ATO Targets Tradies & Their Motor Vehicles

ATO is cracking down on tradies – Here’s what you need to know?

Businesses can currently claim a tax exemption on work Utes and even Vans, but the ATO is cracking down on their private use.

The popularity of many purchasing Utes & Vans has sparked a crackdown by the Australian Taxation Office which could cost businesses thousands of dollars a year – and force tradies to reimburse their bosses for the extra tax.

Dual cab Utes or Vans could be subject to fringe benefits tax (FBT).

Businesses, such as those in construction, can currently claim an FBT exemption if a car is bought and provided to an employee as a part of their job.

But this only applies if private use is limited, such as driving to and from work, and the ATO now suspects many people are using the vehicles for both work and also as their own personal cars.

The ATO has commented recently “If an employee’s use of a dual-cab Ute doesn’t meet the conditions of limited private use, it’s a car fringe benefit, or residual benefit and FBT applies”.

Even though dual cabs Ute are some of the top selling cars in Australia at the moment, the ATO is cracking down on a tax loophole that lets construction businesses avoid paying fringe benefits tax.

Be Aware – the amount of tax payable could work out to be in the thousands of dollars a year.

Simply, if any vehicles which are treated as exempt are subsequently found by the ATO to not be exempt, any resulting FBT will be payable by the employer.

If employees, such as tradies use their provided car privately and the business is billed for that extra tax, they might personally have to repay their bosses.

Recommendation – it may be prudent for employment contracts to make allowances for the employee to reimburse any FBT cost to the employer in the event that unauthorised private use of the vehicle results in it not meeting exempt vehicle requirements.

Generally, FBT only applies to employees provided with a vehicle as part of their job.

The guidelines currently only consider FBT (ie. an employer providing the Ute to an employee) and not other arrangements where a Ute or Van is used (such as a sole trader, or an employee who uses his own Ute for work purposes).

For example, if the Ute or Van is used for weekend trips or exceeds 750km a year in private trips, then FBT may apply.

Documentation is an essential source of evidence to prove that all vehicles are used for work purposes, this includes a log book.

Ensure all records are kept and made available in case the ATO comes knocking.

Conclusion

The ATO is on the warpath – please be careful with the private use of any motor vehicle.

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