By Josip Matanovic and Rhonda Cooper
Companies who want to attract and retain the best and brightest may offer incentives such as a company vehicle as an attractive part of salary packaging. Use of a company car is often perceived as a major perk for employees, negating the need to own their own vehicle and saving them thousands of dollars each year. For other employees a company vehicle is an essential requirement for their day to day role. We often get asked questions in relation to company vehicles so we have highlighted some of the most asked questions.
Vehicle running costs and other expenses
The registered vehicle owner is required to pay for a number of costs such as registration, insurance, fuel, repairs and maintenance of the vehicle as well as toll fees and even traffic infringement notices. A vehicle logbook should be maintained if different people have access to the same vehicle, so the driver is easily identifiable and the employee’s employment contract should specify what the employer and employee are liable for.
Private use of vehicle
Company vehicles kept at an employee’s home will naturally be used for personal trips, with the personal component attracting Fringe Benefits Tax (FBT). The ATO do recognise that ‘minor, infrequent and irregular‘ personal trips should be FBT exempt as an inevitable part of an employee benefit package.
Many organisations have a “fair use” policy that is usually trust based and allows the employee to use the vehicle for moderate personal use.
The issues arise when what is understood as fair or compliant usage of a company vehicle differs between the employee and the employer. This isn’t always the employees’ fault and shows the necessity for employer expectations and compliance issues to be communicated to the employee.
This is where the employer, employee and a leasing company enter into a 3-way agreement to pay for a car. The lease payments are made by the employer using the pre-tax income of the employee to make the vehicle payments. This reduces the employee’s taxable income and they have full use of the vehicle. A contract is drawn up that clearly sets out the conditions and the costs for using the car.
Fringe Benefits Tax
The employer may have to pay the Fringe benefits tax on a vehicle if you or your employee use the car for private reasons, including the following:
- Parking the vehicle at or near an employee’s house, even if they’re not allowed to use it for private purposes.
- Driving the car to and from the office directly.
There have been significant changes to how the Australian Taxation Office are now assessing travel in utes, most of these vehicles were previously exempt from Fringe Benefits Tax (FBT) but with the recent changes some of these vehicles may now been caught by this tax.
If you provide a panel van, single or dual cab ute to your employees for their work duties, FBT tax often can apply. However, private use of these vehicles can be exempt where it is minor, infrequent and irregular.
While this exemption has previously required thorough record keeping and a high degree of professional judgement, employers can apply the newly released ATO guidance from 1 April 2018.
Under the new guidelines, private travel can be deemed to be minor, infrequent and irregular if:
- An employee uses the vehicle to travel between their home and their place of work and any diversion (e.g. to pick up or drop off children at school) does not add more than 2 kilometres to the ordinarily length of the journey.
- less than 1,000 kilometres are travelled in the FBT year and;
- a return journey does not exceed 200 kilometres.
Accident and damages
So, who is responsible if the vehicle is involved in an accident? The Company is liable for the cost of damages even if the vehicle was being driven by the employee, in most cases. The amount may be claimed from your insurance, but you may have to pay for the excess.
So, what does this mean for employers?
Employers may need to implement an employee travel policy which clearly sets out the conditions of the vehicle use and specifying that all private travel will adhere to certain conditions. An annual declaration from each employee, stating that they have complied with this policy should be received as well as maintaining a log book for each vehicle.
By all parties having a clear understanding of the use of a company vehicle can eliminate a lot of issues that may arise during the course of a person’s employment.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.