How do the kilometre limits in PCG 2018/3 apply when determining whether non-home to work private travel is minor, infrequent and irregular – on a per employee or per vehicle basis?
Under the FBT rules, the use of certain eligible vehicles is an exempt benefit where the private use of the vehicles by current employees is limited to work-related travel and other private use that is ‘minor, infrequent and irregular’.
To reduce compliance costs and provide certainty as to when non-home to work private use is ‘minor, infrequent and irregular’, the ATO issued Practical Compliance Guideline PCG 2018/3 (July 2018).
PCG 2018/3 applies in relation to the 2019 FBT year and onwards.
By way of background an employer can rely on PCG 2018/3 if:
- the employer provides an ‘eligible vehicle’ to a current employee;
- the vehicle is provided in order for the employee to perform work duties;
- at the acquisition time the vehicle’s GST-inclusive value is less than 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 employer has a policy in place that limits private use of the vehicle and has obtained an assurance from its employee that the use is limited to use as outlined in subparagraphs (f) and (g) below;
- the employee uses the vehicle to travel between home and work and any diversion adds no more than 2 kms to the ordinary length of that trip; and
- for journeys undertaken for a wholly private purpose (other than travel between home and work), the employee does not use the vehicle to travel:
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- more than 1,000 kms. in total in the FBT year, and
- a return journey that exceeds 200 kms.
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An ‘eligible vehicle’ for PCG 2018/3 purposes is/includes:
- a road vehicle designed to carry a load of greater than 1 tonne or more than 8 passengers; or
- a panel van, utility (ute) or other commercial vehicle (such as a dual cab that is, one not designed principally to carry passengers).
During the recent TaxEd FBT roadshow, we identified some differing views as to how and when PCG 2018/3 applies.
For example, in the following scenarios when does PCG 2018/3 apply?
Situation A – Two employees use the same eligible vehicle for private purposes during different periods of the FBT year, both employees adhere to the requirements within PCG 2018/3.
Assume Harry uses the vehicle for the first 8 months of the FBT year and travels 400 non-home to work private kilometres. Sally uses the vehicle for the last 4 months of the FBT year and travels 300 non-home to work private kilometres.
From a vehicle perspective, it has travelled 700 non-home to work private kilometres in totality for the FBT year.
Assuming all other aspects of PCG 2018/3 are satisfied the private use of the vehicle by each employee qualifies for exemption.
Situation B – Following on from the above, assume both Harry and Sally each use the vehicle for 800 private kilometres each so that the vehicle has now travelled 1,600 non-home to work private kilometres in totality.
Again assuming all other aspects of PCG 2018/3 are satisfied, the private use of the vehicle by each of Harry and Sally qualifies for exemption
PCG 2018/3 should be applied on a per employee basis and therefore it provides exemption irrespective of the fact that from a vehicle perspective, the total non-home to work private kilometres travelled by the same vehicle now exceeds 1,000 kilometres.
Situation C – continuing with the above example, assume Harry uses the vehicle for 2,400 non-home to work private kilometres. Sally uses the vehicle for 800 non-home to work private kilometres. A total of 3,200 non-home to work private kilometres is travelled by the vehicle in totality.
Given the number of private kilometres travelled, Harry has not adhered to PCG 2018/3 as his non-home to work private kilometres (2,400) exceeds the 1,000 kilometres threshold.
Sally continues to adhere to PCG 2018/3 having only travelled 800 private kilometres and is within the exemption covered by PCG 2018/3.
Outcome
The above examples confirm the understood application of PCG 2018/3 is on a per employee basis and not a per vehicle basis. The ATO position advising PCG 2018/3 should be applied on a per employee basis and not a per vehicle basis is expressed in the States and Territories Industry Partnership FBT minutes for the April 2019 meeting.
This raises some obvious issues:
- where vehicles are rotated between employees by employers this effectively increases the collective non-home to work private travel an employee can drive before access to the minor, infrequent and irregular exemption is lost (under PCG 2018/3); and
- where an employee uses a vehicle outside the terms of PCG 2018/3 the basis on which the FBT liability is calculated needs to consider which method is used and how that is impacted in terms of whether more than one employee had private use of the vehicle at the same time or in different time periods. In a later TaxEd article, we will provide some examples of how FBT is calculated in these situations.
This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.