TAX TIP – When is private use ‘minor, infrequent and irregular’ for a potentially FBT-exempt car?

The concept of ‘minor, infrequent and irregular’ is not defined in the FBT Act, which makes it difficult for employers to determine whether the exemption in S.8(2) applies. Fortunately, the ATO released Practical Compliance Guideline (‘PCG’) 2018/3, which alleviates some of this uncertainty by outlining the ATO’s compliance approach in assessing whether the private use of an eligible workhorse vehicle is ‘minor, infrequent and irregular’.

Broadly speaking, if certain strict criteria in relation to the private use of a workhorse vehicle as having met the requirements to qualify as being FBT-exempt.

The workhorse vehicle must meet the following requirements to be eligible for this safe harbour treatment:

  1. The vehicle must have been provided to the employee for use in the performance of work duties.
  2. The vehicle had a GST-inclusive value less than the luxury car tax threshold applicable at the time it was acquired.
  3. The vehicle cannot be provided under a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle.
  4. The employer has a policy in place that limits private use of the vehicle and obtains an assurance from the employee that the policy has been adhered to. The employer must be satisfied (on reasonable grounds) as a results of this assurance that the private use of the vehicle was limited.
  5. The employee uses the vehicle to travel between their home and their place of work, and any diversion adds no more than two kilometres to the ordinary length of that trip.
  6. The total private use of the vehicle (other than home-to-work travel) in the FBT year must not exceed 1,000 kilometres, with no return private journey exceeding 200 kilometres.

Where an employer satisfies the above criteria, they do not need to keep records about an employee’s use of the vehicle that demonstrates that the private use of the vehicle is ‘minor, infrequent and irregular’. Furthermore, the ATO will not devote compliance resources to review whether the exemption applied for the vehicle provided to that employee.

If an employer is not eligible to rely on the safe harbour because one or more of the above criteria is not satisfied (or the choose not to rely on the safe harbour), they may still be eligible to treat a vehicle as an exempt benefit if it can be demonstrated that the private use of the vehicle is minor, infrequent, and irregular. Further guidance on the concept of ‘minor, infrequent and irregular’ can be found in TR 2007/12.

Note that this safe harbour approach also applies in the same fashion when determining whether the exemption in S.47(6) applies for motor vehicles provided as residual fringe benefits (i.e., where the motor vehicle is not a ‘car’).

Now Is The Time To Start A Logbook

Start a logbook now

(If you use your car a lot for work related or business related purposes. You only have April to June to do it for the 12 weeks required.)

Keeping track of your business or work-related car expenses with the logbook is simple. It could increase your tax deductions and therefore improve your tax position or tax refund.

Using your car for work purposes and travel more than 5000km for work, will often mean the best way to claim these expenses is using the logbook method.

If you travel less than 5000km per year for work, then you are often better claiming the ‘Cents per KM’ method.

In any case you need to keep a record, so a logbook will work in making a car deduction claim.

The purpose of a logbook is to determine your business usage of your motor vehicle and the number of business kilometres you use.

If we work out your work usage is 60% of the overall usage of your car, we can then claim 60% of your fuel, rego, insurance, tyres, repairs, depreciation, interest on car finance, etc.

An example would be if it costs $10,000 to operate your car, you can claim $6,000 as a tax deduction. BUT, you need a log book to do this. The maximum claim under the rate per kilometre method of 5,000 kilometres is $3,600.

Instructions to complete your car logbook

You need to keep a logbook for a 12-week period. These must be 12 consecutive weeks (i.e., 12 weeks in a row).

Your logbook must include every trip you take – not just your business related trips.

Your logbook must contain:

  • Speedo reading on 30 June each year.
  • the make, model, engine capacity and registration number of the car.
  • the car’s speedo readings at the start and end of the 12-week period.
  • the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey.
  • the business-use percentage for the logbook period.

For each journey, record the:

  • start and end date of the journey.
  • speedo readings at the start and end of each journey
  • reason for the journey (such as a description of the business reason or whether it was for private use)
  • kilometres travelled on each journey.
  • The odometer reading at 30 June each year.

You do not need to record any private journeys. Write down the date and speedo when you get in the car. Do your work travel. When your trip is complete, record the speedo reading again. Record the purpose you travelled. (Usually travelling to and from work is private).  However going to a number of work places in a day, carrying heavy equipment and some other circumstances may allow these journeys to be deductible. 

Contact our office on 4773 4088 if you need further advice.

Capital Gains Tax Can Be Tricky – That’s Why We’re Here To Help

If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.

The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. A CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.

The Sale Of An Asset

If there is a contract of sale, the CGT event happens when you enter into the contract.

A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.

If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.

Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.

Loss Or Destruction Of An Asset

If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction.  In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost.

If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).

The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:

  • receipts of purchase, transfer or sale
  • if money was borrowed and details of interest
  • receipts for insurance, rates and land taxes
  • receipts for the cost of maintenance, repairs and modifications
  • any market valuations
  • brokerage on shares and cryptocurrency
  • digital wallet records and keys.

Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).

If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigmarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission. We often have our clients make an appointment with us to calculate any CGT tax.  Most people use that money when they sell an asset so it makes sense to find out how much the tax will be and put  aside sufficient for the time when they lodge their tax return. It is certainly worth the cost of a visit.