• Fringe benefits tax exempt benefits

    This information forms Chapter 20 of Fringe benefits tax - a guide for employers.

    20.1 What is an exempt benefit?

    A number of benefits are exempt from fringe benefits tax (FBT). Although these are popularly called 'exempt fringe benefits', they are referred to in the FBT legislation as 'exempt benefits' – in fact, by definition, an exempt benefit can't be a fringe benefit.

    Exempt benefits are not only exempt from FBT, they are also (with one exception) exempt from income tax in the hands of the employee to whom they are provided. The exception relates to car expense payments, which is explained in section 20.2.

    20.2 Transport exemptions

    Cars

    There are circumstances in which private use of a car may be exempt from FBT.

    An employee's private use of a taxi, panel van or a utility designed to carry less than one tonne, or any other road vehicle designed to carry a load of less than one tonne (that is, one not designed principally to carry passengers) is exempt if their private use of such a vehicle is limited to:

    • travel between home and work
    • travel that is incidental to travel in the course of performing employment-related duties
    • non-work-related use that is minor, infrequent and irregular – for example, occasional use of the vehicle to remove domestic rubbish.

    Example: Exempt use

    An electrical company employee takes the company van (carrying capacity of less than one tonne) home each night because there is no security at the company premises. The only non-work-related use during the FBT year was a trip to pick up some furniture and take it to the employee's home – this use of the van would be exempt from FBT.

    If the use of the vehicle exceeds the limits set out above, it is a car fringe benefit. All the private use of the vehicle, including the travel between home and work, is taken into account in determining the business percentage under the operating cost method. If no logbook records are maintained, the statutory formula method must be used to value the car fringe benefit.

    Where the vehicle is not a car as defined in section 7.1 of Car fringe benefits, a residual benefit will arise (refer to section 18.6 of Residual fringe benefits).

    Example: Non-exempt use

    A council employee takes a utility (carrying capacity of less than one tonne) home each night and on the weekends. Although the utility is clearly marked as a council vehicle, the employee uses it for shopping and other private purposes during the week and often for country trips on the weekends.

    This use of the utility would not be exempt from FBT and would be treated as a car fringe benefit. Assuming there are no logbook records, the taxable value of the utility would be calculated using the statutory formula method.

    End of example

    Dual cab vehicles

    Dual cab vehicles are variants of conventional goods vehicles, with additional seating positions behind the driver and front passenger seats. They share a common chassis, to which the single or dual passenger cab and alternative tray sections may be fitted.

    Dual cabs qualify for the work-related use exemption only if they are either:

    • designed to carry a load of one tonne or more, or more than eight passengers, or
    • while having a designed load capacity of less than one tonne, are not designed for the principal purpose of carrying passengers.

    A dual cab that has a designed load-carrying capacity of less than one tonne may qualify for the work-related use exemption only if the vehicle is not designed for the principal purpose of carrying passengers. To determine whether the majority of the designed load capacity is attributable to passenger-carrying capacity, multiply the designed seating capacity (including the driver's) by 68kg, which is the figure used for applying the Australian Design Rules. If the resulting total passenger weight exceeds the remaining 'load' capacity, the vehicle is treated as being designed for the principal purpose of carrying passengers and so is ineligible for the work-related use exemption.

    Example

    A dual cab vehicle with a gross vehicle weight of 1,950kg, a basic kerb weight of 1,400kg, and a designed seating capacity of five would be considered a vehicle designed principally for carrying passengers. This is because the majority of the total load capacity (340kg (5 × 68kg) of a total of 550kg) would be absorbed by its designed passenger carrying capacity.

    End of example

    Unregistered vehicles

    If a car is unregistered for the full FBT year and used principally for business purposes, any private use is exempt from FBT. A car that may be lawfully driven on a public road is regarded as being registered.

    See also:

    • Car fringe benefits – for an explanation of the types of motor vehicles that are cars, refer to section 7.1.

    Personal services entities

    A car benefit is an exempt benefit in relation to an FBT year if the person providing the benefit can't deduct an amount under the Income Tax Assessment Act 1997 (ITAA 1997) for providing the benefit because of section 86-60 of that Act.

    Section 86-60 of the ITAA 1997 limits the extent to which a personal services entity can deduct car expenses. Deductions are not allowed for more than one car for private use.

    The use of these cars is an exempt benefit because the entity is not entitled to claim an income tax deduction for these cars.

    Car expenses – expense payments

    With some exceptions, where you reimburse the operating expenses of an employee's own car according to the distance travelled in the car, an exempt benefit arises – for example, where expenses are reimbursed on the basis of an agreed number of cents per kilometre travelled.

    These exempt benefits are a unique category of exempt benefits – they are the only exempt benefits that constitute assessable income in the hands of the employee. All other exempt benefits are both exempt from income tax in the hands of the employee to whom they are provided, and exempt from FBT.

    Where the benefits are not exempt, some valuation concessions are available (refer to Reductions in fringe benefit taxable value).

