30 November 2023
Recent media reports suggest the ATO may have concerns that some tradies could be taking liberties with the FBT exemption available for utes and panel vans where private use is claimed to be minimal. Utes have been selling like hotcakes for some time and are now the biggest selling new cars on the Australian market. These vehicles (the dual cabs in particular) often include features that are promoted to make them appealing for family and recreational use.
If you provide vans or utes to employees principally for work related purposes on the basis that such vehicles are exempt from FBT because the employees rarely use the vehicle for private travel and are relying on the ATO’s reduced record keeping concession, here’s a refresher on exactly how the FBT exemption works. Because if things don’t pass muster, it’s the employer who will be on the hook for any FBT found to be payable.
Conditions for the reduced record keeping concession
To benefit from the concession, the ATO requires that the ute is principally supplied for use on the job which, in the case of a typical tradie, would not generally be a problem. It can’t be salary packaged and has to come in below the luxury car tax limit ($76,950, or $89,332 for fuel efficient vehicles in 2023-24).
Importantly, you need to have a policy in place limiting the private use of the vehicle and get an assurance from the employee that they have complied with the policy. An employee driving an eligible vehicle can only drive it to and from work (as well as on performing their duties as an employee), and without once making a diversion of more than two kilometres from the direct route between home and work. On top of that, the total private mileage for the FBT year (1 April to 31 March) must not exceed 1,000 kilometres, with no return journey of more than 200 kilometres.
Even where the employee provides an assurance that they have complied with the minimal private use policy, the ATO expects the employer to be satisfied on reasonable grounds that the employee’s private use of the vehicle was minimal. The ATO has said it expects the employer to check the vehicle’s odometer reading occasionally, just to make sure the employee hasn’t been on a major boating or camping trip over a long weekend.
Seek an indemnity?
As well as obtaining a declaration from the employee, you might consider going one step further and asking for an indemnity for any FBT you might be liable for in respect of their private use of the vehicle should the information in the declaration be found to be incorrect.
Family members, social media and tolls
Travelling to work with a family member, even for just part of the trip into work, is not treated by the ATO as work related travel, so an employee with young children who regularly does the school run at either end of the day would probably be in breach of the minimal private use policy. Social media posts documenting major family holidays in distant locations while loaded up with camping gear or towing a boat are obviously unhelpful, as are toll records showing the ute has travelled further than 100 kilometres away from home on a weekend.
Challenging the ATO?
These rules have been developed by the ATO. They are not the law, but they do reflect what the ATO regards as “minor, infrequent and irregular” private use of a work vehicle (which is what the law says). It remains open to an employer to argue that, say, 1,500 private kilometres in an FBT year still satisfies the requirements of the law, a three-kilometre diversion is still minor, or dropping your kids off at school doesn’t prevent the trip into work from being regarded as work related travel.
But you should be aware that such an approach will likely set off an expensive dispute with the ATO – and who wants that? If private use truly is minimal, it might be worth getting the employee to maintain a representative 12-week logbook that proves it, just to be on the safe side.