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 

1. Choose your approach: During tax planning discuss with your accountant which option you will be relying on (FBT law or ATO practical guidance). 
2. Check eligibility: confirm the vehicle design and private-use limits. 
3. Keep documentation: written policy, annual declarations and odometer readings (if required). 
4. 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). 
5. 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. 
6. 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. 
7. If required, lodge your FBT return by the due date and ensure any reportable fringe benefits are included on employee income statements. 

⏰⏰⏰ The ugly truth about TIMESHEETS – what old school accountants don’t want you to know about how they charge when they bill you by the hour ??

You may not realise this but ‘Old School’ Accountants charge by the minute.

They are driven by timesheets.  

What’s the problem with your accountant charging you using timesheets?

The problem is this…

If the accountant wanted to make more money out of you, what does he need to do?  

“Take longer,” you say?

And you would be correct … he could take longer.  

But the ugly reality that I’ve seen is this –

“an accountant who does timesheets could either take longer to make more money out of you, or he could just “SAY” he took longer.”

It’s like a dirty Donald Trump locker room secret that most accountants don’t want you to know about – a practice called “TIMESHEET PADDING.”  

I’m guilty.  I’ve fabricated some pretty spectacular timesheets in my time.  

But I was expected to by my employer in order to ‘meet budget’.  

That’s why I went out on my own to start INSPIRE CA and why we price our jobs UPFRONT and GUARANTEE that your investment in our fees will pay for themselves many times over in tax saved.  

So next time you receive a bill from your Accountant ask him or her if they use timesheets to charge and if instead, they could move you to a fixed price or upfront fee so that you know exactly how much your bill will be.

 

Got a burning question about using Business Structures to save tax and create a family vault?  

Book in, to TEST DRIVE AN ACCOUNTANT – a 15 min rapid fire Q & A session with an Inspirational Accountant.

Are Coffee Meetings Tax Deductible?

Ever wondered if coffee meetings are tax deductible?

Anyone who knows me, knows that I’m a big coffee freak. I have about 3 or 4 cappuccinos every day. My favourite coffee shop is Bellissimo. You’ve got to try it. It’s around the corner from Inspire and there’s also one around one from my house. I get it everywhere.

I was down there meeting with a prospective client the other day. I shouted the coffees, of course. I went to pay for the coffees and the kind girl behind the desk asked me, “Would you like a tax invoice?” It made me think, why would I need a tax invoice? Are coffee meetings tax deductible? So I went back to Inspire and asked the accountants this very question:

“Are coffee meetings tax deductible? What about other meetings that include food, are they tax deductible too?”

 

Here’s what they told me:

You can claim meals while you’re traveling overnight.

If you’re an employee going off to a conference, and you’re away from your usual home, then you can claim that meal.

There’s guidance from the ATO, but budget for about a hundred dollars per night. That means you might be able to go to the coffee club and grab a Bolognese, but I wouldn’t really be going to Jamie’s Italian and getting a full course meal.

You can claim meals supplies as a working lunch.

Say you got a team, this happens quite regularly during tax time, we’re really busy and we tend to work late. We go out and buy Domino’s. That’s fine because that’s all part of keeping the progress going, with regards to our work. If it’s related to our team being able to continue working, then that’s okay.

You can claim meals supplied from an in-house canteen or café.

I know this really cool engineering business in West End, who have a chef in-house and they supply meals to their team, throughout the day. What a great place to work? These items would be tax deductible and exempt of FBT.

You can claim snacks on the road, while you’re going as a business owner.

As a business owner, you might be out and about, meeting with clients throughout the day. Grabbing a coffee and a muffin, here and there, while you’re doing your day-to-day work is A-okay. Again, you’ve got to be reasonable. The ATO isn’t stupid. If you’re putting through 7-course at a gas station lunches, instead of a coffee here and a muffin, it’s probably not going to go down so well.

So there you have it! The 4 rules, with regards to how to make coffee meetings and meals tax deductible.