    The exemption is not available where the reimbursement of the car expenses relates to any of the following circumstances:

    • transport to enable an employee to go on holiday (including remote area and overseas employment holiday transport)
    • relocation transport
    • transport to an employment interview or selection test
    • transport to a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training
    • transport was provided after the employee had ceased to perform the duties of that employment.

    Public transport – residual benefits

    Where you operate a business of providing transport to the public, providing free or discounted travel (other than in an aircraft) to employees of that business for travelling to and from work is an exempt benefit. Free or discounted travel on a scheduled metropolitan service you operate is also exempt.

    Where the benefit is provided by an associate company, it is also exempt if both you and the associate carry on a public transport business.

    Providing travel on public transport to a police officer for travelling between the officer's place of residence and their primary place of employment is an exempt benefit.

    Public transport – residual benefits where the benefit is accessed under a salary packaging arrangement

    The specific exemption that applies to residual benefits in respect to private home to work travel through public transport and travel on scheduled metropolitan services (where the employer and associate are in the business of providing transport to the public) does not apply from 22 October 2012 where:

    • the benefit is provided in-house and
    • the employee accesses the benefit under a salary packaging arrangement.

    Motor vehicles – residual benefits

    Where you provide an employee with the use of a motor vehicle that is not a car

    This use is an exempt benefit if any private use is restricted to the following circumstances:

    • travel to and from work
    • use that is incidental to travel in the course of performing employment-related duties
    • non-work-related use that is minor, infrequent and irregular – for example, occasional use of the vehicle to remove domestic rubbish.

    See also:

    • Car fringe benefits – for an explanation of the types of motor vehicles that are cars, refer to section 7.1.

    If the use of the vehicle exceeds the limits set out above, a residual benefit will arise and the taxable value can be worked out using either the cents-per-kilometre method or operating cost method (refer to section 18.6 of Residual fringe benefits).

    All the private use of the vehicle, including travel between home and work, is taken into account in determining the business percentage under the operating cost method.

    Where the motor vehicle is used wholly or principally in connection with your business operations and is at all times unregistered, any private use by the employee is also an exempt benefit. A motor vehicle that may be lawfully driven on a public road is regarded as being registered.

    Fly-in fly-out arrangements – residual benefits

    Transport you provide to employees who work in remote areas in Australia or overseas, or on oil rigs or other installations at sea

    This arrangement, commonly known as 'fly-in fly-out' transport, is exempt where all of the following apply:

    • an employee's usual place of employment is at a remote location in Australia or overseas, or on oil rigs or other installations at sea
    • employees are provided with accommodation at or near the worksite on working days
    • on a regular basis the employee works for a number of days followed by a number of days off, returning to their usual place of residence on their days off
    • you provide the employee with transport between their usual place of residence and their place of employment
    • having regard to the location of the two places, it would be unreasonable to expect the employee to travel to and from work on a daily basis.

    Accommodation is considered to be in a remote area in Australia:

    • If it is not in or near an urban centre. This means the accommodation must be located at least 40 kilometres from a town with a census population between 14,000 and 130,000, and at least 100 kilometres from a town with a census population of 130,000 or more (population figures based on the 1981 Census).
    • If the accommodation is in zone A or B (for income tax purposes), it must be located at least 40 kilometres from a town with a census population between 28,000 and 130,000, and at least 100 kilometres from a town with a census population of 130,000 or more.

    From 1 April 2007, where the shortest practical surface route between a locality and an eligible urban area includes a route by water, the distance travelled by water is doubled for the purposes of working out how remote that locality is from the eligible urban area.

    Accommodation is considered to be in a remote area overseas:

    • If it is inaccessible or sparsely populated and is not located close to a built up area such as a town or city.

    Factors that should be considered to determine if an overseas location is remote (having regard to comparable Australian standards) are:

    • the distance and time it takes to travel from the worksite to the nearest urban area
    • the population of the nearest urban area
    • accessibility of the overseas site
    • safety and the crime rate, adequacy of local law enforcement, or health risks in the surrounding areas to the worksite (whether the nearest urban area is reasonably safe if adequate precautions are taken, the ability to take safety precautions)
    • location of the worksite relative to the arrival destination in the foreign country – for example, an international airport
    • the quality of the roads between the nearest urban area and the worksite
    • amenities and facilities available at the nearest urban area (in close proximity to the worksite), such as (but not limited to)  
      • public transport
      • availability of accommodation/housing
      • a library, public park or other recreational facilities
      • places for buying a variety of foods
      • a reliable electricity supply and access to clean drinking water/running water and a sewage system
      • availability of access to the internet, mobile phone reception and access to facilities such as banks and medical supplies and facilities.
       

    No single factor is expected to be determinative – each location will need to be considered on a case-by-case basis, and all of the factors balanced to see whether it would be considered remote.

    See also:

    Operating costs of motor vehicle

    Where the use of a motor vehicle gives rise to a fringe benefit, the benefits associated with the costs of operating the vehicle are exempt benefits. There is no additional FBT liability for operating expenses you provide, such as for registration, insurance, repairs and fuel. This is because the valuation rules for use of the motor vehicle also take into account the operating costs of the vehicle.

