Private use of Motor Vehicles by Employees and FBT

The ATO has turned its attention to the fringe benefits tax (FBT) implications of employees’ private use of work vehicles.

The ATO believes this is an area that is frequently overlooked by employers.

If your business supplies work vehicles to employees, it’s essential to understand how the vehicles are being used and whether any FBT exemptions apply.

Note: Directors are considered employees for FBT purposes even if they do not receive a wage.

When FBT Applies

FBT generally arises when a work vehicle is made available for private use, even if it is not actually used for private purposes.

Private use includes any travel that is not directly related to the employee’s job, such as:

Taking the vehicle on beach or camping trips

School drop-offs and pick-ups (even if on the way to or from work)

Running personal errands (such as grocery shopping)

Transporting friends or family for non-work purposes

Parking the vehicle at the employee’s home, even if this is for security reasons

Important: Carrying tools or work equipment in the vehicle does not change the nature of a personal trip.

If the vehicle is driven for a personal purpose, for example, a weekend outing or a holiday, it is still private use, even if the tools stay in the back.

Exemptions for certain vehicles

Some vehicles, such as specific types of utes, panel vans, or other commercial vehicles, may be exempt from FBT if:

Option 1: FBT law

Vehicle is not principally designed to carry passengers.

Private use is minor, infrequent and irregular (e.g. occasional dump run or moving house). “Limited to 2 or 3 occasions in an FBT year”.

Home-to-work travel is allowed.

An employer written policy or employee declaration is not required under law (but strongly recommended)

Option 2: ATO Practical Compliance Guideline

PCG 2018/3 gives businesses a clear compliance “safe-harbour” if you meet its rules, the ATO will generally not review your exemption.

To qualify, all the following are required:

The vehicle is provided for work purposes.

A written policy is in place setting out the allowable private use.

The employee signs an annual declaration confirming their use stayed within limits.

The vehicle is below the luxury car tax threshold.

The vehicle is not salary-packaged or part of remuneration.

Private use is limited to:

Home-to-work travel with minor detours up to 2 km each way; and

Other private trips totalling no more than 1,000 km per FBT year, with no single return trip over 200 km.

Regular weekend trips or holidays disqualify the exemption, even if the vehicle carries work tools or equipment.

What Counts as a “Written Policy” and “Employee Declaration”?

Under PCG 2018/3, both are essential to demonstrate limited private use.

Written Policy

Your business should have a short document or email that:

States the vehicle is provided for work purposes only;

Defines what private use is permitted (e.g. home-to-work travel and small detours only);

Confirms personal trips must not exceed 1,000 km total or 200 km for any single trip;

Explains that any other personal use is not allowed (limited to the above); and

Requires employees to notify you if their use changes.

This policy doesn’t need to be long, one page is enough, but it must exist and be shared with the employee.

Employee Declaration

Each FBT year, the employee should sign a simple statement confirming:

The vehicle was used mainly for work purposes; and

Any private use was within the limits set by the policy.

You can use the ATO’s approved declaration template or your own version with the same information.
Keeping these records shows the ATO you’ve actively managed compliance — not just assumed an exemption applies.

If Not Eligible for an Exemption — Valuation of Benefits

Vehicles – Under 1 tonne carrying load (car)

Value the fringe benefit using:

Statutory Formula Method; or

Operating Cost Method (you will need a “logbook” to be able to use this method)

Vehicles – Over 1 tonne carrying load (non-car / residual benefit)

Value the fringe benefit using:

Operating Cost Method (“logbook” method); or

Cents-per-km Method (if private travel is limited):

0 – 2500 cc – 69 cents/km (62 c in 2026)

Over 2500 cc – 80 cents/km (73 c in 2026)

Motorcycle – 20 cents/km (18 c in 2026)

Note: If you do not have a logbook for vehicles over 1 tonne and the vehicle is not eligible for an exemption, the private use percentage will default to 100% when using the Operating Cost Method.
This means the entire cost of operating the vehicle becomes taxable for FBT purposes.

Common Issues Identified by the ATO

Treating private use as business use

Assuming all dual-cab utes are automatically exempt

No written policy or declaration when relying on PCG 2018/3

Poor record-keeping missing logbooks or odometer readings

Failing to lodge or pay FBT when required

How to Manage the Risk

Choose your approach: During tax planning discuss with your accountant which option you will be relying on (FBT law or ATO practical guidance).
Check eligibility: confirm the vehicle design and private-use limits.
Keep documentation: written policy, annual declarations and odometer readings (if required).
Maintain a logbook even if you are not required to do so. It’ll give you more valuation options (depending on the car carrying load).
Ask your accountant to calculate the FBT taxable value using the most appropriate valuation method: Statutory Formula, Operating Cost, or Cents-per-km, whichever yields the lowest tax outcome for your situation.
Discuss with your accountant whether employee after-tax contributions can be made to reduce or eliminate the taxable value of the benefit and avoid paying FBT altogether. A very common practice.
If required, lodge your FBT return by the due date and ensure any reportable fringe benefits are included on employee income statements.