Debunking a myth about utes and SUVs

Amid recent social media chatter – a source often questionable for tax compliance information – there’s been talk of the Federal Government offering “subsidies” for Australians purchasing utes and SUVs.

Spoiler alert: Such subsidies are nonexistent!

The Federal Government does not provide cash handouts or tax refunds to people who decide to purchase a ute or SUV rather than a sedan. But it’s important to note for tax planning that where an employer provides an employee with a motor vehicle for private use, the employer will be required to pay Fringe Benefits Tax (FBT) on what is called the “grossed-up taxable value of the benefit”.

Potential exemption from FBT for certain vehicles

However, for FBT purposes, some vehicles may qualify for an exemption from FBT. That said, what is often overlooked is that exemption from this tax is contingent on two things.

Firstly, the vehicle in question needs to be eligible for the exemption.

Secondly, the private use of the vehicle (beyond home to work/work to home use) must be “minor, infrequent and irregular”. An accurately kept ATO logbook will help you determine the extent of private use.

Vehicles eligible for FBT exemption

• Single cab utes
• Panel vans or goods vans
• Motorcycles
• Vehicles with a net carrying capacity of at least one tonne (1,000 kgs)
• Other vehicles principally designed to carry goods rather than passengers where the net carrying capacity is less than one tonne

SUVs and the FBT exemption myth

In the case of vehicles principally designed to carry goods rather than passengers, where the net carrying capacity is less than one tonne, this is where some (but by no means all) SUVs could be an eligible vehicle. To qualify for this tax exemption, there are several hoops to jump through where the net carrying capacity (gross vehicle mass less kerbside weight) of a vehicle such as an SUV is less than 1,000 kgs. For such vehicles, at least 50% of the carrying capacity needs to be for carrying something other than passengers to be eligible for this tax exemption.

The carrying capacity is determined by taking the number of people the vehicle can legally carry (driver plus all passengers) and multiplying this amount by 64kgs. If the resultant amount is less than 50% of the net carrying capacity, the vehicle could be an eligible vehicle.

Using the 2024 Toyota Rav4 Cruiser 2WD 2.5L Hybrid as an example:

• Gross vehicle mass: 2,185 kgs
• Kerbside weight: 1,700 kgs
• Net carrying capacity: 485 kgs
• Passenger capacity calculation: Five passengers (including driver) at 64 kgs each totals 320 kgs.

This puts the SUV’s carrying capacity for passengers at 65.98%, meaning it does not qualify for an FBT exemption, as it exceeds the 50% threshold.

Private use other than home to work is minor, infrequent and irregular

Even if a business owner or employer has correctly understood the complicated tax compliance regulations in relation to what kind of motor vehicles can potentially qualify for this FBT exemption, that’s not all. A common mistake is to forget that even for eligible vehicles, accessing compliance for an FBT exemption is contingent on how the vehicle is used.

In particular, the private use of the vehicle, above and beyond home to work travel, needs to be “minor, infrequent and irregular” to access this FBT exemption.

Unfortunately, the FBT legislation does not define what is meant by the expression “minor, infrequent and irregular”. However, in PCG 2018/3, the ATO suggests that private journeys (excluding home to work) need to be less than 1,000 kilometres and no return trip exceeds 200 kilometres, in order for the exemption to apply.

Let’s take a moment to think about this. 1,000 kilometres divided by 52 weeks is less than 20 kilometres per week — which is very restrictive.

In addition, the safe-harbour in relation to private travel (excluding home to work) of up to 1,000kms in PCG 2018/3 is only available if another set of stringent criteria have been satisfied. For example, the vehicle cannot be provided under a salary packaging agreement. That said, it still provides a useful reminder that private travel (excluding home to work) genuinely needs to be limited in order for the FBT exemption for potentially exempt vehicles to be applicable.

Based on ATO advice where the private travel, beyond home to work/work to home travel, should be no more than roughly twenty kilometres per week, we can see just how difficult it is to access this particular tax exemption compared with other ATO motor vehicle expenses.

Key takeaways

The main thing to consider in your tax and compliance planning is that there are no specific Federal Government subsidies or tax exemptions specifically for utes and SUVs.

The FBT exemption that can potentially apply to such vehicles, where they are provided as a benefit by an employer to an employee, is heavily contingent upon the vehicle in question meeting certain requirements and that the private use of the vehicle (beyond home to work travel logged in your ATO logbook) is strictly minor, infrequent, and irregular.

If you’d like to discuss whether you meet the tax compliance criteria for the FBT exemption discussed above, please contact our LDB Taxation Specialists on (03) 9875 2900.