The taxman is not known for good news. In a potential win for tradies and small businesses, the Australian Tax Office is relaxing tax rules around the private use of work utes, H&R Block Director of Tax Communications, Mark Chapman, explains.
Typically the government imposes fringe benefits tax (FBT), a tax paid by employers, where an employer makes a vehicle available for private use by its employees.
However, some types of vehicles are exempt from FBT provided certain very strict criteria are met. The vehicles which qualify for the exemption include:
• Single cab utes;
• Dual cab utes provided they are not primarily designed to transport passengers; and
• Four wheel drive vehicles, provided they can carry a load of more than one tonne or they can carry more than eight passengers or they are not primarily designed to carry passengers.
The existence of this exemption has been one of the driving forces behind the boom in sales of so-called “luxury” utes and four wheel drives, which manage to be both well-equipped and rather luxurious inside the cab, whilst still being capable of doing the hard work traditionally associated with this type of vehicle.
To get the exemption, the employee needs to meet criteria that effectively prevent all private use of the vehicle.
Experience has shown that employers find the current rules hard to police, employees get confused as to what – if any – private use is
allowed and the ATO has to invest resources policing a system that raises very little tax.
Late last year, the Australian Tax Office (ATO) issued guidelines setting out a relaxation of the rules that will allow some limited, clearly defined private use of qualifying vehicles without losing the FBT exemption.
Under the new rules, the FBT exemption is available provided any private use meets the following criteria:
• Any diversion to the normal trip between home and work adds no more than two kilometres to the ordinary length of the employee’s trip;
• No more than 750km in total for each FBT year relates to wholly private trips; and
• No single, return journey for a wholly private purpose exceeds 200km.
The potential effect of this loosening of the rules is that employers will no longer lose access to the FBT exemption where employees use their work ute for common private journeys such as trips to the supermarket on the way home, picking up the kids from school or attending a medical appointment.
The ATO guidelines apply to benefits in the 2018 tax year and beyond.