from FBT is available when the private use of a motor vehicle is limited to ‘work-related travel’, which is defined as:
- travel between home and work
- travel which is incidental to travel in the course of performing employment duties
- other private travel that is minor, infrequent and irregular
See also: FBT and Exempt Vehicles
To be eligible for FBT exemption, a vehicle must meet the basic usage conditions above, and be one of the following:
- a taxi, panel van or utility truck, designed to carry a load of less than 1 tonne;
- any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers)
Dual cab vehicles
It follows that dual cab vehicles are capable of qualifying for the work-related use exemption only if designed to carry a load of one tonne or more, or more than eight passengers OR if having a designed load capacity of less than one tonne, they are not designed for the principal purpose of carrying passengers. (Ruling MT 2024)
The Tax Office have been looking closely at dual cab vehicles. This article explains why: ATO Crack Down on Dual Cab Utes
List of Vehicles Capable of Being Exempt
Until May 2017, the ATO maintained lists of vehicles the designs of which were considered eligible and ineligible for FBT exemption. Those lists have since been replaced with a list of guidance principles which can be used to determine eligibility.
The list of eligible vehicles is reproduced below:
|Vehicle Type||Requirements||More Information|
|Taxi||Taxis qualify for the work-related use exemption if they are owned or leased and designed to carry a load of less than one tonne and fewer than nine passengers.||See subsection 8(2) and 47(6) Fringe Benefits Tax Assessment Act 1986.|
|Panel van – solid rigid-bodied, non-articulated car, smaller than a truck, without rear side windows||Panel vans qualify for the work-related use exemption.||See subsection 8(2) and 47(6) Fringe Benefits Tax Assessment Act 1986.|
|Single cab ute||Single cab utility trucks qualify for the exemption.||See subsection 8(2) and 47(6) Fringe Benefits Tax Assessment Act 1986.|
|Dual cab ute – different from conventional goods vehicles with extra seats behind the driver and front passenger. They also share a common chassis which can fit a single or dual passenger cab and alternate tray section||Dual cabs qualify for the work-related use exemption only if they are not designed for the principal purpose of carrying passengers.||For an explanation on how to work out if a dual cab is eligible for the exemption, refer to MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel.|
|Four-wheel drive vehicle (other than utilities and dual cabs)||Four-wheel drive vehicles qualify for the work-related use exemption if they are:
||See TD 94/19 for examples of factors to consider when deciding whether a four-wheel drive vehicle (other than a utility or dual cab) is designed for the principal purpose of carrying passengers. These factors include:
|Modified vehicle||Modified vehicles qualify for the work-related use exemption if, for the entire FBT year when the car is provided, a modification or alteration permanently affects the inherent design of the vehicle (for example, hearses).||See MT 2033 Fringe benefits tax: application of sub-section 8(2) exemption to modified cars.|
|Other road vehicle||Other road vehicles qualify for the work-related used exemption if they are designed to carry:a load of 1 tonne or more, or
more than 8 passengers.
|See subsection 8(2) and 47(6) Fringe Benefits Tax Assessment Act 1986.|
– Unregistered vehicles held at all times by the provider and used wholly or principally in the business operations
– Cars used for emergency services, fitted and marked as such, such as police, ambulance, fire services and garaged at home
– Cars for which car expenses are non-deductible under personal services entity rules
Minimising FBT (if not exempt)
If subjected to FBT, the FBT calculation rules under each available method may deliver an advantage over the employee funding the costs from after-tax income – and a careful salary packaging calculation is required to determine that.
A salary packaging calculation will need to take account of a number of factors, such as:
- the marginal tax rates and tax positions of employer and employee (including possible “otherwise deductible” conditions)
- potential FBT payable, the gross-up factors
- potential or actual employee contributions
- available records (e.g. log book) and the
- potential consequences of a reportable fringe benefit on the employee’s position.
The FBT calculated private use value can be reduced, possibly to zero, by contributions from the employee, which can sometimes be the cheaper option overall when compared to the potential FBT. How such contributions are handled can also have GST consequences which must be taken into account.
Private use is measured on a daily basis throughout the year, so potentially an employee’s private use valuation of a provided vehicle can be minimised by paying attention to all times in which the vehicle is idle – and ensuring that during such idle hours the vehicle is not available for private use, and therefore not counted as a private use. For example: arranging for the employer to retain possession and/or custody of the vehicle during times spent travelling.
ATO Guidance – minor use of a provided work vehicle
The Tax Office has released a guidance on the private use of ‘eligible’ vehicles by employees. Where there is limited private use, the Tax Office has specified that FBT car-related exemptions could apply.
Private use is limited where the private travel is:
- between the employees’ home and workplace; and
- that is minor, infrequent and irregular
Draft Practical Compliance Guideline PCG 2017/D14 (now finalised by PCG 2018/3) explains when the Commissioner will not apply compliance resources to determine if the private travel meets the exemption requirements. The draft guidelines are to apply for the 2018 FBT year. The necessary criteria for the Draft PCG to be applicable are summarised here with further commentary here.
The compliance approach for the 2019 (from 1 April 2018) and following FBT years is set out in Practical Compliance Guideline PCG 2018/3. A significant difference over the earlier Draft Guidance is that the total kilometres in a FBT year that an employee can undertake for a wholly private purpose has been increased from 750 kilometres to 1,000 kilometres. See additional commentary here.
This page was last modified 2020-03-19