FBT Article – Practical Compliance Guideline PCG 2017/D14, the detail

Under the FBT rules the use of certain eligible vehicles is an exempt benefit where the private use of those eligible vehicles by current employees during an FBT year is limited to work-related travel, and other private use that is ‘minor, infrequent and irregular’.

The ‘million-dollar question’ over the years is what is considered minor, infrequent and irregular usage?

The ATO acknowledges there has been inconsistency and uncertainty 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, draft Practical Compliance Guideline 2017/D14 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.

When finalised, the draft Guideline will apply to car and residual benefits provided in the 2018 FBT year and later years.

An employer may choose to rely on the draft Guideline if:

1. the employer provides an ‘eligible vehicle’to a current employee;
2. the vehicle is provided to the employee to perform their work duties;
3. the employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use;
4. the vehicle does not have any non-business accessories;
5. the vehicle had a GST-inclusive value less than the luxury car tax thresholdat the time the vehicle was acquired;
6. the vehicle is not provided as part of a salary packaging arrangementand the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle, and
7. the employee uses the vehicle to travel as outlined below.

The travel mentioned in item (g) is travel:

1. between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip;
2. no more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and
3. no single, return journey for a wholly private purpose exceeds 200 kilometres.

An ‘eligible vehicle’ for the above purposes is:

• a vehicle designed to carry a load of greater than 1 tonne; or
• the vehicle is a panel van, utility (ute) or other commercial vehicle (that is, one not designed principally to carry passengers).

If you, as an employer, choose to rely on the draft Guidelines:

1. you do not need to keep records about your employee’s use of the vehicle that demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular’, and
2. the Commissioner will not devote compliance resources to review that you can access the car-related exemptions for that employee.

While the guidance is useful and welcome, there is no specific instruction on how an employer is to ‘take all reasonable steps to limit private use of the vehicle’ nor how to monitor whether the permitted usage guidelines are being adhered to.

We imagine these issues have been raised by various industry bodies and we hope they will be factored into the finalized Guideline.

Example – Incidental and Wholly private travel

(Based on Example 1 in PCG 2017/D14)

An employer provides an employee with a new panel van designed to carry a load of less than one tonne. 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.

The van is an eligible vehicle. The van is garaged at the employee’s home and the employee uses the van to travel between their home and their place of employment. The employer advises the employee that private use of the vehicle should be limited and conducts checks to monitor the kilometres travelled.

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.

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.

The employer takes an odometer reading at the end of the 2018 FBT year. The employer notes that the total business kilometres the employee claims to have travelled, based on the distance between the employee’s home and work is 30,000 kilometres. The odometer reading is 30,250.

The employer is able to rely on the draft Guideline as the requirements in subparagraphs (a) to (g) above are met:

• the diversion to stop at the newsagent adds less than two kilometres to the total home to work travel, and
• the journeys transporting the employee’s niece to school are infrequent and irregular and do not exceed 750 kilometres for the year (as evidenced by the odometer reading).

Example – Not a Diversion

(Based on Example 2 in PCG 2017/D14)

Assume the same facts as in the above Example. However, the odometer reading is 31,500 at the end of the 2018 FBT year. 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.

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.

Additionally, leaving aside the incidental diversion to collect the newspaper each morning, the employee has undertaken private travel in excess of 750 kilometres during the year (as evidenced by the odometer reading). Therefore, all the requirements in subparagraphs (a) to (g) above are not met and the employer will not be able to rely on the draft Guideline.

Accordingly, the employer will need to rely on the relevant provisions of the fringe benefits tax law to determine if it can access the car-related exemptions.

Example – Wholly private travel

(Based on Examples 3 and 4 in PCG 2017/D14)

An employer provides a car benefit to an employee. The vehicle is a panel van designed to carry a load of less than one tonne. The employee uses the van to transport goods in their role as a courier driver.

The van is garaged at the employee’s home and is equipped with standard business accessories. The van was acquired for a value below the applicable luxury car tax threshold and is not provided under a salary packaging arrangement.

The employee travelled a total of 20,000 kilometres in the 2018 FBT year. 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).

The employee confirms to the employer that no single return journey for a private purpose exceeded 200 kilometres.

As the private kilometres travelled by the employee in the van in the 2018 FBT year amounted to 300 kilometres in total, the employer is able to rely on the draft Guideline.

However, if the 300 km was within a single return trip, the draft Guideline would not apply and the employer would have to rely on the relevant provisions of the FBT law to determine if it could access the car-related exemptions.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.