Exempt car benefits and exempt residual benefits: compliance approach to determining private use of vehicles
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 [1] (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'.
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.
'Work-related travel' is defined in subsection 136(1) to include travel by an employee between his or her place of residence and place of employment or other place at which employment duties are performed. [2]
This Guideline does not affect the operation of the car-related exemptions. If you choose not to rely on this Guideline or do not meet the requirements in paragraph 6 of this Guideline; you can rely on the relevant provisions of the FBT law to determine if you can access the car-related exemptions for car and residual benefits that you provide. You are encouraged to engage with us early (for example, by applying for a private ruling) if you are uncertain as to whether you can access the car-related exemptions.
This Guideline will applies to car and residual benefits provided in the 2019 and later FBT years. [3]
You may choose to rely on this Guideline if: (a) you provide an eligible vehicle [4] 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 tax threshold [5] at the time the vehicle was acquired (d) the vehicle is not provided as part of a salary packaging arrangement [6] 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 [7] 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.
You do not need to rely on this Guideline, but if you do: (a) you do not need to keep records about your employee's use of the vehicle that demonstrate that the private use of the vehicle is 'minor, infrequent and irregular' [8] , and (b) the Commissioner will not devote compliance resources to review that you can access the car-related exemptions for that employee.
You will need to check that you continue to meet the requirements in paragraph 6 of this Guideline in each year you provide the car or residual benefit and wish to rely on this Guideline.
An employer provides an employee with a new panel van designed to carry a load of less than one tonne. The van is provided to the employee to enable the employee to carry bulky equipment to and from their work sites. The van is not provided as part of a salary packaging arrangement, and was acquired for a value below the applicable luxury car tax threshold.
The van is an eligible vehicle. The van is garaged at the employee's home and the employee uses the van to travel between their home and their place of employment. The employer has a strict policy in place about limiting the private use of the vehicle.
The employee usually stops at the newsagent to pick up a newspaper on their way to work. The diversion adds no more than two kilometres to the total trip from home to work.
On 10 occasions during the FBT year, the employee also transported their niece to school in the van during the employee's journey from home to work. The journeys from home to work generally do not exceed 20 kilometres.
At the end of the 2019 FBT year, the employer receives an email from the employee. The email outlines that multiple journeys were undertaken in the FBT year for a wholly private purpose and these journeys did not exceed 1,000 kilometres in total. The employee also outlines in the email that in driving to and from work, no diversions were undertaken that exceeded two kilometres. The employer is satisfied that the employee has adhered to their policy about limited private use.
The employer is able to rely on this Guideline as the requirements in paragraph 6 of this Guideline are met.
Assume the same facts as in Example 1. However, during the football season the employee attends weekly football training after work. The diversion adds more than two kilometres to the total journey from work to home.
The employee's travel from work to football training is not considered to be a diversion, as the primary purpose of the journey was for the employee to travel to football training, not from work to home. Additionally, the travel to attend this weekly football training and the travel to transport their niece exceeds 1,000 kilometres. Therefore, the employee cannot provide assurance that the requirements in paragraph 6 of this Guideline are met and the employer will not be able to rely on this Guideline.
The employer will need to rely on the relevant provisions of the FBT law to determine if they can access the car-related exemptions.
An employer provides a car benefit to an employee. The vehicle is a panel van designed to carry a load of less than one tonne and is fitted with a navigation device. The employee uses the van to transport goods in their role as a courier driver. The van was acquired for a value below the applicable luxury car tax threshold and is not provided under a salary packaging arrangement.
The employee provides confirmation to the employer that their private use of the van during the year was limited to: • taking domestic rubbish to the tip (100 kilometres return journey), and • moving residences and travel from home to the new residence three times (200 kilometres travelled in total).
The journeys undertaken for a wholly private purpose by the employee in the 2019 FBT year amounted to 300 kilometres in total and no more than 200 kilometres was travelled in a return journey. The employer is satisfied that the employee has adhered to their policy about limited private use and is able to rely on this Guideline.
Assume that the employer is aware that the van provided to the employee in Example 3 of this Guideline was also used by the employee to travel to the beach on a public holiday and is not satisfied with the assurance provided. The employee acknowledges they used the vehicle to travel to the beach and that the return journey exceeded 200 kilometres. As each return journey must not exceed 200 kilometres, the return journey to the beach would not fall within this Guideline.
Accordingly, even though the journeys undertaken wholly for a private purpose do not exceed 1,000 kilometres, the employer will need to rely on the relevant provisions of the FBT law to determine if they can access the car-related exemptions.
Compendium
The ATO published responses to 45 submissions on this ruling in PCG 2018/3EC. Outcome labels are heuristic — read the ATO response for the detail.
1Exempt vehicles The term 'exempt vehicle' is highly misleading. A more accurate term would be concessionally taxed vehicles.response provided
ATO response
The title of the Guideline has been updated to 'exempt car benefits and exempt residual benefits' to reflect the terms as utilised in sections 8 and 47 of the Fringe Benefits Tax Assessment Act 1986 [1] respectively. Elsewhere in the Guideline the terms 'eligible vehicles' and 'car-related exemptions' are utilised.
2Practical application of the Guideline to reduce compliance costs It is difficult to identify what the compliance costs savings outlined by the Commissioner at paragraph 2 [2] would be or the practical utility of the Guideline. The Guideline requires the obtainment of detailed records/examination of an employee's private use of an eligible vehicle. As most employers will not be able to obtain such records without considerable effort, the great majority of employers will find that the Guideline offers no assistance. It would be extremely rare for an employee's private use to be limited to the private kilometres travelled as outlined in paragraph 5(g). As such the utility of the Guideline is limited and it is overly restrictive. It will make compliance for those who try to do the right thing even more troublesome. Those that abuse the car-related exemptions will continue to do so. The use of practical compliance guidelines are a good idea. However, the application and practical nature of guidelines considerably reduces their benefit. In the context of the car-related exemptions there are a number of legislatively prescriptive tests to be satisfied. The Guideline then seeks to add an additional three more requirements that an employer must apply to determine if the private use is exempt to access the car-related exemptions. These requirements are more onerous than what is currently required under the legislation. For this reason, we would not seek to rely on it as it creates additional compliance in order for us to ensure that we satisfy the requirements. It is for this same reason we also do not rely on Practical Compliance Guideline PCG 2016/10 [3] , as it equally also creates more compliance if we wished to apply the simplified approach to our business use percentage. An employer could only rely on the Guideline where they have fulfilled the requirements of the Guideline (including monitoring private use) and the employee's private use of the vehicle was slightly more than minor. If the use was minor, the vehicle would already meet the car-related exemptions. Accordingly the Guideline is limited in its practical utility. The Guideline is likely to result in misuse of the car-related exemptions or result in employers not accurately reporting their FBT liability. Consideration should be given to practical scenarios for example where eligible vehicles are used for private journeys for safety reasons. The Guideline appears to be predicated on the basis that all kilometres travelled are business unless they have been recorded as private use. If employees are required to maintain records of their private use in order to rely on the Guideline than the Guideline does not reduce compliance costs as this is not currently required in order to access the car-related exemptions. The Guideline has not identified a means for employers to track and assess these parameters which is not administratively burdensome and counter to the stated intentions of the Guideline. A clearly stated employer policy on the appropriate use of the eligible vehicles together with the collection of employee declarations confirming the appropriate use is a reasonable approach which meets the stated intentions of the Guideline.