When is a Motor Vehicle subject to FBT?

A common complaint about Fringe Benefit Tax (FBT) is that it is too complex, particularly when it comes to motor vehicles, which becomes a point of frustration given it is one of the most commonly provided benefits. This is borne out by how common it is for mistakes to be identified during an Inland Revenue investigation or due diligence process. 

One of the most common mistakes arises from not properly understanding the circumstances in which the provision of a vehicle to an employee for private use is subject to FBT. There are three broad classifications of motor vehicle under the FBT regime.

Private Use Vehicle: As a catch-all, if a motor vehicle is made available to an employee for private use it is likely to be subject to FBT, unless a specific exemption applies, such as the work-related vehicle exemption (discussed below). Private use includes the use, or availability for use of the vehicle outside of business purposes. It is important to note that home to work travel is specifically defined as private use. Hence, even if private use is prohibited, but an employee uses the vehicle to drive to work, FBT could still apply.

Work-Related Vehicle: Not all vehicles provided to employees attract FBT. A vehicle may qualify as a work-related vehicle if it meets four criteria, being:

– sign written,
– not be designed principally to carry passengers (e.g. a ute),
– required to be stored at an employee’s home as a condition of employment, and
– not be available on a particular day for private use, unless it is incidental to business use.

If a vehicle meets the criteria on a particular day, it is not subject to FBT on that day. 

The key difference between the private use vehicle and work-related vehicle is that travel between home and work may be treated as exempt if the motor vehicle qualifies as a work-related vehicle. Supporting documentation and spot checks are essential to ensure the work-related vehicle exemption applies.

Understanding the FBT implications of providing motor vehicles to employees is essential for compliance. Complexity can arise in specific situations, such as when an employee’s home ‘might’ qualify as a place of work and therefore travel between home and work itself is ‘on work’ and not subject to FBT.

Given the complexity it is not a surprise that mistakes in this area occur – which begs the question as to whether the rules are fit for purpose.