 

To conclude, My advice to you, as a fellow business owner is to:

1. Focus on whatever investment you make into your business, whether it’s a coffee meeting here or whether it’s a Facebook ad there.

2. Ask yourself the question, ‘What is the return on investment you’re going to get from that?’ I always try to aim for 5 to 20 times our way. This is the focus point for you as a business owner, if it turns out to be tax deductible as a result, well bonus. If it isn’t, move on. There’s no point in trying to spend an hour trying to make a 20 cent tax savings on an orange mocha Frappuccino that you had on the weekend than risk that concern and anxiety that might come from being audited.

3. And most importantly, focus on the biggest bang for your buck!

 

Got a burning question about Tax, Your Accountant or Business Structures that can save you even more?

Book in to TEST DRIVE AN ACCOUNTANT – a 15 min rapid fire Q & A session with an Inspirational Accountant.

Where to legally store your excess profits, so the tax man doesn’t take half. (HINT: It’s not in Panama!) ???

Imagine you’ve got an amazing business that is trading through a Trust.

You take out some profit to feed yourself, feed your family, put the kids in school and live comfortably.

But you still have some excess profit left over!

If you take it out, you’ll have to pay up to 49 percent tax.

What do you do?

Now the strategy here is actually to set up a company.

The purpose of this company is to receive a distribution from your business.

It’s a distribution of profits of your business.

So here’s where the tax savings come in …

Individuals pay up to 49 percent tax, but companies when they’re receiving a distribution from a trust, they only pay 30 percent tax.

So paying that profit to a company instead of an individual will save you 19% tax – 49% minus 30%.

Important:  You can’t just do this distribution ‘on paper’.

The cash must go from your business into your company and into the company bank account.

Then you can use that money to invest in anything else like commercial property, residential property, you can invest in shares with the money in the company.

You may know these company structures by the following names –

• A company
• A Pty Ltd
• A corporate beneficiary and even
• A Bucket Company

I like to think of it as your “Family Vault”.

It’s a smart place to store the profits your business AND reduce the amount of tax you’re paying.

Got a burning question about using Business Structures to save tax and create a family vault?  

Book in, to TEST DRIVE AN ACCOUNTANT – a 15 min rapid fire Q & A session with an Inspirational Accountant.

 

Pay Less, Little and No Tax in SMSF. It’s legal.

In every Self Managed Super Fund there are 2 sides.  An Accumulation side and a Pension side.

Using Harvee’s plane analogy from the beginning, the accumulation side or phase of an SMSF is when the fund is actively growing.  The same as when that plane is climbing to new heights.  You can’t touch any of that money while it’s in accumulation and that accumulation side has a set tax rate of 15% on what it earns.

So step 1 in controlling taxation is saving tax on contributions.

For example, I contributed $30,000 this year into my Family Super Fund – it’s called the Keshi Super Fund, named after a family dog I used to walk.

If I chose not to dump the $30K into super, I would have paid tax on that $30,000 at my highest marginal tax rate of 49%.

So by putting $30,000 towards my goal of becoming a Self Made Success, I saved $10,200 tax because as I’m in accumulation, I paid at only 15% instead of 49% – my plane is ascending!

Now fast forward 33 years and my wealth plane has been ascending higher and higher, it’s 2049 and I hit what is called preservation age, which means the government allows me to start accessing my super.

The plane begins its descent towards landing at retirement, so I am allowed to bring some of my assets in the SMSF over to the Pension side.

Any idea what the tax rate is on the Pension Side?

Zero percent.  Booyah!

So that $30,000 I contributed last year, not only did I save $10,200 on the contribution, but so too did the other 3 members in my Family Super Fund.

With the $120,000 now in the fund, from 4 members contributing $30,000, we used that as a deposit to buy a $500,000 Commercial Property.

If we held on to the property for 34 years, and let’s say it doubled in value over that time and it’s worth $1,000,000.

I can sell the property when the SMSF is in pension phase and pay ZERO tax on that $500,000 capital gain.

WOW, WOW, WOW.

