Fringe Benefits Tax 2024 | What You Need to Know

According to the ATO, there is a significant level of non-compliance associated with car fringe benefits. In response, the ATO has developed additional guidance to assist employers in correctly identifying when FBT exposure may arise in relation to the provision of a car.

In particular, the additional guidance provides clarity on:

a. Calculation of taxable value when a car is being held by a mechanic to undertake repairs

Where a vehicle is undergoing significant repairs for a considerable period of time, there may be uncertainty as to whether there is an FBT exposure for that period.

The ATO has confirmed that no car fringe benefit will arise where the car is in a workshop for extensive repairs. This is because:

• The car is not applied for private use nor is it deemed available for private use; and
• The car is not considered to be ‘held’ by the employer during this time.

The ATO will not extend this concession where a car is being held by a mechanic for routine servicing or maintenance or minor repairs. A car fringe benefit can still arise in these situations.

TIP: If using the Operating Cost Method to value car fringe benefits, employers are only required to include operating costs of a car incurred during the ‘holding period’. As such, where a vehicle is being held by a mechanic to undertake extensive repairs, any operating costs that relate to that period can be excluded. Insurance and registration costs should be attributed to the relevant ‘holding period’.

It is further noted that where a replacement car is provided by the employer during the extensive repairs of an employer-held car, the following FBT implications will arise:

b. Whether the Operating Cost Method can be used where no logbook has been maintained

It is common to assume that if no logbook has been maintained, an employer must use the Statutory Formula Method to value car fringe benefits.

The ATO has confirmed that where a valid logbook has not been maintained, an employer can still utilise the ‘Operating Cost Method’ for valuing car fringe benefits, but the business use percentage will be deemed to be 0%.

In certain circumstances, usually when the car has been held by the employer for a number of years and the use of the car is low, the Operating Cost Method (with a business use percentage of 0% applied) may result in a better FBT outcome than the Statutory Formula Method.

c. FBT implications in relation to an employee acquiring a car at the end of a lease arrangement or hire purchase agreement

Under both operating and (bona fide) novated leases, the employee has the option to pay a pre-determined residual value of the car at the end of the lease to buy the car from the lessor.

This may mean that the residual value paid is less than the market value of the car at the time of the lease ending.

The ATO has confirmed that no FBT implications will arise under this circumstance, as the employee is considered to have acquired the car for an arm’s length amount (i.e. no fringe benefit has been provided).

However, a taxable property fringe benefit may arise where the employer provides a car acquired under a hire purchase agreement to an employee at the end of the agreement for the car’s residual value. This is because a hire purchase agreement is a contract for the sale and purchase of the car, and the residual value is not an estimate of the car’s market value at the end of the lease.

d. The business versus private use of a car wrapped in advertising signage or decals

It is often argued that a car that has company signage is considered advertising, and accordingly a business use percentage of 100% should be applied whenever the car is being driven.

The ATO’s updated guidance states:

“Private use is everything else other than in the exclusive course of working, running a business or otherwise earning income. This means that private use of a car includes any use that is dual purpose and has both private and business aspects to it.”

Accordingly, if a vehicle is used or is available for private use on a given day, a car fringe benefit can still arise, regardless of whether the employer-provided car is wrapped in advertising signage.

Changes to the ATO’s interpretation of a “commercial parking station” for car parking fringe benefit purposes took effect from 1 April 2022. Parking facilities at shopping centres, hospitals and hotels can now represent a commercial parking station, despite charging penalty rates to discourage all-day parking.

Our 2023 FBT article covered the changes to the ATO’s interpretation in detail. (https://vincents.com.au/fringe-benefits-tax-2023/

The ATO has clarified that a dual-purpose car parking facility may still be a ‘commercial parking station’. A dual-purpose car parking facility is one that makes parking available to the public in the ordinary course of business, as well as some other purpose (i.e. staff or commuter parking).

From 1 July 2022, an FBT exemption became available for eligible electric cars that are provided by an employer to their employees (or their associates).

In addition to the private use of the electric car being exempt from FBT, any associated running costs are also FBT-exempt. This includes:

• Registration and insurance;
• Repairs and maintenance; and
• Fuel (including the cost of electricity associated with charging the battery of an electric car*).

* Including electricity at the employee’s home, the employer’s premises or at a commercial charging station.

TIP: The cost of the electric charging station itself is not considered a car expense, and will be either a property or expense payment fringe benefit that may be subject to FBT.

The inclusion of the cost of electricity associated with charging the battery of an electric car has presented some compliance challenges, specifically in being able to separately identify and value the cost of the electricity.

The ATO has released Practical Compliance Guideline (PCG) 2024/2 to provide compliance relief effective from 1 April 2022. The PCG provides a shortcut method that can be used to calculate the electricity costs when an electric car is charged at a residential premises.

TIP: The shortcut method outlined in PCG 2024/2 cannot be applied to plug-in hybrid electric vehicles (which are low emissions vehicles and are eligible for the exemption until 31 March 2025), as the PCG only applies to zero emissions vehicles.

The shortcut method prescribed by the ATO is as follows:

‘Electric vehicle home charging rate’ x Total number of relevant kilometres travelled by the electric car in the FBT year

The ‘electric vehicle home charging rate’ from the 2023 FBT year is 4.20 cents per kilometre.

