On 11 July the Australian Taxation Office (ATO) released Practical Compliance Guide PCG 2018/3 (the PCG). The PCG sets out circumstances in which the ATO will generally accept that certain vehicles used privately by employees may be exempt from fringe benefits tax (FBT). The PCG applies from the year of tax commencing 1 April 2018.
This does not apply to certain vehicles such as utility trucks and vans, which may be otherwise exempt from FBT.
The Commissioner says that taxpayer employers can rely on this Guideline (to not be audited) if:
(a) they provide an eligible vehicle to a current employee;
(b) the vehicle is provided to the employee for business use to perform their work duties;
(c) the vehicle had a GST-inclusive value less than the luxury car threshold ($64,132 for the 2016/17 financial year and $75,526 for fuel efficient vehicles in the same year) at the time the vehicle was acquired;
(d) the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle;
(e) 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) of this paragraph;
(f) your employee uses the vehicle to 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, and
(g) for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel:
(i) more than 1,000 kilometres in total, and
(ii) a return journey that exceeds 200 kilometres.
Importantly, the PCG indicates that a written statement (including email) from the employee that he or she has complied with the last of these conditions would be sufficient for the employer to rely on.
Employers who choose not to apply these guidelines may still be eligible for the FBT exemption. However they should ensure that they maintain sufficient documentary evidence to support their self-assessment, as establishing of the facts would be all-important in the event of an ATO review.
The PCG should be an important and useful step in assisting employers with managing their FBT position, and is a welcome initiative from the ATO. The ATO will also allow employers to rely on the previous draft of the PCG (PCG 2017/D14) for the year of tax ended 31 March 2018.
Background from PCG
1. Generally, a fringe benefit arises where an employer makes a vehicle they hold available for the private use of its employee. However, under subsections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986(the car-related exemptions), a fringe benefit is an exempt benefit where the private use of eligible vehicles by current employees during a fringe benefits tax (FBT) year is limited to work-related travel, and other private use that is ‘minor, infrequent and irregular’.
2. Feedback and experience has shown inconsistency 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, this Guideline 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.
Changes from draft ruling
There were some key changes from Draft PCG 2017/D14, such as 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 (see the It finalises Draft PCG 2017/D14 and contains some key changes from the draft, such as 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 (see the Compendium to PCG 2018/3).
[KPMG Daily Tax News, 17/7/18; Tax Month – July 2018]
Comprehension Questions (answers available)
- Does the ‘Guideline’ provide a ‘safe harbour’ model of how employers should administer the ‘car-related exemptions’ from FBT, under s47(6) of the FBT Act?
- Does this section provide that use of certain vehicles is FBT exempt, “where their private use (excluding home to work travel) is minor, infrequent and irregular”?
- Does this safe harbour guidance start to apply, prospectively, for the FBT year started 1 April 2019?
- Does the price of the vehicle matter?
- Does the vehicle have to be provided to the employee, as part of their employment duties?
- Can the employee still drive the car between home and work, so long as any diversion does not add more than 2 kilometres to the ordinary length of the journey?
- Must other wholly private travel (excluding the home to work travel) be limited to 1,000 km per annum and 200 km in any return trip?