The ATO’s final revised guidance on fringe benefits tax on utes and other eligible vehicles will see employers paying a lot more tax — or offering less perks — to attract new employees, warns a leading tax adviser.
In the same week that the ATO has revealed that dodgy work expense claims is a major contributor to a missing $8.7 billion of uncollected tax, it has also finalised its stance on guidelines around fringe benefits tax on work vehicles.
Pilot Partners tax specialist, Murray Howlett, said the new approved guidelines provided more clarity around what the ATO expects employers to do in order to demonstrate that the private use of such vehicles is “minor, infrequent and irregular”.
Under the finalised guidelines, the ATO is now suggesting that a vehicle’s private use cannot exceed 1,000km in any year and that no return journey can exceed 200km.
Mr Howlett said further, and perhaps more controversially, that home-to-work travel is generally not considered private for such vehicles.
“Any trip in which their home-to-work route varies by more than 2km will be considered a personal trip,” he said.
“This includes a stop at the grocery store or to pick up children from school or a sports training.”
Mr Howlett said the ATO’s decision to apply the advice in the present 2019 FBT year rather than in the previous financial year, as originally proposed, is a good one.
But he cautioned that the ATO may seek to apply the draft guidelines to the 2018 FBT year.
“The ATO is delivering a clear warning to employers to make sure they have a policy on work-related travel and to make sure they enforce it,” said Mr Howlett.
“The law as it relates to FBT on work related vehicles remains the same but it’s a change in the published interpretation of the way the existing rules operate.
“This law has always been about minor and infrequent travel for work vehicles but this puts the onus very much on the employer to prove that work cars are not used as a perk to retain and attract staff.”
Mr Howlett said the cost of non-compliance is high as failure to comply with the new guidelines may see a 20 per cent FBT impost on the full cost of the vehicle.
“This means for example the FBT payable on a Toyota Hi Lux 4x4 SR5 double cab pick-up ute valued at $54,990 would be $10,753 per annum.”
He said the ATO has “clearly” warned that it will use data tracking software to identify noncompliance, as well as access third party data to verify claims.
“The increasing sophistication of the ATO’s tracking methods will mean that there will be many employers out there who are at risk of an unforeseen tax bill.
“It will create an uneven playing field and one that is going to mean a big mind shift for employers who, for many years, have turned a blind eye to FBT.
“It also means that some of them will no longer be able to dangle the carrot of a work-related vehicle to attract staff.”