FBT, cars & how exemptions can work

There are various new year celebrations on the Australian tax calendar and while April 1 is well known as a day of humour and hijinks, it is also a happy new year for Fringe Benefits Tax – otherwise known as FBT.

FBT is a tax on a wide range of benefits received by employees and their associates, in respect of the individual’s employment.

This is a simple enough description but, as with most tax matters, practical application can be more challenging due to various categories of benefits, concessions for some particular employers such as public health, interaction with GST laws and even some exemptions.

Although it is not widely available to all, there is one vehicle exemption that’s worth highlighting. For the right people, it can be worth its weight in tax.

FBT exempt vehicles

To be precise, the ‘exempt vehicle’ benefit is aimed at commercial vehicles and applies to certain taxis, panel vans and utility trucks designed to carry one tonne or less and not designed principally to carry passengers.

Dual cab utes designed to carry either more than one tonne or more than eight passengers can qualify as well, provided they also satisfy the conditions below.

The utility truck is usually the most relevant for employers and employees and is likely to be exempt from FBT provided that the only private use of the vehicle during the year (April – March) was work-related travel of the employee (including travel to and from work for FBT purposes) or minor, infrequent and irregular other private use by the employee or their associate.

Examples of such vehicles include the Ford Ranger, Isuzu D-Max or Toyota Hilux.  The most recently published list is available from the Australian Tax Office under its exempt vehicle overview.

For employers who require their employees to travel frequently for work purposes, and carry tools and equipment, the utility truck exemption can be an effective salary packaging tool.

The value of the car can be included in the overall remuneration of the employee and can result in a lower overall tax impost on the employee and a better after tax cash position for the year.

It does come at a relatively small compliance cost to the employer, though, who will be responsible for some record keeping.  Furthermore, if the conditions cease to be met an FBT calculation and lodgement will need to be completed.

Overall, when travel is a main element of an employee’s role and they don’t need the work car much outside of work hours, the exempt vehicle concession can be one of key aspects of a tax effective salary package.