CURRENT AS AT 5 OCTOBER 2018
The Australian Tax Office (ATO) has recently announced a crackdown on work related expenses, including motor vehicle deductions.
This crackdown will also extend to employers who provide motor vehicles to employees and who are subject to Fringe Benefits Tax (FBT) on those vehicles specifically regarding the private use of these business vehicles.
There has been a huge increase in the number of dual cab ute and 4-wheel drive sales over the past few years. This has partly been due to the mistaken belief that these vehicles are eligible vehicles and are fully tax deductible and/or are exempt from FBT.
As part of the ATO crackdown on private use of work related motor vehicles and business vehicles the ATO has now reverted to a principals-based approach (ie. usage) for the private use exemption criteria for eligible vehicles
- Taxis, panel vans, single cab utes: qualify for the work-related use exemption
- Dual cab utes & 4-wheel drives (other than utes or dual cabs): only qualify for the work-related use exemption if they are designed to carry a lead of one tonne or more or are not designed for the principal purpose of carrying passengers.
The work-related use exemption allows a vehicle use to be deemed to be 100% work-related for an eligible vehicle where the private use is minimal (per ATO guidelines summarised below).
The ATO released MT 2024 in September 1986 summarised what dual cab vehicles would qualify for the work-related use exemption (ie. designed to carry a load of one tonne or more or not designed for principal purpose of carrying passengers). However, it appears a lot of taxpayers (and motor vehicles sales representatives) are assuming their dual cab ute or 4-wheel drives qualify for the work-related use exemption and are fully deductible and/or exempt from the private use rules.
So how are the load capacity and passenger carrying capacity of eligible vehicles determined?
The load capacity is taken to be the gross vehicle weight (including the maximum load) less the kerb weight (unladen but including a full tank of fuel and installed options including spare wheel, tyre jack etc).
Passenger carrying capacity
The passenger carrying capacity is taken to be the designed seating capacity multiplied by 68kg.
If the total passenger weight exceeds the remaining load capacity the vehicle is taken to be designed for the principal purpose of carrying passengers and will not be an eligible vehicle for the work-related use exemption.
- if the gross vehicle weight is 2,000kg, and the kerb weight is 1400kg and the seating capacity is 5.
- Then the load capacity is 600kg, (gross vehicle weight of 2,000kg less the kerb weight of 1,400kg) but the majority of 340kg of the load is passengers (5 x 68kg)
- Therefore, the vehicle is designed for the principal purpose of carrying passengers and will not be an eligible vehicle for the work-related use exemption.
MT 2024 was released in September, 1986 and the ATO possibly felt that taxpayers believed that it was no longer relevant, so in December, 2017 the ATO released Practical Compliance Guide PCG 2017/D14 which has now been released in final form on 11 July 2018 as PCG 2018/3.
This Practical Compliance Guide clarifies the ATO practice of determining what vehicles qualify as eligible vehicles for the work-related use exemption.
Under the FBT Act a car benefit is subject to FBT, but an eligible vehicle is exempt from FBT where the private use is limited to work related travel (which for an eligible vehicle can include home to work travel) and other private use is minor, infrequent and irregular.
The ATO has stated in PCG 2018/3 that to reduce compliance costs and to provide certainty, that they will not apply compliance resources to determine the private use of vehicles if employers comply with their guidelines in PCG 2018/3:
- Eligible vehicle
- Value less than the luxury car tax threshold
- Not included in a salary packaging arrangement
- A policy in place to limit the private use
- Employees travel from home to work and diversions add no more than 2km
- Private use is no more than 1,000km in total p.a. and no more than 200km per journey.
Whilst the ATO state that these guidelines are to help reduce compliance costs how are businesses supposed to know that the diversions add no more than 2km and private use is no more than 1,000 km in total p.a. and no more than 200km per journey without having to keep compliance records and declarations from employees?
It is now very clear that not all dual cab utes or 4-wheel drives qualify as eligible vehicles. Instead the private use rules for cars will apply to these vehicles. Care is needed in this area and, as always, contact us if you have any queries.
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