It’s a tantalising lure for some, the prospect of a company car. A prestigious and valuable perq. And all perfectly legal with a big thumbs-up from the ATO.
Hold on a moment, boy and girl racers.
If you see a large black car with the number plate “FBT” looming in your rear-view mirror, a suited-up driver with a look of intent behind the wheel, you might notice that driver mouthing the words “not so fast”.
As a general rule, if an employer provides a vehicle to an employee, for the employee’s private use, the employer will be liable for fringe benefits tax (“FBT”) on the value of the benefit provided. The FBT rate is currently 47%, which corresponds to the highest individual marginal income tax rate of 45% plus the 2% Medicare levy. The idea is that there is generally no tax advantage in providing remuneration in the form of a vehicle, as a substitute for the payment of a salary.
But it’s not all bad news.
Under FBT law, the provision of certain vehicles is exempt where private use is limited to certain work-related travel, and non-work-related use that is minor, infrequent and irregular.
The provision of motor vehicles to employees attracts FBT as either a ‘car fringe benefit’ or a ‘residual fringe benefit’. The classification comes down to the vehicle type. The exemption is not available to all vehicle types. For example, a 5-seater ‘crew cab ute’ with a carrying capacity of less than one tonne would not qualify for the exemption.
The exemption is clearly and deliberately restrictive. So actually it’s mostly bad news.
The ATO recently issued guidelines that can be relied on where an employer provides a vehicle to an employee essentially to perform work duties, and which is not provided as a substitute for salary. Additionally, the employer must take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use.
The ATO’s guidelines state that the following travel falls within the meaning of ‘minor, infrequent and irregular’:
- Diversions from the ordinary length of a trip between home and work that add no more than 2 kilometres to the journey.
- Travel of no more than 750 kilometres in total for each FBT year for multiple journeys taken for wholly private purposes.
- Single return trips for a wholly-private purpose that do not exceed 200 kilometres.
Note that a failure to satisfy the minor, infrequent and irregular criterion will result in the application of FBT to all private use for which the vehicle was put.