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Practical compliance guidance for FBT exempt vehicles

Practical compliance guidance for FBT exempt vehicles

Hayley Lock, David Sofrà and Stacey Biggar discuss the ATO's recent draft guidance on FBT exempt vehicles.


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In December 2017 the Australian Taxation Office (ATO) released draft Practical Compliance Guideline (PCG) 2017/D14 Exempt car and residual benefits: compliance approach to determining private use of vehicles. It’s a positive step to see this draft PCG published and the commitment from the ATO to reduce fringe benefits tax (FBT) red tape. However it will be important to use the public consultation process well in order to give the final PCG the best chance of providing genuine practical benefit for employers.

The draft PCG sets out a “safe harbour” methodology to apply the car and residual motor vehicle fringe benefit exemption in subsections 8(2) and 47(6) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). To apply the exemption, there are two key considerations under the FBTAA:

  • the vehicle needs to be the right type and 
  • private use (other than home to work travel) must be minor, infrequent and irregular.

Most employers are able to identify eligible vehicles types, however up to now there has been minimal guidance on how to determine what constitutes minor, infrequent and irregular private use.

Where the employer chooses to follow the PCG (see the criteria below), the employer will only be required to keep records that substantiate its compliance with those criteria.
The draft PCG’s criteria are:

  • The employer takes all reasonable steps to limit private use of the vehicle and has measures in place to monitor such use (e.g. a published policy and odometer checks); 
  • The vehicle has:
    • no non-business accessories
    • a GST inclusive value less than the luxury car tax threshold
    • not been provided under a salary sacrifice arrangement
    • Any diversion during travel between home and work adds no more than 2kms to the journey
    • A maximum of 750km of wholly private travel is undertaken in the FBT year and
    • There is no wholly private journey where the round trip distance exceeds 200km.

The draft PCG provides an example of how to perform an annual check based on odometer readings and the employee’s travel distance from home and work. In practice, this would rarely produce a reliable result, as most eligible vehicles would travel significant distance in the course of the employee actually carrying out his or her work.

KPMG is preparing a submission on the draft PCG to be lodged by 9 February 2018. Should you have any further questions or comments to be included in our submission, please do not hesitate to contact us.

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