FBT season: ATO’s focus on motor vehicles
As another Fringe Benefits Tax (FBT) season rolls around, the Australian Tax Office (ATO) is keeping a close eye on how employers classify and report motor vehicles. Missteps in this area can lead to unexpected FBT liabilities, making it crucial to get it right. Here are some key focus areas flagged by the ATO this year.
Understanding vehicle classification
Employers often assume that all work vehicles are exempt from FBT, but classification matters. The ATO outlines three categories:
Cars
Designed primarily for carrying passengers (e.g., sedans, hatchbacks).
Light commercial vehicles
Not designed for passengers but with a carrying capacity of less than one tonne (e.g., most dual-cab utes).
Other vehicles
With a carrying capacity over one tonne, these are not classified as cars but can still attract FBT.
The classification determines how FBT is calculated and whether exemptions apply.
Private use vs. business use
Another common mistake is treating private travel as business use. The ATO uses a simple rule:
If the employee had personally paid for the trip, would it be tax-deductible?
Typical private-use trips include:
- Commuting between home and work
- Running personal errands
- School drop-offs and lunch breaks
Unless specific exemptions apply, these attract FBT and should be accounted for correctly.
Logbook errors
Employers using the logbook method to reduce FBT must ensure accurate records. Common issues include:
- Insufficient details on trip purpose (“business” alone is not enough).
- Inconsistent odometer readings compared to annual kilometres travelled.
- Unrealistic travel distances (e.g., 50km trip logged as 200km).
- Private and business travel combined into a single entry.
If records are incomplete or unreliable, the ATO may disregard the logbook and apply the statutory formula method, leading to a higher FBT liability.
Getting FBT right: ATO’s four-step approach
The ATO advises employers to:
- Identify the benefits provided and classify them correctly.
- Determine the taxable value using the correct valuation method.
- Lodge and pay the FBT return on time.
- Keep records that comply with reporting obligations.
Avoiding these mistakes now can prevent costly corrections later. If you’re unsure about your FBT obligations, seek professional advice before lodging your return.
