Car v Motor Vehicle - a case study
Like most businesses, since the ATO’s removal of the exempt vehicle list in 2017 you’ve probably just been winging your vehicle classifications. Close enough is good enough so to speak. But with the rise of data matching and automated review and audit technology, there has never been a greater risk of detection to tax payers. It’s no longer ‘I’m a small fish in a big pond’ when the fisherman has an automatic fish detector and the tools to reel you in with very little effort. Being compliant matters.
Not only does having appropriate risk management processes and materials in place minimise the chances that you will make an honest mistake, it also represents to the ATO that you have placed proper regard into getting your taxes right, even when the historic risk of detection has been low. This is looked at favourably if you are later found to have lodged incorrectly, and are discovered under audit or via voluntary disclosure.
Ensuring you have undertaken appropriate due diligence into your fleet is also imperative in ensuring you’re paying the correct FBT. By confirming if your vehicles should be valued under the ‘car benefit’ rules or the ‘residual benefit’ rules, you ensure you are using the correct method to assess FBT, and potentially access exemptions or concessions you wouldn’t otherwise be entitled to.
Let’s illustrate this.
Company X has a fleet of 10 dual cab utes, each with a base value (for FBT purposes) of $50,000. These are tool of trade vehicles, used by employees for travel between their home and work, for site visits and other business purposes. Company X has a motor vehicle policy in place stating that employees are not permitted to use these vehicles for private purposes, however, may seek business permission for minor, infrequent and irregular private use. As this policy is strictly enforced by management, there is no need for employees to keep logbooks. Company X applies to taxabl for a vehicle classification report and our review of the vehicles show that they have a carrying capacity greater than 1 tonne and are not principally designed for carrying passengers - meaning they are motor vehicles for FBT purposes, rather than cars.
If Company X had been valuing these vehicles as cars, and using the statutory method for calculating the taxable value (noting they have not kept logbooks historically and the vehicles are garaged at the employees home), the company would be paying almost $100,000 in FBT every year for these vehicles alone.
By utilising the exempt residual benefits exemption, and aligning their business practices to PCG2018/3, Company X now pays $0 in FBT. Over the 4 year life of these 10 vehicles, this is an FBT saving of $400,000. Pretty simple maths when you put it like that.
Save money. Stay compliant.
Seems pretty easy to me.