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Cars and FBT

Motor vehicles – ATO seeing a significant level of non-compliance

ATO Audits, ATO Data Matching, Australian Taxation Office, Cars and FBT, Employer Obligations, FBT Returns, Logbook, Record Keeping
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If there was any doubt that Motor Vehicles is the biggest issue, the ATO have confirmed their concerns and provide examples where based on ATO data and risk models, they will select an employer for a FBT car review to check if the company is meeting its FBT obligations.

Motor vehicles

We see a significant level of non-compliance in situations where an employer provides a motor vehicle to an employee (or their associate) for their private travel or makes it available to use privately.

Situations that concern us include when employers:

  • treat cars as 100% business use, even though they are used or available for private purposes
  • don’t have a valid log book, or the log book is not a representative sample of actual travel
  • treat all eligible commercial vehicles as FBT exempt, without considering if the private use of the vehicle was limited.

ATO Example One: identifying private use

Eve is the owner and sole director of a company, Eve’s Consultancy Business Pty Ltd (ECB). Eve arranges for ECB to purchase a car, which she uses to visit clients and for other work-related travel.

Eve considers the car to be a business car because it is owned by the company and has a sign on the side with the business name. Therefore, ECB does not keep a log book and does not lodge an FBT return.

Based on our data and risk models, we select ECB for an FBT car review to check if the company is meeting its FBT obligations.

During the review, Eve explains that the car is garaged at her home and she uses it for her daily commute to the office.

We advise Eve that:

  • home to work travel is private use
  • when a car is garaged at an employee’s home (as a director of ECB, Eve is considered an employee for FBT purposes), the car is considered to be available for their private use
  • in both instances a car fringe benefit has been provided and FBT applies.

We provide Eve with information about how to calculate FBT using the statutory formula method (she can’t use the operating cost method because there is no log book). She agrees to lodge an FBT return for ECB.

ATO Example Two: limited private use of eligible vehicles

BTE is an engineering business. It has a fleet of dual cab utes (with a carrying capacity of less than 1 tonne) and sedans, which its employees use to attend business sites and visit clients.

BTE considers that FBT doesn’t apply to the vehicles because the utes are eligible commercial vehicles and the sedans are only used for business purposes. Therefore, BTE does not lodge an FBT return.

Based on our data and risk models, we select BTE for an FBT car review to check if the business is meeting its FBT obligations.

The review identifies that the sedans remain at the office and the utes are taken home by employees and used for private purposes (such as weekend sport and camping trips).

We advise BTE that the private use of the utes must be limited to be an exempt benefit (see PCG 2018/3 Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles). The utes were used for extensive private purposes therefore these conditions have not been met. In this situation a car fringe benefit has been provided and FBT applies.

We provide BTE with information about how to calculate FBT. The business lodges an FBT return.

 

Electric Vehicles and FBT Exemption

Australian Taxation Office, Cars and FBT, Exempt Benefits, Exempt Cars, Logbook, Payment Summary, Salary Packaging
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Electric Car FBT exemption awaiting Royal Assent

The exemption will cover zero or low emission vehicles, with values below the luxury car tax threshold for fuel efficient cars (currently $84,916), being:

  • Battery electric vehicles
  • Hydrogen fuel cell electric vehicles
  • Plug-in hybrid electric vehicles

Second hand cars can qualify, but only if their first retail sale was on 1 July 2022 or later.

Salary packaged cars qualify for the exemption.

The exemption does not cover vehicles other than ‘cars’ as defined in the FBT law. Any vehicles designed to carry one tonne or more, or nine passengers or more, will not qualify for this particular exemption. (however the existing residual benefit exemption may apply).

The exemption applies retrospectively from 1 July 2022, to cars first held and used by a person on 1 July 2022 or later. Cars ordered prior to 1 July 2022 will qualify if they were not delivered until 1 July 2022 or later.

Plug-in hybrid electric vehicles will no longer be exempt from FBT after 1 April 2025. Pre-existing arrangements with such cars can continue as FBT exempt until the end of the particular arrangement.

Private use of these cars will still result in reportable fringe benefits for employees, including for employees of not-for-profit employers. Therefore employers will still need to perform FBT related calculations for these vehicles.