Technical Update:

Private use of exempt car and residual benefits – ATO draft guideline

15 January 2018

On 18 December 2017 the ATO released a Draft Practical Compliance Guideline PCG 2017/D14 to assist employers to identify to what extent they need to determine if an employee's private use of a vehicle is within the concessions for the purposes of the car related Fringe Benefits Tax (FBT) exemptions.

Fringe Benefits Tax – When is private vehicle use exempt?

PCG 2017/D14 is focused on commercial vehicles, including those that have a carrying capacity of either less or more than one tonne. If the private use of a commercial vehicle in a particular FBT year is greater than the allowed limited private use, that commercial vehicle is treated as either a taxable car fringe benefit or taxable residual fringe benefit for the whole of that FBT year.

Under the FBT legislation, the private use of a motor vehicle will be exempt from FBT where all of the following conditions are met:

  • The vehicle is a utility, panel van or other commercial vehicle that is not designed to primarily transport passengers, or is a registered taxi
  • Any private use by the employee is limited to:
    • Travel between home and work
    • Travel incidental to the use of the vehicle in the course of employment
    • Private use that is minor, infrequent and irregular.

Conditions relating to private use of a vehicle

PCG 2017/D14 provides guidance on what situations the ATO will not closely investigate whether the private use of a commercial vehicle is minor, infrequent and irregular, namely:

  • The employee uses the vehicle to travel between home and work
  • Any diversion from that journey adds no more than 2 kms to the ordinary length of that trip
  • Total use for multiple journeys for a wholly private purpose does not exceed an aggregate of 750 kms in total for each FBT year
  • No single, return journey for a wholly private purpose exceeds 200 km.

PCG 2017/D14 will establish a safe harbour of what will be accepted by the ATO as private use that is minor, infrequent and irregular for FBT purposes.

One of the issues for employers to manage is the distinction between a minor diversion to the home to work journey and a deviation sufficient to change the character of that particular journey.

If the direct home to work journey is broken by another activity along the way, that journey will take on the character of that other activity. One of the examples in the PCG 2017/D14 is where the commercial vehicle is used to travel to football training, a private activity on the way home. The entire journey from place of work to home becomes private as distinct from work related travel, increasing the risk of the private use of the vehicle exceeding what will be accepted as private use that is minor, infrequent and irregular for FBT purposes.

Conditions relating to the provision of a vehicle

An employer can rely on the PCG 2017/D14 if other conditions are also met, namely:

  • The employer provides an eligible vehicle to a current employee in order for the employee to perform work duties
  • The employer takes all reasonable steps to limit private use of the vehicle
  • The employer has measures in place to monitor any private use of the vehicle
  • The vehicle is not fitted with any non-business accessories
  • At the acquisition time, the vehicle's GST- inclusive value is under the luxury car tax threshold
  • The vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of using the vehicle.

The ATO has indicated that it intends that PCG 2017/D14 apply for the FBT year that commenced on 1 April 2017.

If the use of the commercial vehicle does not satisfy the conditions of PCG 2017/D14, the employer may still be able to establish that the private use was minor, infrequent and irregular, but the ATO may ask for the employer who provided details of how this was determined.

Practical compliance approach

In 2017 the highest volume for new vehicle sales was a dual cab utility. The ATO will be seeking to ensure that the FBT requirements are being met.

Where the private use of a commercial vehicle that qualifies as a car and has a carrying capacity of less than one tonne is treated as greater than minor, infrequent and irregular, the employer will be liable for FBT on the car. The employer will have the choice of using the statutory method (a percentage of the purchase cost) or the operating cost method (based on a log book).

For those commercial vehicles that have a carrying capacity of greater than one tonne, the FBT legislation has similar text regarding the restriction of private use. As a consequence, the ATO commentary on the car based commercial vehicles is equally applicable to vehicles that have a carrying capacity of greater than one tonne. For vehicles with over one tonne carrying capacity, if the private use is not minor, infrequent and irregular, the private use is subject to FBT on a cents per kilometre basis if minor, or on an operating cost style of calculation.

The primary difference is that the private use will result in a taxable residual fringe benefit rather than a taxable car fringe benefit. Either way, the employer will pay FBT on the private use of the vehicle.

Examples

PCG 2017/D14 contains examples based around an employer that provides an employee with a new panel van designed to carry a load of less than one tonne to demonstrate when private use of an exempt vehicle will be eligible for exemption under the PCG. The van is not provided as part of a salary packaging arrangement, is fitted with business accessories and was acquired for a value below the applicable luxury car tax threshold.

Eligible minor, infrequent and irregular private travel

Ineligible private travel

The employee usually stops at the newsagent to pick up a newspaper on their way to work. The diversion adds less than two kilometres to the total journey from home to work. Paragraph 10.

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. Paragraph 14.

On 10 occasions during the FBT year, the employee has also transported their niece to school in the van during the employee's journey from home to work. The journeys’ from home to work generally do not exceed 20 kilometres. Paragraph 11.

The employee's private use of the van during the year was limited to moving residences and travel from home to the new residence three times (300 kilometres within a single trip). Paragraph 22.

The employee's private use of the van during the year was limited to taking domestic rubbish to the tip (100 kilometres return trip) and moving residences and travel from home to the new residence three times (200 kilometres travelled in total). Paragraph 19.

 

 

BDO comment

The ATO has invited comments on PCG 2017/D14 by 9 February 2018. BDO will be lodging a submission as we consider some of the components of the guideline are overly restrictive and have a retrospective element.

PCG 2017/D14 may be useful for employers that provide exempt vehicles to employees to determine what type of private travel can be considered to be minor, infrequent and irregular for the purposes of the exemption.

However, PCG 2017/D14 does not provide any practical guidance on how employers can monitor employee private use to ensure it falls within the conditions it imposes. Employers should therefore review current policies and data collection procedures to ensure the private use of vehicles treated as FBT exempt, fall within the conditions detailed above or they may find themselves subject to ATO compliance activity.

BDO recommends that employers review the commercial vehicles that may be subject to FBT for their potential taxation implications. Those employers with vehicles whose use falls outside the scope of PCG 2017/D14, or have salary sacrificed vehicles also need to consider the potential implications.