If you are one of the many proud Australian employers currently providing your devoted staff with a company car — you may have to think again!
The good folks at the Australian Tax Office (ATO) have made some changes to the Fringe Benefit Tax (FBT) as we currently know it.
This has been brewing for some time now, and in July this year the ATO released an article highlighting expense claims of $8.7 billion in uncollected tax linked to work related expenses.
This gap highlights the need for action by the ATO to ensure every taxpayer is fully compliant with the law.
So, let’s take a step back to clearly understand who and what businesses the ATO are going to be looking at.
Who is ATO targeting?
If your company provides (or rewards) your employees with a light commercial vehicle — think Ute or Dual Cab and applies for an FBT exemption – then I am talking to you.
There is a change in the interpretation of the guidelines from the initial “infrequent, irregular or minor use” of company provided vehicles, to now fundamentally being subject to FBT…
Unless you adhere to the following criteria:
- No more than 750km (private use) is travelled per FBT year (approximately 15km per week)
- No single return trip (for private use) exceeds 200km at a time
- Employees use the provided vehicle travelling to and from work — with a diversion no more than 2km to the original route
Putting that into perspective; the school drop off, supermarket run, or gym class could all possibly be off the cards if the distance falls outside of these new guidelines.
The ATO will be heavily focusing on employees whom have been provided ‘tool of trade’ vehicles that have genuine work-related use, but also utilise the vehicle freely for private purposes.
Apart from being great cars, there is a reason why Dual Cab utes hold the number 1 and 2 stops on the Top Car Sales lists in this country. They easily and fondly double up as the work horse during the day, and family car in the evenings and weekends.
The new rules will surely put a lot of strain on the relationship between both employee and employer. Companies will have to manage expectations of their employees and require them to maintain log books as evidence to police the amount of private use.
The result of all this, is that non-compliant companies will end up paying a lot more, to the sound of 20% of the vehicle cost.
For the most part, FBT has been a tax that an alarming number of employers have swept under the rug and that is worrying given the ATO’s policy changes and their new found focus on FBT.
Coupled with the AASB16 accounting standard that will also likely affect you, these changes force employers to frankly look at alternatives to the traditional company car model as part of their attraction and retention strategies for key employees.
Seeking an effective solution
With the implementation of these changes rolled out in July 2018, affected companies will need to seek a solution that:
- Provides employees with appropriate transport to carry out work tasks as required
- Has no increased financial risk or liability to the employer
- Reduces reporting needs
- Doesn’t strain their relationship with their employee’s
While being able to meet all these requirements may seem like a daunting task, an innovative solution has been established and is proving to be popular amongst employers and employees.
Discovering a powerful alternative
At INSIDE EDGE, a big shift we have seen to accommodate these changing standards and employee demands is the offering of a car allowance, with the option of a novated lease. This is the most cost-effective solution to maximise both employee and employers’ dollars.
A savvy car allowance and novated lease program communicated and delivered in the right manner will:
- Serve as an outstanding employee benefit with real tangible savings that staff value
- Safeguards companies by mitigating FBT
- Bear no extra financial risk to employers
- Significantly reduce administrative workloads
- Allow employees to choose a car that suits both their work and lifestyle needs
If you would like to have a consultative discussion about how INSIDE EDGE can provide the right advice and tailored solution for your company with a cost-effective, transparent approach please contact me on 1300 551 987 or alternatively email me at Bradley.Davidson@iedge.com.au.