Can a double cab ute qualify for the work related vehicle exemption from FBT. We were asked this question recently at a TaxLab FBT training course.

The answer is yes, it can qualify. However, just because the vehicle is a double cab ute doesn’t mean you automatically get the exemption.

Work related vehicle FBT exemption

A work related vehicle creates a fringe benefit on any day that it is available for private use (the same as when other vehicles are available for private use). However, travel between home and a business premises (and incidental use) is legislatively excluded from being private use, provided that

• the travel is in a work related vehicle; and
• the travel is necessary and is a condition of their employment.

What’s a work related vehicle

Four tests must all be met for a vehicle to be a work related vehicle

1. The vehicle must not be a car (Inland Revenue’s view is that to meet this test “the principal design of the vehicle cannot be for carrying passengers”); and
2. The exterior of the vehicle must permanently and prominently display the name of the employer, or the business logo, acronym or other identification; and
3. The employer, must have notified the employee in writing that the vehicle is available only for travel between home and work (or travel incidental to business travel); and
4. The employer conducts and records checks to ensure that employees are actually following this restriction in real life.

Common errors

The exemption is very narrow. Most overlooked is that the exemption only covers exclusive driving between home and a business premises. If the employee uses a work related vehicle even once for private use (e.g. driving from home to the supermarket and back again) then the Inland Revenue will consider that the vehicle is always available for private use.

Also commonly overlooked is that the travel must be necessary and a condition of employment (a written condition in the opinion of Inland Revenue).

Partial exemption for weekend use

Inland Revenue does allow a partial exemption, essentially allowing employees to use a work related vehicle on weekends and public holidays only. The work related vehicle

• must not be available for private use for most of the week; and
• can only be available for private use on certain days (for example, weekends and statutory holidays). These days would attract FBT.

Annual FBT returns (IR 422) – Small business option

Annual FBT returns (IR422) can be filed instead of quarterly FBT returns, if you meet one of the following criteria, and you make an election before the due date:

• Gross tax and ESCT for the previous year is $500,000 or less; or
• You were not an employer in the previous year.

If you make an election, you must send it to Inland Revenue by the due date. If they do not receive it by the due date, then you will need to file quarterly returns for the year. Refer to the Income Tax Act 2007, RD 61 Small business option for more details.

Income year FBT returns (IR421) – Close company option

Income year FBT returns are different to annual FBT returns. It is based on a non-standard balance date. You can elect to use the Fringe benefit shareholder/employee tax income year tax return (IR421) if:

• your company has shareholder-employees only, and your annual gross tax and ESCT are less than $500,000, or
• you are a closely held company and you only provide motor vehicles for private use to shareholder-employees and that benefit is limited to 2 vehicles.

This return covers the accounting year of your company. You should file it by the due date for paying end-of-year income tax. Refer to the Income Tax Act 2007, RD 60 Small business option for more details.

Use FBT Software to file annual FBT returns

You should consider using FBT software to prepare returns, including annual FBT returns and income year FBT returns. It is the fastest, most efficient way of completing even small returns and is accurate and fully documents the attribution calculations. Contact us today to find out more.

FBT returns can be time consuming and stressful. However, by utilising the legislation to its fullest you can minimise your FBT cash liability every quarter. Using some basic FBT rules to your advantage and approaching FBT compliance in a different way will benefit you. There are large savings to be made. Here are 5 ways you can pay less.

Alternate rate option

Reduce FBT by using the alternate rate option. Many employers avoid it due to its complexity. Yes, its complicated but in our experience the cash savings of attributing fringe benefits to employees is generally worth it.

De-minimis exemption

Actively structure unclassified benefits within the $300 per quarter de-minimus exemption to reduce FBT. This is often an afterthought, use it to your advantage.

Optimise pooling

Optimise pooling to reduce FBT by selecting the most efficient FBT option for each category (you can pay FBT using attribution or the pooling rate). In general, use the pooling rate where the majority of benefits in a category are provided to highly paid employees, attribute when not.

Speak to a FBT specialist about your FBT returns

FBT specialists can reduce your fringe benefit profile. Yes we know they are expensive but they know what they are doing and understand the legislation, which goes much deeper than the FBT guide. The fringe benefit rules are complicated and opportunities are often overlooked by businesses because the detail of return compliance often gets in the way of smart thinking. We recently set up a client in our software and discovered they had been overpaying thousands of dollars of FBT every quarter for the last 8 years. A simple conversation with their tax advisor would picked up the issue.

Reduce compliance costs

Spend less time preparing calculations and returns to reduce compliance costs. OK, not strictly a tax saving but a compliance cost saving but its a cost all the same. We have helped people reduce time spent from days to hours by introducing purpose built FBT software, robust process and efficient sense checking.

FBT return season is about to begin. For most employers this means that FBT returns should soon be on your radar.

FBT return due dates

Inland Revenue should automatically send you the applicable FBT return form well before the filing due date.

Quarterly FBT returns (IR 420)

• Q1 FBT return | period from 1 Apr to 30 Jun | due 20 Jul
• Q2 FBT return | periof from 1 Jul to 30 Sep | due 20 Oct
• Q3 FBT return | period from 1 Oct to 31 Dec | due 20 Jan
• Q4 FBT return | period from 1 Jan to 31 Mar | due 31 May

Annual FBT return (IR 422)

• Full year return | period from 1 Apr to 31 Mar | due 31 May

FBT return preparation

Those of you who have been through an FBT compliance cycle before will know that leaving it to the last minute isn’t a great idea, even if you only have a couple of employees or very few benefits. For those of you about to go through a 31 March year end as well don’t let FBT fall off the radar.

If you run short of time (and if you have the option) you may be less inclined to attribute benefits and more inclined to pay FBT at the flat 61% rate, simply because it is easier. In our experience, paying at 61% can have a significant cash cost penalty over attributing so you don’t want to end up paying it just because you ran out of time. At the least, you should consider the “short form alternate-rate calculation”.

We suggest starting at least 15 working days before the due date – more if your team is inexperienced or if you are using spreadsheet or paper-based calculations.

Collating data

The first step is collating the data you need to complete the return. Sourcing this data for a final quarter or annual return attribution calculation will usually involve accessing several systems as you need payroll and expenditure information and may need detail around motor vehicle loan calculations etc. This is often the most time consuming or delaying part of the process so we recommend you start collating data as soon as is practical.

Calculations

Unless all of your employees earned more than $70k in the year, attribution will save you cash. Correctly utilising motor vehicle pooling rules, de minimis rates and non-attributed benefits will further mitigate FBT payable, although it can be tricky if you are not familiar with the rules.

Checking your work

We recommend sense checks and a second set of eyes as a minimum. Reviewing benefits per employee, employees per benefit, employees who left during the year and non-attributed benefits will help flush out any anomalies or things you may have missed.

Filling out forms

The forms are fairly simple, just remember that the final quarter return is on the same IR420 form as you used for the first three quarters, you just complete it in a slightly different way.

To make things easier, open a user account with :companyname.