Work Utes - The Expensive Misconception
Think your work ute is automatically FBT-free? Think again.
There is a very common misconception amongst business owners and tradies that if a vehicle is a ute or commercial vehicle, there is automatically no Fringe Benefits Tax (FBT) and no need to worry about keeping records.
Unfortunately, it isn't that simple.
The ATO specifically identifies motor vehicles as an area where it sees a significant level of FBT non-compliance. This includes businesses treating vehicles as 100% business use despite private use, failing to maintain appropriate records, and assuming that all eligible commercial vehicles are automatically exempt from FBT.
The ATO has more information than you may realise
The ATO increasingly uses third-party information and data matching to identify tax risks.
Importantly for business vehicles, the ATO obtains information from state and territory motor vehicle registration authorities about vehicles that are sold, transferred or newly registered.
The information available through its motor vehicle data-matching program can include details such as the purchaser and seller, transaction date, sale price or market value, garage address, intended vehicle use, make and model.
Technology, automated data matching and increasingly sophisticated analytics make it much easier for the ATO to compare information from different sources and identify inconsistencies.
Small and medium businesses should not assume that their vehicles are invisible to the ATO.
“But it's a ute…”
This is where the BBQ tax advice becomes dangerous.
We regularly hear:
“It's a ute. There's no FBT.”
Or:
“You don't need a logbook because it's a commercial vehicle.”
Neither statement should be relied upon without looking at the particular vehicle and how it is actually being used.
Certain eligible utes and commercial vehicles can qualify for an FBT exemption. However, the exemption is subject to conditions.
Generally, the vehicle must be used for eligible work-related travel and other private use must be limited. Where relying on the relevant exemption, other private use needs to be genuinely minor, infrequent and irregular.
Taking the work ute home does not necessarily destroy the exemption.
However, regularly using it as the family vehicle is a very different situation.
Regular shopping trips, school drop-offs, children's sport, weekends away, towing the boat or caravan, or routinely using the ute for private activities can create an FBT problem.
The ATO itself gives examples distinguishing occasional incidental private use from regular activities such as shopping and football trips.
Why records matter
The real problem often arises several years later.
Imagine the ATO asks about a vehicle that the business purchased three years ago.
They want to know:
Who drove it?
Where was it garaged?
Was another private vehicle available?
How was the ute used on weekends?
What evidence supports the claimed business use or FBT exemption?
Trying to answer those questions years later without contemporaneous records can be extremely difficult.
Depending upon the type of vehicle and the FBT treatment being adopted, a properly maintained logbook, odometer readings, employer vehicle-use policy and other contemporaneous evidence can be extremely valuable.
Importantly, records should be created at the time.
A genuine logbook or other evidence maintained while the vehicle is actually being used is very different from trying to reconstruct records after the ATO has commenced a review.
Getting it wrong can become expensive
If the ATO determines that FBT should have been reported, the consequences can potentially extend well beyond simply paying one year's tax.
Depending on the circumstances, this may involve:
FBT assessments for earlier years;
interest charges;
potential penalties;
amendments and additional compliance work;
employee reportable fringe benefits consequences where applicable; and
professional costs involved in responding to an ATO review or audit.
Something that started with the assumption that “it's a ute, so I'm fine” can therefore become an expensive exercise.
What should you do?
If your business owns a ute or other vehicle that you or an employee takes home, don't simply assume that it is exempt.
If an exemption legitimately applies, make sure there is appropriate evidence supporting that position.
If a logbook or other records are appropriate, put them in place now — not after the ATO starts asking questions.
The message is simple:
A ute is not automatically FBT-free.
The ATO has access to increasingly extensive third-party data.
And “they'll never know” is not a sensible tax strategy.
General information only. The FBT treatment of a vehicle depends on the vehicle specifications, ownership arrangements and actual use. Specific advice should be obtained for your circumstances.
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