ATO considering changes to ‘personal use’ rules of company vehicles

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A tax break that many Australian businesses have been leveraging could soon be closed, with the ATO seeking input into new guidelines on fringe benefits tax (FBT) exemptions.

This has the potential to impact thousands of businesses that have been buying vehicles under the assumption they are free from FBT. More than 236,000 light commercial vehicles were purchased in 2017, with 144,109 registered for business use.

The majority of those were dual cab utes, a popular option for tradies as they can be subject to FBT exemptions because of their load-carrying purposes. Under current ATO guidelines, drivers are allowed ‘minor, infrequent and irregular’ private use trips.

But the new draft guidelines could pave the way for log books and capped travel – which could mean these vehicles are no longer FBT-exempt and employers are liable for compliance fees.

What the new ATO draft guidelines mean

Submissions on the new draft guidelines for private use of exempt motor vehicles for FBT closed on 9 February, with the final guidelines to be rolled out before the end of financial year.

The draft guidelines state: “Feedback and experience has shown inconsistency as to methods used by employers to ensure compliance with the car-related exemptions leading to additional compliance costs especially when the private travel is relatively low.

“To reduce these compliance costs and provide certainty, this draft guideline explains when the Commissioner will not apply compliance resources to determine if private use of the vehicle was limited for the purposes of the car-related exemptions.”

Under the new guidelines, employees must not deviate from their usual route to and from work by more than 2km. The draft uses the example of travelling to sports practice after work in excess of 2km as unacceptable, as sports practice would comprise the primary destination and not a diversion from one’s usual route from work to home.

How businesses can remain compliant

These new guidelines are expected to be retrospective, which means all travel from 1 April  2017 will be factored in. With that in mind, it is advisable that employees limit their personal use of work vehicles to the 2km allowance effective immediately, or the company could be liable for FBT. The guidelines also allow for an extra 750km a year of non-work travel, capped at 200km in any single return trip.

But technically, the new guidelines allow for greater personal freedoms than the old rules. The ATO’s ‘minor, infrequent and irregular’ trips meant the occasional trip to the dump, not collecting or dropping off  the kids at school or stopping in at the shops on the way home or when heading to work. The issue was, the ATO did little compliance work in this field.

Institute of Public Accountants senior tax adviser Tony Greco said the new guidelines would actually offer more freedom for those doing the right thing.

“Even if you picked up your kids on the way home from work (under the old rules) you would be non-compliant,” he says. “We applaud the ATO in setting a realistic goal post before it embarks on any compliance blitz going forward.”

The silver lining

Because of the FBT freedoms of the past, dual cab sales have skyrocketed in Australia. That is because they are classed purely as work vehicle because of their ability to carry a load, even if you are also transporting passengers.

The Ford Ranger ute sold 4318 units in 2017, and the Toyota’s Hilux sitting at 3822. That means these vehicles have become more luxurious, giving workers a great asset to travel to and from work in.

As long as employees stick to the new guidelines, that means workers can continue to use these dual cab utes for work purposes and the occasional private trip without employers being hit by any ATO compliance blitzes.

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Morris Finance

Morris Finance are a Finance Leasing and Risk Management specialist with a strong track record in producing outstanding business results across a broad range of industries.

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