ATO’s crackdown on company cars, especially, utes | Insights

The ATO have flagged a number of common errors concerning car fringe benefits and have warned employers that they will carry out more compliance checks in relation to the following:

Calculating the days on which cars are provided; and
Valuing the private use of utes.

It is important to bear in mind that where a car is available for private use by an employee, such as when the car is being parked at or near the employee's residence and the employee is entitled to use the car for private travel (regardless of whether they actually use the car for private purposes) a car fringe benefit arises and the employer incurs FBT for the private use benefit.

The other common error that arises is the treatment of utes which may or may not fall within the definition of a car for FBT purposes and would generally be an exempt benefit where the private use is limited.

A ute provided by an employer regardless of whether it is considered a car or not a car for FBT purpose (based on the carrying capacity of the ute and whether it is designed to carry a load of less than one tonne), can result in the provision of a taxable benefit, depending on the extent of the private use.

Traditionally, utes were supposed to be for work purpose only. Having become more popular over the years also as a recreational vehicle, employers will need to pull back on the employees private use for these types of vehicles. Failing to comply may result in 20 percent FBT impost on the cost of the vehicle.

Previously the ATO had been quite relaxed about the private use of company vehicles clarifying that where the private use is “minor, infrequent and irregular” the benefit would generally be exempt.

From 1 April 2019, the ATO have clarified that employees can use company cars and utes for up to 1,000 kilometres private travel each year provided no single return trip is longer than 200 kilometres. Anything above this could see a FBT charge of 20 percent on the cost of the vehicle.

So restricting drivers to up to 1000 kilometres could see an end to weekend or holiday use, especially where utes are provided by the employer under the misconception that a car fringe benefit does not arise. As noted above, a ute that is not considered a car and where the private use is not limited, could still be considered a residual benefit that results in FBT cost to the employer.

It is the responsibility of the employer to communicate the new rules with the employees and where the ATO identifies cases of non-compliance they will help employers get it right.

It is the responsibility of the employer to communicate the new rules with the employees and where the ATO identifies cases of non-compliance they will help employers get it right. The ATO has an FBT engagement program in place which includes significant communication and education components to assist and inform employers about their FBT obligations.

If you need your FBT obligations reviewed, please contact Prosperity.

Contact Michael Bode, Director of Taxation services on 02 8262 8716 or your principal adviser to find out more.

ATO’s crackdown on company cars, especially utes

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