Just to give you some context, If made the exact same property deal but brought it in my own name, outside of super, I would have had to pay $122,500 tax (based on my top marginal tax rate of 49%)

So that’s how the Accumulation side and Pension side of an SMSF work – 15% in accumulation 0% in Pension.

But that’s not all …

What if I told you we could use negative gearing inside of a Super Fund to turn that 15% tax rate in the accumulation phase, down to ZERO?

That is legit possible.

There’s thousands of us SMSF Millionaires who implement this strategy every day.

Week 3 of the Become a SMSF Millionaire, 12 week course the lesson is called “The SMSF Millionaire’s guide to paying Less, Little and even NO tax in your SMSF”.  It’s very hard to get ahead if 50c of every dollar you earn is going to the Tax Man.

 

You can watch the entire Become a SMSF Millionaire Web Class at www.smsfmillionaire.com/go

Accelerated Asset Depreciation – 100% deduction NOW if it’s under 20 k.

How does this strategy work?

You buy an asset.  

A car for example.

For running around doing quotes onsite.

Its value will GO DOWN (aka depreciate) over time.

So the tax man lets you claim that depreciating value – Thanks, Tax Man!

The key to THIS strategy is the magic number of $20,000.

If the asset is $20,000 and under you get 100% tax deduction NOW.

Option 1 (Without Tax Planning):  Buy a company car for $20,001.

You can claim depreciation … bit by bit over the next 8 years.  Sad Face.

(If you want the detail, here’s how much depreciation you could claim in the first year: Only up to a maximum of $5,000 in the first year, but this amount gets lower the further into the financial year that you buy it.  If you buy the car on 30 June, you would only get a $13 tax deduction!! boring…)

Option 2 (With Tax Planning):  Buy a company car for $20,000.

You get a 100% Tax Deduction this year.  Woohoo!

By purchasing an asset $20,000 and under, you’d  save $9,400 tax, when compared to paying 47% tax in your own name.

BOOM.

So if you were already shopping for a new asset for the business, remember the magic number – $20,000.

• The Coffee Machine for the Cafe
• The Squat Rack for the Gym
• The Drill for the Sparky
• The Abacus for the Accountant (lol)
• The Scanner for the Doctor
• The Microphone and Laptop for the Podcaster
• The Deep Fryer for the Cook
• The Pole for the Dancer
• The Table for the Physio
• The Camera lense for the Photographer

What do you need to implement this strategy?

• A Business that turns over under two million dollars ($2,000,000)
• An invoice for an asset under $20,000 or under $22,000 if you are GST registered and the expense has GST on it.
• A chat with an Inspire Chartered Accountant – www.calendly.com/inspireca.
• To take action prior to 30 June.

 

FAQ’s: Accelerated Asset Depreciation.

Why have I never heard about this strategy?

This strategy has been around since May 2015.

Your accountant should have made you aware if they’re a good adviser for your business.

Why $20,000?

This is the limit that the ATO advised in the May 2015 budget.

What if I turn over more than $2,000,000 can I still use the strategy?

No, sorry.  The strategy is only available for what the ATO calls ‘Small Businesses’ – those who turn over less than $2,000,000.

 

NEXT STEPS:  You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.

 

Make Additional Super Contributions to reduce your tax

How does this strategy work?

You may be aware that superannuation is the best investment vehicle for tax purposes out there.
It’s also easy to put this in the back of your mind for a number of reasons.

You might think:

1) “I can’t touch it now, so why bother…”

2) “There’s hardly anything in there, so I’m going to concentrate on making money in my business.”

3) “The laws change every five minutes, I’d rather not worry about it.”

But while those thoughts may have an element of truth, there are some very effective ways to incorporate your superannuation into a broader wealth creation and tax planning strategy.

For instance, you can:

1) Use your superannuation to purchase your business premises, even if you don’t have the full amount in super

2) Pay 15% tax on earnings on your superannuation if you’re accumulating a balance.

3) Pay 0% tax on earnings if you’re drawing a pension (with conditions, if you’re over 55).

 

So here’s how the numbers would crunch.

