What are fringe benefits?
This means that the employee gets rewarded for the work they do in other ways than their salary and wages.
Generally, fringe benefit arises when you as an employer make vehicle owned by your business available to your employee for private use.
As the employees do not get taxed on this, the government expect you to pay the tax on this fringe benefit and for simplicity it is calculated at the top marginal tax rate.
What about exempt vehicles?
This benefit may be exempt from FBT if the vehicles are exempt vehicles and the private use is limited to travel between home and work (or work site as required). This is different from the non exempt vehicles, so do not stop reading here.
What are the requirements?
- You provide eligible (exempt) vehicle to your employee
- It is provided for the use to perform their work duties
- It is NOT provided as part of salary sacrifice arrangement
- It is NOT valued at more than luxury car tax threshold
- You have a policy in place to limit private use of the vehicle ad obtain assurance from your employee
- Employee uses the vehicle for travel between home and place of work and any diversion add NO MORE than 2 km to the ordinary length of trip (such as dropping children off at school on the way to work may be fine)
- For journeys that are fully private, employee DOES NOT use the vehicle to travel:
- More than 1,000km in total (in a year)
- A return journey that exceeds 200 km
What do you need to do?
- You need an agreement between you and your employee stating that the motor vehicle is not for private use.
- At the end of FBT year (31 March), you need a declaration or at least an email from your employee confirming that:
- Private purpose journeys didn’t exceed 1,000 km in total
- No diversions on the travel between home and work exceeded 2 km
You still need to be satisfied (on reasonable grounds) that the rules have been complied with. For example, if you can reasonably estimate that your employee would travel 35,000 km for work, but the odometer reading suggests 45,000 km travelled for the year, it is clear that the private use of the motor vehicle would have been more than allowed. No matter what the employee says, it is not prudent to rely on his declaration of minor use.
This update should allow more taxpayers to benefit from the reduced record keeping.
If you cannot rely on PCG 2018/3, normal rules apply and you will need employees’ logbook to prove minor private use only.
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