FBT – PCG 2018/3: Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles
The ATO has finalised its draft Practical Compliance Guideline with respect to its compliance approach in relation to determining private use of exempt vehicles. This article considers the practical relevance of both the draft and finalised Guidelines.
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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’.
To reduce these compliance costs and provide certainty, the ATO issued a draft Practical Compliance Guideline, PCG 2017/D14, which explained 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.
An employer may choose to rely on the draft Guideline if:
- the employer provides an ‘eligible vehicle’to a current employee;
- the vehicle is provided to the employee to perform their work duties;
- the employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use;
- the vehicle does not have any non-business accessories;
- the vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired;
- 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
- the employee uses the vehicle to travel as outlined below.
The travel mentioned in item (g) is travel:
- between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip;
- that is not more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose; and
- in which no single, return journey for a wholly private purpose exceeds 200 kilometres.
The draft Guideline has since been finalised and issued as Practical Compliance Guideline PCG 2018/3.
An employer can rely on the finalised Guideline 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:
- more than 1,000 kms. in total in the FBT year, and
- a return journey that exceeds 200 kms.
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).
The key changes from the draft are:
- clarifying the monitoring requirements of employers;
- removing a requirement that the vehicle must not have non-business accessories; and
- increasing the annual kilometre threshold for private travel that is minor, infrequent and irregular from 750 kms. to 1,000 kms.
In regard to item 1 above, the draft guideline required an employer to ‘take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use’.
What constituted reasonable steps for the purpose of the draft guideline depended on the circumstances of a business. The steps could include a monitored policy on private use in the form of checks of odometer readings to compare business kilometres and home to work kilometres travelled by the employee against the total kilometres travelled.
The finalised guideline requires that as an employer ‘you have a policy in place that limits private use of the vehicle and obtain assurance from your employee that their use is limited to use as outlined in subparagraphs (f) and (g) … [set out in the above summary of the finalised guideline]’.
An employer must be satisfied (on reasonable grounds) as a result of the employee’s assurance that the private use of the vehicle was limited per the finalised Guideline. This is a less onerous requirement for employers than the draft Guideline monitoring requirements. However, it does raise the question of how an employer is satisfied by the employee’s assurance – will a declaration to that effect suffice; should a clause be inserted in the workplace contract/agreement to that effect?
The finalised Guideline applies to the 2019 FBT year onwards. Employers can rely on the draft Guideline for the 2018 FBT year.
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.