Employers that provide employees with company vehicles are being urged to review new guidelines from the Australian Taxation Office about when private travel will incur fringe benefits tax.
The ATO is asking for comments on draft “practical compliance guidelines” for when private journeys conducted in company-owned vehicles should attract fringe benefits tax (FBT) liabilities.
In a review of employer obligations compiled by the Inspector General of Taxation Ali Noroozi in 2017, stakeholders raised concerns that the cost of calculating FBT was particularly burdensome for small businesses because of the time and difficulty involved in determining what non-cash benefits, like private travel, incurred what costs.
At the time, the report said these draft compliance guidelines on work vehicles were designed to simplify the process for employers with fleets of company vehicles when determining the value of car benefits.
Under the existing regulations for the use of company vehicles like work utes, vehicles can be considered exempt from FBT as long as any private travel completed using them is “minor, infrequent or irregular”.
However, Pilot Partners tax partner Murray Howlett says the tax office has looked to redefine guidelines in this space because many employers believe that “all utes are FBT free”.
“Unfortunately under draft new guidelines released by the ATO, many employers may find themselves exposed to FBT on these vehicles,” he says.
The new guidelines would see private use of company vehicles curtailed, with the tax exemption only applying in cases where workers only complete private journeys that vary their usual route from home to work by 2 kilometres or less.
For example, the vehicles would be tax exempt if they were only used for errands such as occasionally dropping in to the newsagent on the way to work to pick up the paper, the ATO guidelines highlight in an example.
The new rules would also limit an employee from travelling from work to other activities on their way home without incurring a tax liability for the vehicle.
The example the ATO uses in the draft provisions is of a worker using their company vehicle to travel to sports practice after work, at a distance of more than 2 kilometres.
“The employee’s travel from work to football training is not considered to be a diversion, as the primary purpose of the journey was for the employee to travel to football training, not from work to home, and exceeded two kilometres in distance,” the guidelines say, with the employer having to use the FBT framework to work out their liabilities for that travel.
Feedback on the guidelines are open until Friday, February 9, but once finalised, the new rules will apply to all travel completed from the start of the 2018 FBT year, or April 1, 2017.
Howlett says this means many businesses will require a quick and “radical shift of culture” around how their staff use work vehicles.
“Many will be caught unawares,” he says.
The full guidelines can be read here.