New ATO Guidelines for Private Use of FBT Exempt Vehicles The Australian Taxation Office (ATO) has released new draft guidelines for the private use of Fringe Benefits Tax (FBT) exempt vehicles. Fringe benefits tax is a tax paid by employers on certain benefits provided to employees as part of their salary or wages package. It is commonly applied to benefits such as company cars, car parking, entertainment, housing and electronic devices. SMEs are able to claim an FBT exemption for some of these items. FBT exemption is commonly claimed for work vehicles provided the vehicle is designed to carry less than a tonne and any private travel is limited to “minor, infrequent and irregular” use. Prior to the new draft guidelines being released, the ATO had not specified what “minor, infrequent and irregular” use was. While the ATO’s guidelines are not a change in tax law or rules, they do provide clarity on an issue that was previously a grey area.

Guidelines relating to private use of a vehicle Key points to note: Employees are allowed limited private use of an eligible vehicle that adds no more than two kilometres to their trip between home and work. Employees private use is not to exceed 1,000 kilometres in total for the FBT year. Any single return journey for a wholly private purpose is not to exceed 200 kilometres. Source: ATO

Conditions relating to the provision of a vehicle The vehicle is provided to the employee to carry out work duties. The vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of using the vehicle. The value of the vehicle is less than the luxury car tax threshold amount of $66,331. The employer takes all reasonable steps to limit private use of the vehicle. The employer has measures in place to monitor private use of the vehicle.

Impact of the new private use guidelines Under the new guidelines released by the ATO, private use of company vehicles has been limited and many employers may find themselves exposed to FBT. For example, the new rules would limit an employee from travelling from work to other activities on their way home without incurring a tax liability for the vehicle.  The ATO uses an example of an employee using their company vehicle to travel to sports practice after work which is a distance of more than 2 kilometres. “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, and exceeded two kilometres in distance,” the guidelines say. When private use of a commercial vehicle in a particular FBT year is greater than the allowed limit, that vehicle is treated as either a taxable car fringe benefit or taxable residual fringe benefit for the whole of that FBT year.

We expect to see an increase in ATO audit activity in this area and therefore provide the following advice to employers Review your ‘private use’ policies and administration processes to ensure they meet the requirements of the new guidelines. Provide employees with written policies regarding the private use of vehicles, referring to the ATO’s guidelines and conditions mentioned above. If you have provided a work vehicle to an employee who doesn’t own another vehicle, it’s going to be difficult to prove that the employee limits their private use of the work vehicle to less than 1,000kms per year. If your vehicle has business signage, be mindful that this makes it even easier to identify it in private use situations. Be aware that the ATO has in past audits used images posted on social media accounts as evidence of significant private use. For example, images posted on Facebook of a family trip to Fraser Island in the dual cab ute.

What to do? If you have employees driving company owned/supplied dual cab utes you MUST urgently undertake an FBT risk review. Advice is that FBT will be assessed and payable in the 18/19 FBT year. If the dual cab utes are more than 1 tonne capacity – they need to used be for predominantly business use (operating cost calculation) or they could attract residual fringe benefit calculation. Employees with unrestricted personal use of dual cab utes will expect to be compensated for the change of rules / loss of private use. Alternative offers need to be formulated. Utilise ATO approved FBT benefits to employees– eg Novated Finance Leases and Associate Leases Investigate specialist vehicle / fleet management tools to administer motor vehicle benefits to employees that are FBT compliant; efficient and low cost. OR - Start budgeting to pay even more FBT.

Best use of FBT options to improve the bottom line In addition to tax office compliance, applying best practice for FBT on motor vehicles can : Reduce or remove loans and leases from the companies balance sheet Reduce or remove motor vehicle “ownership” risk from the company Reduce or eliminate admin costs of company supplied vehicles Reduce or eliminate FBT on motor vehicles from the company accounts Reduce Total Employment Costs – save on Payroll Tax; Superannuation Guarantee Retain valued employees and attract new employees with “clever” remuneration packages.

Directors & Company Owners is your company “fleet” policy the best fit for the business? is your company paying more FBT than it should be? is your company not paying FBT on vehicles that it should or will need to be? If your company has an administrator / provider – are you confident that what is being provided is a good deal? Alternate provider option provides competition. is the company remuneration policy maximising FBT offset opportunities to employees – via Novated Lease; Associate Lease and other mechanisms? ** Salaried directors can utilise these packaging mechanisms to simplify company accounting and FBT compliance and potentially improve the household bottom line.

Benefits of Novated Finance Lease FBT By the employee making the ATO prescribed FBT offset from “post tax $$” – there is no FBT reportable on the benefit. No reportable FBT = no need to gross up FBT for tax purposes Not grossing FBT can lower payroll costs FBT compliance on motor vehicles is reduced / off the table for the employer. Tax Benefits to employee No need to gross up & report FBT on payment summary Can assist the employee with lower reportable income (e.g. family benefits ; childcare; maintenance). The GST on the lease & costs can be claimed by the company as an input tax credit. 99% of employers pass these GST credits back to the employee as part of the package (due to the fact the employee owns the car)

Other Salary Packaging benefits Associate Lease Where the employee owns a car – and is seen to rent it back from his associate (spouse). An annual operating cost is established and is sacrificed by the employee and paid to the “associate” The employee offsets the FBT from “post tax $$” under the same formula as Novated Lease The employee sacrifices the balance of the “associate Lease: from “pre tax $$” thus reducing taxable income The associate reports the income and claims the deductions and pays tax on the profit. The “associate” would need to be on a lower tax bracket to be viable and needs to have or establish an ABN. Essentially salary splitting with lower income earning spouse. Ideal for wives of high income earners and salaried directors Voluntary Super Contributions Employees can sacrifice voluntary super contributions from Pre Tax $$ Other approved expenses Living away from home; FIFO costs are other typical benefits offered to employees where applicable.

Fleet & FBT Management ** Don’t accept that it is all too hard to offer these incentives – it’s not! Purpose built software - High priority on compliance, reporting, audit trails and security. Payroll interface to minimise data entry. Web based software permits login access by employer and employee to monitor package. Simply upload invoices for direct payment for finance; maintenance & fuel etc. Can be operated in-house under license or outsourced to specialist fleet managers No Cost to employer - employee pays an admin fee from pre tax $$

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For further information contact: Todd Kerr Director Phone: 0411 555 656 Email: todd@nationalsp.com.au Kylie Everett Business Relationship Manager Phone: 0498 811 108 Email: kylie@nationalsp.com.au www.nationalsalarypackaging.com.au Ph: 1300 882 578 Thank you for your time today and we look forward to helping provide you with cost saving vehicle solutions for your company. DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice from National Salary Packaging. You should consider seeking the appropriate legal, financial, or taxation advice to check how the website information relates to your unique circumstances.