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ATO cracking down on common tradie tax 'myth': 'Be careful'

The ATO says it is “concerned” people are not aware of their fringe benefits tax obligations, particularly when it comes to dual cab utes.

Tradies and ute
The ATO said it is a common "myth" that dual cab utes, like the popular Toyota Hilux, are not subject to fringe benefits tax. (Source: AAP)

Tradies who use their work ute for personal purposes will be under the spotlight this tax time. The Australian Taxation Office (ATO) is cracking down on tradies who are wrongly dodging fringe benefits tax (FBT).

Dual cab utes like the Toyota Hilux and Ford Ranger are now the most popular cars sold in Australia, with the cars flexible enough to use as a workhorse during the week and for family on the weekend. But contrary to popular belief, they can be subject to FBT.

“There is a myth out there that FBT doesn’t apply to dual cab utes. While there is an FBT exemption for eligible commercial vehicles this only applies if the private use is limited,” an ATO spokesperson told Yahoo Finance.

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“The ATO remains concerned employers may not be aware of their FBT obligations when it comes to the private use of these vehicles.”

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FBT is a tax paid by employers on certain benefits provided to their employees, or to their employees’ family or other associates.

Businesses can claim an exemption from paying FBT when they provide a work ute to their employees. But this exemption only applies when there is “limited private use”.

That can cover travel between home and work, incidental travel, and non-work travel that is “minor, infrequent and irregular”, the ATO says.

If you use your ute regularly each weekend for personal things like going to the footy or going fishing, you’re unlikely to meet this definition and FBT can kick in.

This could potentially cost businesses thousands of dollars a year in tax and tradies who use their vehicles privately may be required to reimburse their employers for the extra tax costs.

The tax office uses third party data sources, including motor vehicle registry information, to check for compliance.

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The ATO told Yahoo Finance there are three scenarios that would raise red flags.

When employers:

  • Treat cars as 100 per cent business use, even though they are used or available for private purposes

  • Don’t have a valid log book, or is it not a representative sample of actual travel

  • Treat all commercial vehicles as FBT exempt, without checking the private use of the vehicle was limited

“Similarly, tradies who buy their own ute have to be careful that they only claim deductions to the extent it is used by them for work purposes, and not for private purposes,” the ATO said.

For employers, the ATO notes you don’t have to keep special records to be eligible for the FBT exemption. But you’ll need to show the use of the vehicle “at all times” meets the “limited private use” conditions.

One way of doing this is by comparing the opening and closing odometer readings of the vehicle with the total distance you’d expect your employee to travel between home and work.

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