Escalating sales of popular utes may be threatened by changes under consideration by the ATO.
According to www.drive.com.au, Australians bought 236,609 light commercial vehicles in 2017, registering 144,109 for business use – more than double the number bought for private purposes. That number has increased steadily in recent years, up from 120,953 registered for business use in 2012 and 114,655 in 2007.
Unlike conventional cars, dual-cab utilities including the best-selling Toyota Hilux and Ford Ranger, can be subject to Fringe benefits Tax (FBT) exemptions due to their status of ‘Commercial Vehicles’. The use of a company supplied $50,000 conventional car, can add thousands of dollars to an employee’s tax bill and employers FBT liability, whereas vehicles designed primarily for load-carrying purposes (such as utes) can be completely exempt.
The ATO’s current guidelines for the FBT exemption on commercial vehicles, allow for travel on Company business, travel between home and work, and for “minor, infrequent and irregular’“ private use. This private usage doesn’t jeopardise the Fringe benefits tax exemptions available.
So, what’s the problem?
We are told that ATO officers have been doing some checking around football fields on Saturdays!
To their complete surprise, they found a large number of ute’s present, including many that were sign written. It seems that this has led to the belief that the current rules are not restrictive enough and they clearly are of a mind to tighten things up.
New rules under consideration by the ATO (PCG 2017/D14 for those who would like to look them up), allow up to 750 kilometres of private travel in company cars each year, as long as no single return journey exceeds 200 kilometres. Employees can make small diversions between home and work, as long as the detour adds no more than two kilometres to their total trip.
The ATO has conducted public consultation into the proposed changes. To date there has been no findings or results of this published.
What can we do?
We can certainly see the way that the ATO is viewing FBT on commercial vehicles and we are yet to see whether their consultation results in any change to their guidance. In the meantime, we would make 3 recommendations in relation to the supply of commercial vehicles to employees;
- Take odometer readings on all vehicles (commercial and non-commercial) at 31 March. Its one thing if the ATO want to examine how much use or how many kms are private, but it’s even more difficult if there is no record of the overall kmns the vehicle has travelled.
- Examine the terms on which use of the vehicle is provided. For example, is there a clause in an employment agreement that states that the vehicle isn’t to be used apart from work purposes and for getting to and from work? We also recommend (and it may become mandatory) that a signed declaration is obtained from the employee/s each year, stating that these terms have been complied with. Where this is the case, it provides you as the employer with something in writing confirming that there may be no private use that FBT can be applied to.
- If record keeping to this extent becomes mandatory, utilise technology as much as possible to take the pain out of it. We all know how good young apprentices are at diligently completing logbooks! Tracking systems and the like can be a powerful way to demonstrate that the vehicle has been used for work purposes. We are expecting the documentation side of this to be a nightmare practically, so anything you can implement to help on this we would highly recommend.