As the above method takes into account all relevant kilometres travelled by the electric car in the FBT year, an employee must disregard any costs incurred at a commercial charging station for FBT purposes.

In order to rely on the shortcut method, the employer will need to obtain odometer records in the applicable FBT year. Transitional rules allow a reasonable estimate to be used where actual readings have not been maintained at the start of the 2023 or 2024 FBT years.

No compliance resources will be directed towards employers that use the shortcut method to:

• Calculate the taxable value of a car fringe benefit (in circumstances where the electric car FBT exemption does not apply);
• Calculate the reimbursement of electricity costs to an employee for the purposes of charging an electric car;
• Calculate the reportable fringe benefit amount.

TIP / REMINDER: It has previously been the case that FBT-exempt benefits are not included when calculating an employee’s reportable fringe benefits amount (RFBA). However, the Electric Car Bill provides that car benefits arising in respect of FBT-exempt electric cars are included when calculating an employee’s RFBA.

If an individual’s income-earning activities are based on the exercise of a skill or having specific knowledge, then self-education expenses incurred to maintain or improve that knowledge, or the ability to exercise those skills, are deductible.

Where an individual’s self-education objectively leads to, or is likely to lead to, an increase in their income from their current income-earning activities, then the self-education expenses are deductible. Consider:

• Whether there is a clear and proximate link between the current income-earning activities and the self-education undertaken.
• Whether there is a real opportunity for promotion to a more highly paid position, and whether that new position is materially different to the current position.
• Whether or not the advancement of employment grade and / or salary is a substantial element of the individual’s motive for undertaking the self-education.

A well-known exemption for employers that provide utes and other similar vehicles to their employees is the ‘workhorse vehicle exemption’.

The exemption applies where the following conditions are satisfied:

1. The motor vehicle is an eligible type of vehicle, which can include panel vans or utes and certain other commercial vehicles.
2. Any private use of the vehicle must be limited to ‘work-related travel’ and other private use that is ‘minor, infrequent and irregular’.

It is the second condition that employers often overlook when applying the exemption. Employers that apply this exemption should ensure they are satisfied that all conditions of the exemption are met to avoid any ATO scrutiny.

Work-Related Travel

For the purposes of applying this exemption, work-related travel includes travel between an employee’s work and home, and other travel that is incidental to travel in the course of performing employment-related duties.

Minor, Infrequent and Irregular

Unfortunately, this concept is not defined in the FBT Act. However, it is generally accepted that minor, infrequent and irregular private use is use that satisfies all of the following:

• Travel that is small or insignificant in distance and time compared to business travel.
• Travel that does not happen very often, or is not the norm.
• Travel that does not happen regularly or at fixed intervals.

To alleviate uncertainty, the ATO has provided a ‘safe harbour’ rule in PCG 2018/3.

An eligible workhorse vehicle must meet all of the following requirements to be eligible for this safe harbour treatment.

1. The vehicle must have been provided to the employee for use in the performance of work duties.
2. The vehicle had a GST-inclusive value less than the luxury car tax threshold applicable at the time it was acquired.
3. The vehicle cannot be provided under a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle.
4. The employer has a policy in place that limits private use of the vehicle and obtains an assurance from the employee their private use is limited to use outlined in (e) and (f) below. The employer must be satisfied (on reasonable grounds) as a result of this assurance that the private use of the vehicle was limited.
5. The employee uses the vehicle to travel between their home and their place of work, and any diversion adds no more than two kilometres to the ordinary length of that trip.
6. The total private use of the vehicle (other than home to work travel) in the FBT year must not exceed 1,000 kilometres, with no return private journey exceeding 200 kilometres.

Where an employer satisfies the above criteria, they do not need to keep further records about an employee’s use of the vehicle to demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular’. Furthermore, the ATO has advised it will not devote compliance resources to review whether the exemption applied for the vehicle provided to that employee.

Businesses often engage in corporate sponsorship opportunities as a means of marketing. From an income tax and GST perspective, these are generally deductible and creditable transactions.

However, where businesses receive non-marketing related benefits in exchange for their corporate sponsorship, and such benefits are provided to employees, the FBT provisions require consideration.

Common examples include free tickets to sporting events, invitations to social functions or free attendance at a corporate box function, which often amount to meal entertainment or recreation.

In such cases, the cost of the sponsorship package must be apportioned to appropriately recognise any meal entertainment or recreation component. Income tax deductions and GST input tax credits are generally only available on these components where FBT has been paid.

Documentation and declarations continue to be at the forefront of the ATO’s focus.

The onus to retain accurate and appropriate documentation lies with the employer. Such documentation will be requested by the ATO in the event of an FBT audit.

Key areas for employers to be aware of:

• Evidence, such as invoices and / or receipts, in relation to the provision of expense payment, property or residual fringe benefits should be retained for a minimum of five years.
• Many benefits that adopt concessional valuation methods or that are able to have their taxable value reduced require a signed employee declaration to be kept on file. Generally, declarations should be provided to employers by 21 May of each FBT year. Approved ATO declarations can be found at the following link: https://www.ato.gov.au/Forms/Employee-Declaration/
• Valid logbooks must be maintained in order to substantiate an employee’s business use percentage (other than 0%) when adopting the Operating Cost Method to value a car fringe benefit.