The example we’ll use is where your taxable income is $200,000.

 

Option 1 (Without Tax Planning):  Pay in your own name

The tax rate in your own name would be at individual rates, of up to 47%.  

So you’d be up for $67,547 Tax.

Ouch!

 

Option 2 (With Tax Planning):  Contribute $22,000 to Super prior to 30 June.

Your taxable income would reduce to $178,000.

By contributing $22,000 to super prior to 30 June you’d save $7,040 in tax, when compared to paying in your own name.

What do you need to implement this strategy to make additional super contributions?

• A Business.
• Cashflow available put into super.
• A chat with an Inspire Chartered Accountant – www.calendly.com/inspireca.
• To take action prior to 30 June.

 

FAQ’s: Super contributions to reduce tax.

Do I ever get taxed on money in Super?  If so, when?

Yes, you get taxed at 15% in super for everything you contribute and claim a tax deduction for.

This 15% is paid by your super fund when they lodged the tax return (if you own an SMSF); or the tax is taken straight from your balance when you deposit it if you are using a public super fund.

 

Is there a limit as to how much I can put into super?

Yes, there sure is.

The limit is $30,000 if you’re 48 years old or younger.

And $35,000 if you’re 49 years, plus.

The limits are a lot higher (up to $540,000) if you’re making the contributions from after tax money.

What happens if I don’t have the cashflow to put into super?

To get the tax deduction, the super needs to be paid by 30 June of the year.

Make Additional Super Contributions now before your opportunity is missed for another year.

If I have many family members, can we pool our Super limits?

A super limit is per person.

And yes, you can contribute the $30,000 or $35,000 for each person.  It will end up in their own super account, though, so for instance, you cannot ‘borrow’ a super limit from another family member and pay yourself $40,000 instead of $35,000.

 

 

NEXT STEPS:  You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.

 

 

Ben Walker of Inspire SMSFS Pty Ltd (1243433) is an authorised representative of Finance Wise Global Securities Pty Ltd ABN 60 146 708 045.  Finance Wise Global Securities Pty Ltd holds an Australian Financial Services License (No. 397877).

Distribute to your Children Under 18 – Tax Planning Strategies to action prior to 30 June

How does this distribute to your children strategy work?

Discretionary Trusts are great for Young Families in Business as they give you… you guessed it, DISCRETION.

In fact they’re more well known as Family Trusts.

They give you discretion about who pays tax, how much they pay and potentially when it’s paid.

So let’s combine the power of discretionary trusts with the fact the you have a bunch of little ones running around the house!

The example we’ll use is where your taxable income is $200,000.

Remember all those dirty nappies, sleepless nights & Saturday morning sports events?  

Well the ATO is about to reward you for being a busy parent juggling a family and a business!

Option 1 (Without Tax Planning):  Pay in your own name

The tax rate in your own name would be at individual rates, of up to 47%.

So you’d be up for $67,547 Tax.

Ouch!

Option 2 (With Tax Planning):  Use your Discretionary or Family Trust to distribute $416 to each of your Children under 18.

Let’s say we you have 3 little ones under 18…  

• That’s $416 to little Johnny.
• Another $416 to baby Sarah.
• And a final $416 to Mikey aka “Wreck It Ralph”.

With 3 kids, you’d reduce your taxable income by $1,248 which would means you’d save $586 in tax, when compared to paying in your own name.

What do you need to implement this strategy?

• A Business.
• A Discretionary or Family Trust.
• Kids under the age of 18.
• A chat with an Inspire Chartered Accountant – www.calendly.com/inspireca.
• To take action prior to 30 June.

FAQ’s: Distributing income to your Children.

Why $416?  Seems low…

Many years ago, this used to be a few thousand dollars for each child.

The ATO has reduced the limit over the years, and it now sits at $416 per child.

What about Children OVER the age of 18?  Can I distribute to them too?

In most cases, yes – which (depending on their circumstances) massively increases the tax savings! #FistPump

My wife is pregnant and baby is due after 30 June, can I still flick $416 to the bun in the oven?

