Employers could be set for a “rude awakening” on company cars being used for private travel, with increased compliance checks expected after fringe benefit tax rule changes.
The Tax Office has relaxed guidance about the private use of salary-packaged benefits including utes, clarifying what “minor, infrequent and irregular use” of company cars actually means.
Previously the ATO said “the occasional use of the vehicle to remove domestic rubbish” was acceptable.
But from the start of the 2019 fringe benefits tax year, the new guidance allows employees to use work vehicles for up to 1000 kilometres of private travel each year, provided no single return trip is longer than 200 kilometres.
Anything more could see a FBT charge of 20 per cent on the cost of the car.
The change coincides with the ATO preparing to crack down on dodgy work expense claims, part of efforts to close the $8.7 billion gap for the country’s 9.6 million taxpayers.
Restricting drivers to up to 1000 kilometres could see an end to weekend or holiday use of company cars, coming as utes among the most popular vehicles sold in Australia.
Use of an ordinary sedan or four wheel drive supplied by an employer, including travel to and from work, is a fringe benefit and therefore incurs tax. However, utes meeting certain criteria are exempt and can be provided as a tax-free perk.
Institute of Public Accountants tax policy general manager Tony Greco said the ATO could look to beef up compliance activities as a result of the changes.
“Passenger cars get treated differently to utes, which because of their load capacity are treated as exempt vehicles,” he said.
“The reason they’re exempt is because once upon a time a ute couldn’t be used as a passenger vehicle. They were socially not all that acceptable.
“Things have moved on and these types of vehicles are loaded up to the hilt and are very fashionable.”
Issue for employers, not workers
The ATO acknowledged feedback and experience showed “inconsistency” in the methods used by employers to ensure compliance with the car-related exemptions, which led to additional compliance costs.
“The issue is not for employees, because FBT is paid by the employer,” Mr Greco said.
“If you just monitor fuel use, you could work out how much private use is happening. If that car was up in Queensland during the holidays, you would know it was private use.”
He called for workplace policies to limit private use of cars by employees, and ensure FBT is paid if they go beyond the 1000 kilometre guidance.
“I think there is a rude awakening that is yet to happen. Employers have to rein in private use by their employees for these cars, which are supposed to have a work duty connection.
“The ATO has been threatening to monitor use. They have already gone to sporting events and taken down license plate numbers and things like that,” he said.