One of the most common tax planning strategies of owning a ute has had an overhaul by the ATO. Unsurprisingly, this guideline is now more complicated than it used to be.
Previously a business could provide a ute to employees and the general rule of thumb was that it was tax deductible and there was no need to calculate Fringe Benefits Tax, provided the private use by the employee was minor, infrequent and irregular …… with no firm definition as to what “minor, infrequent and irregular” was.
The ATO have now issued some firm guidelines as to when utes (and other eligible vehicles) will be exempt from Fringe Benefits Tax. This will only apply if:
- When using the vehicle between home and work, any diversion adds no more than 2km to the ordinary length of that trip
- The private use is less than 1,000km for the entire year
- No single return journey for private purposes can be more than 200km
- The cost of the car was less than the Luxury Car Tax Threshold when it was acquired (currently $66,331).
Be mindful that the term “ute” does not automatically include dual cabs. As there is no longer a list of eligible vehicles, dual cabs and four-wheel drives need to be considered under the Miscellaneous Taxation Ruling MT2024.
This applies from 1st April 2018.
What should you do?
If you satisfy the requirements for the amount of private travel, then the employee will need to sign a declaration each year to confirm that the requirements for private use have not been exceeded.
If you don’t, then Fringe Benefits Tax will need to be considered. The impact may be able to be reduced through completing a logbook to document the business use percentage of the vehicle.
If you have any queries please do not hesitate to contact us!