Nice try… but no.

They have to be born before 30 June to count.

Do step kids count?

Yes.  

Most trust deeds will allow this if you’re married or in a de facto relationship with their mother or father.

We have adopted children, do they count?

Yes – so long as they legally your children.

Do I have to actually give them the $416?  They  already cost me more than that a week!

The fact that you’re already supporting them more than $416 in the year, means that you have already given the money to them (or paid for expenses on their behalf worth more than $416).

So you don’t need to give them $416 in pocket money! Phew!…

So you’re telling me, if I have 15 children, I could bring my taxable income down by 15 x $416?

Yes, that’s right.

Tax free income of $6,240.  (A saving of $2,933 in the example above!)

 

NEXT STEPS:  You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.

 

Write Off Bad Debts

How does this strategy work?

Let’s say you are a plumber, and builders are your clients.

You send them invoices regularly for your work.

Sometimes they pay.

Sometimes they don’t.

There always seems to be a dispute.

Let’s say for a $1,000 invoice you send, the builder pays $800 but refuses to pay the last $200.

He claims your guy never showed up on that day (even though he did!)

So you chase up the $200.  You ring, you sms, you email, you knock on doors, you send ‘the boys’ around.

Nothing.  Zip. Zilch. Nada.

The $200 sits on your Debtors Ledger aka “Your list of people who owe you money!”.

The $200 becomes BAD…

No, the debt didn’t grow a beard, nor did it start wearing a black leather jacket and start smoking.

It’s BAD because it’s likely you’ll never get it back!

You’ll probably spend more than $200 just chasing the damn thing.

Same principle applies if the builder went bust.

It’s bad.

While $200 doesn’t sound like a lot, this scenario is pretty common in the Building Industry.

This scenario needs to happen just a few times over a couple of years and you’ve built up a WHOPPING $12,000 in Bad Debt.

So here’s how the numbers would crunch.

The example we’ll use is where your taxable income is $200,000.

Option 1 (Without Tax Planning):  Pay in your own name

The tax rate in your own name would be at individual rates, of up to 47%.

So you’d be up for $67,547 Tax.

Ouch!

Option 2 (With Tax Planning):  Write off $12,000 worth of bad debt.

Your taxable income would reduce to $188,000.

By writing off $12,000 of Bad Debt, you’d save $5,640 in tax, when compared to paying in your own name.

What do you need to implement this strategy?

• A Business.
• Bad Debt
• Evidence of your attempts to recover – emails, phone calls, death threat letters (complete with cut out magazine letters)
• Evidence of your decision to write the Bad Debt off – a meeting minute will do.
• A chat with an Inspire Chartered Accountant – www.calendly.com/inspireca.
• To take action prior to 30 June.

FAQ’s: Write Off Bad Debts.

What happens if I write off a Bad Debt and then it gets paid back?

While this situation should be rare if you’ve written off the bad debt, you’ll need to add it to your profit in the year that it was paid to you.

How do I avoid Bad Debt in the first place?

Change your business model, so you receive the cash before you carry out the work!

Have a read of the article we wrote on this called  “How to get paid faster – step 2 of 5 ways to make your business work for YOU!”

Is there a limit on the Bad Debt that I can write off?

No.

If a debt is bad, it’s bad!

Let’s write off bad debts and move on.

When does a Bad Debt become Bad?

While it isn’t definitive, here’s some considerations:

• Must not have a chance of receiving the money
• Must have proof of following up and doing what you can to recover the amount, even though unsuccessfully
• You MUST have considered the debt Bad, before 30 June of the year you write it off

Bad Debt and Debtors are affecting my cashflow, what advice would you give?

This signals that something isn’t right in your business.

It could be your:

• Pricing strategy
• Quality of your product or service
• Clients you’re choosing to work with
• When you take payment for your services

But something is out of kilter.

NEXT STEPS: 

• Book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.
• Attend our Cash Rich Business Workshop where we will spend 2 hours walking you through the exact step by step process to become a far more profitable business than you currently are. https://inspireca.com/events