Dual Cab Utes – the ATO is on the lookout

Peter Cramer

Dual cab utes have become very popular over recent years – and sales are booming.  One reason is that due to the general improvement of dual-cab utes, including the size and comfort of the vehicles, many business owners are purchasing these vehicles for use as a family vehicle to go to the beach, tow caravans and other private purposes as a way to “avoid” fringe benefits tax.  (Fringe Benefits Tax rules apply to vehicles owned and operated through Companies or Trusts, or through Partnerships where the vehicle is made available to employees or associates of employees).

There are Fringe Benefits Tax exemptions available for vehicles not principally designed to carry passengers. There are specific formulas to determine whether vehicles are classified as exempt vehicles, however they generally include utes and vans. Included in this exemption are some dual-cab utes.  The ATO’s guidelines allow “minor, infrequent and irregular” private use. This includes travelling to and from work. It does not however extend to trips to the beach, the supermarket, on holidays, amongst other things. With many dual-cab utes costing more than $50,000 this could end up being a nasty surprise if you don’t hold a log book and are found to have breached the exempt vehicle guidelines. As an example, a $50,000 vehicle used for private use without a log book may incur an annual FBT liability in the vicinity of $10,000.

The ATO is tightening up the rules to catch situations where the Dual Cab ute is used more as a family vehicle rather than 100% for work.

The ATO is considering new rules that will allow up to 750 kms of private travel in company cars each year as long as no single return journey exceeds 200kms. Employees can make small diversions between home and work, as long as the detour adds less than two kms to their total trip.

Once the rules are breached, one cannot argue the ute is all business – and a log book should be used to prove the actual business use.  So, if the ute spends time at the footy every Saturday and is seen towing the van to the holiday destination, you may have a problem!

To be safe, we would recommend that where a dual cab ute is owned but is not solely used for business (eg drops the kids at School regularly, goes on holiday with you and goes to footy) that you prepare a 12 week Log Book to prove the business use.  This should be a very high business use percentage we would expect – and it will provide protection in the event of the ATO arguing it is not all business.  Without a Log Book – you cannot ‘say’ it is ‘mainly business’ or ‘would be at least 95%’ – if you fail the 100% test you will be left with very little to claim!

(All it would take would be for the ATO to drive around the car parks of footy, holiday parks and so on and cross check the number plates back to registered owners and then tax returns….  Alternatively they will ask you in an audit situation as to the actual use of the vehicle.)

Better to be safe than sorry!

(Acknowledge to an article by Pitcher Partners as a basis for the above.)