So you need a new ute or van for your business?
There is a common myth being spread by Car Sales people that buying a commercial Vehicle (such as a 1 tonne ute or Van) is free from FBT.
In this week’s episode of Tradie Tuesday, we investigate how Commercial Vehicles can become subject to Fringe Benefits Tax.
Utes and Vans are a necesssary tool of trade for many Tradies.
Where you can get tripped up is the ‘personal use’ of those vehicles. In this week’s Tradie Tuesday myth busting episode, we’ll consider:
Utes, Vans & FBT
I know – such a dry, boring subject – but seriously – you can get into a lot of hot water if you don’t know the real implication!
There’s a myth being spread – especially in the car sales network – that Commercial Grade vehicles are FBT FREE!
It’s a wonderful catchy sales pitch – and I’ve heard it said to many of my clients.
I have to admit it is true, that a Ute and Van designed to carry more than 1 tonne (i.e. a Commercial Grade vehicle) is not considered a “Car” for Fringe Benefits Tax (FBT).
However, there are 13 classes of fringe benefits that may be provided to employees and directors that the ATO looks for which means your new FBT Free vehicle, might in fact get caught under a different class of FBT.
The usual class of FBT that Commercial Grade Vehicles get caught under is the “Residual Benefits” class.
The class that catches everything that hasn’t applied in the previous 12 classes.
So what is a Fringe Benefit?
A fringe benefit is defined as “an extra benefit supplementing an employee’s money wage or salary, for example a company car, private health care, etc.”
FBT is the tax on that fringe benefit (currently 49% on grossed up – salary – value).
Use of trade vehicles for any personal use is considered a Fringe Benefit, subject to Fringe benefits tax under the “Residual Benefits” classification.
How do I minimise Fringe Benefits Tax on our Utes / Vans?
The simple answer is to:
a) minimise the personal use of the vehicles OR
b) don’t have the vehicles owned by your Business, but instead by your employees
What is Personal Use of a vehicle?
For a Ute and Van designed to carry more than 1 tonne, it is OK for your employees (including yourself) for what is called “incidental” personal use such as driving between home and direct to a work site; or use the vehicle to take personal trips to the tip (maximum 2 per year).
Any other use is deemed by the ATO as excessive personal use, subject to FBT.
For instance, it is not OK to allow the vehicle to be used to:
- pick up groceries on the way home, or
- to regularly drop the kids off to school on the way to a work site; or
- use the vehicle to tow your boat; or
- use the vehicle to carry motorcycles / bicycles; or
- use the vehicle on holidays, sporting events, concerts etc
How do you police that kind of useage?
In reality, you can’t. However, you can:
- Don’t allow personal use of your vans and utes;
- Have a strict policy about work vehicles; and
- Ensure you keep logbooks for each vehicle; and
- Get employee declarations each FBT year advising that they’ve complied with the policy.
What will FBT cost my business?
Calculating FBT is complex – mainly because you need to take the value of expenditure, multiply it by a ‘gross up’ factor (there’s two rates you need to figure out which is correct) and then charge 49% to calculate the tax.
Sound complicated? We think so too.
That’s why we say that a basic rule of thumb (and worst case scenario) is:
For every dollar you spend on stuff that your employees can use in a personal capacity, you pay a dollar in Fringe Benefits Tax. Dollar, for dollar.
Any personal use of vehicles will be subject to Fringe Benefits Tax.