    Employment interviews and selection tests

    A benefit that meets the costs of travelling to an interview or selection test, in connection with an application for employment with a new employer or a promotion or transfer with an existing employer, is an exempt benefit.

    Where the benefit is of a type that would be an expense payment fringe benefit but for the exemption, you must obtain documentary evidence of the employee's expenditure.

    If the applicant or current employee uses their own vehicle and is reimbursed on a cents-per-kilometre basis for the distance travelled, the benefit is not exempt – however, a reduction in the taxable value may be available (refer to section 19.3 of Reductions in fringe benefit taxable value).

    Motor vehicle parking

    The following car parking benefits are exempt from FBT:

    • residual benefits
    • certain expense payment benefits
    • parking for the disabled
    • benefits provided by certain employers.

    Residual benefits

    Employer-provided parking that is not a car parking fringe benefit is a residual benefit that is exempt from FBT.

    Expense payment benefits

    Where you pay or reimburse a car parking expense incurred by an employee, it is exempt from FBT if the expense is not a car parking expense payment fringe benefit as explained in section 16.8 of Car parking fringe benefits.

    Parking for the disabled (regulation 13A)

    Car parking provided for a car used by a disabled employee who is legally entitled to use a disabled person's parking space and has a valid disabled person's car parking permit displayed on the car is exempt from FBT.

    Exempt employers

    You are exempt from FBT in relation to car parking fringe benefits and car parking expense payment fringe benefits if you are one of the following employers:

    • a scientific institution (other than an institution run for the purposes of profit or gain to its shareholders or members)
    • a registered religious institution
    • a registered charity with the Australian Charities and Not-for-profits Commission (ACNC) and endorsed by us
    • a public educational institution
    • a government body where the employee is exclusively employed in, or in connection with, a public educational institution.

    Small business car parking

    If you are a small business employer, car parking benefits you provide are exempt if all the following conditions are satisfied:

    • the parking is not provided in a commercial car park
    • you are not a government body, a listed public company, or a subsidiary of a listed public company
    • you were either a small business entity for the last income year before the relevant FBT year, or your total income for the last income year before the relevant FBT year was less than $10 million – for this purpose, your income includes ordinary income and statutory income as defined in the ITAA 1997, that is, total gross income before any deductions.

    Travel to obtain medical treatment

    Benefits that meet the costs of travel from a workplace located in a foreign country in order to obtain medical treatment are exempt benefits.

    The exemption applies where the travel is undertaken solely because the employee (or a family member living with the employee) requires medical treatment. It also applies to travel of a person who is required to accompany the patient as an escort for medical reasons, who accompanies a patient who is under 18, or who, as a family member, visits or accompanies the patient.

    A condition of exemption is that the place of treatment is the place nearest the work locality where suitable medical treatment could be provided, or the place where suitable treatment could be obtained at least cost.

    Accommodation and meals are also exempt if provided en route or during any period in which the person travelling must stay at the place of treatment for reasons related to the medical treatment. However, hospital accommodation and meals provided to the patient are not exempt.

    Travel for compassionate reasons

    Certain benefits you provide in connection with compassionate travel are exempt benefits.

    Compassionate travel is restricted to:

    • travel by an employee for the sole purpose of visiting a close relative who is seriously ill
    • travel by an employee for the sole purpose of attending the funeral of a close relative
    • travel by a close relative of an employee for the sole purpose of visiting the employee, if the employee is seriously ill
    • travel by a close relative of an employee for the sole purpose of attending the funeral of the employee
    • travel by a close relative of an employee for the sole purpose of visiting a seriously ill close relative of the employee (the traveller must ordinarily reside with the employee)
    • travel by a close relative of an employee for the sole purpose of attending the funeral of a close relative of the employee (the traveller must ordinarily reside with the employee).

    For the purpose of this exemption, a close relative of an employee means a spouse, a child or a parent of the employee, or a parent of the employee's spouse.

    One of the following conditions must be satisfied when the compassionate travel starts:

    • the employee is travelling in the course of performing employment-related duties
    • the employee is living away from home while performing employment-related duties
    • the employee's usual place of residence is in a remote area (refer to section 10.8 of Housing fringe benefits).

    The exemption applies to benefits that would be fringe benefits of the following types, if it were not for the exemption:

    • a car fringe benefit where the car is the means of the compassionate travel
    • an expense payment fringe benefit where the expenditure is for transport, meals or accommodation for the person travelling (you must obtain documentary evidence of the expenditure)
    • a property fringe benefit consisting of meals for the person travelling
    • a residual fringe benefit consisting of transport or accommodation for the person travelling.

    Taxi travel

    Any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee's place of work.

    Any benefit arising from taxi travel by an employee is also an exempt benefit if the travel is both:

    • a result of sickness of, or injury to, the employee
    • the whole or a part of the journey directly between any of the following  
      • the employee's place of work
      • the employee's place of residence
      • any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.
       

     The exemption is limited to travel in a vehicle licensed by the relevant State or Territory to operate as a taxi. It does not extend to ride-sourcing services provided in a vehicle that is not licensed to operate as a taxi.

      Last modified: 05 May 2017QC 17820