New guidelines for private use exemptions of eligible motor vehicles for Fringe Benefits Tax (FBT) - ATO says yes to making a quick stop to grab a coffee (as long as it doesn’t add more than 2kms to your trip to work and is infrequent) but no to heading to cricket practice after work.
On 11 July 2018, the Australian Taxation Office (ATO) issued Practical Compliance Guideline PCG 2018/3 “Exempt car benefits and exempt residual benefits: compliance approach to determining the private use of vehicles” (PCG). A summary is presented here.
The PCG, which finalises draft PCG 2017/D14, is issued to assist employers in applying FBT private use exemptions as they apply to eligible car benefits and residual fringe benefits.
In accordance with the PCG, an eligible employer who chooses to rely on PCG 2018/3 need not keep records to prove an employee’s private use of a vehicle.
Further, the ATO will not devote compliance resources to review the employer’s access to car related exemptions for that employee.
An employer can rely on PCG 2018/3 if:
(a) an eligible vehicle is provided to a current employee;
(b) the vehicle is provided to the employee to perform work duties and for business-related activity;
(c) at the time the vehicle was acquired it had a GST inclusive value less than the luxury car tax threshold;
(d) the vehicle was not provided as part of a salary packaging arrangement and the employee was not able to elect to receive additional remuneration in lieu of the use of the vehicle;
(e) the employer has a policy in place that limits the private use of the vehicle and obtains assurance from the employee that use is limited to the conditions outlined in subparagraphs (f) and (g) below;
(f) the employee uses the vehicle to travel between their home and place of work and any diversion adds no more than two kilometres to the ordinary length of that trip; and
(g) for journeys of a wholly private purpose (other than travel between home and place of work) the employee did not use the vehicle to travel:
i. more than 1,000 kilometres in total; and
ii. the return journey does not exceed 200 kilometres.
To illustrate eligibility for exemption when a vehicle is used for private travel, PCG 2018/3 provides the following examples:
|Eligible minor, infrequent and irregular private travel||Ineligible private travel|
|An employee usually stops at the newsagent to pick up a newspaper on their way to work. The diversion adds no more than two kilometres to the total trip from home to work.||During the football season, the employee attends weekly football training after work. The diversion adds more than two kilometres to the total journey from work to home.|
An employee provides confirmation to the employer that their private use their eligible vehicle during the year was limited to:
The employer is aware that the employee travels to the beach on a public holiday and the return trip exceeded 200 kilometres.
Employers should note that application of the PCG is limited to “eligible” vehicles. These include;
- Panel vans
- Single cab utilities
- Certain dual cabs that qualify for the work-related use exemption
- Certain four-wheel drive vehicles
- Modified vehicles (such as a hearse) and
- Other road vehicles with a carrying capacity of one tonne or more.
Dual cabs and four-wheel drives do not automatically qualify as “eligible” vehicles and employers should refer to Miscellaneous Taxation Ruling MT 2024 and Taxation Determination TD 94/19 for further guidance on the eligibility status of their vehicles.
PCG 2018/3 has effect from the 2018-19 financial year. Where eligible, employers can rely on Draft PCG 2017/D14 for the 2017-18 year.
If you require further advice on FBT or the tax implications of benefits you are providing to employees, please contact your local RSM office.