For many years the application of the FBT rules for motor vehicles has been subject to interpretation. Various views have been issued by the Commissioner which has led to some uncertainty as no particular statement seemed to cover all situations. The main aim of this new Interpretation Statement (IS) is to update and consolidate all previous Inland Revenue statements on FBT and motor vehicles. The new IS is 57 pages long however there are a number of key points you should be aware of.
What is a motor vehicle fringe benefit?
A motor vehicle fringe benefit arises when an employer makes a motor vehicle available to an employee for their private use, in connection with the employment relationship. The test is on availability (i.e. it is irrelevant for FBT purposes whether the employee actually uses the vehicle for private use).
Private use of a motor vehicle includes; travel between home and work; and any other travel conferring a private benefit on the employee.
Motor vehicle is broadly defined as a vehicle drawn or propelled by mechanical power, including a trailer, which does not have a gross laden weight of more than 3,500kg, but excludes:
- “work-related vehicles”;
- vehicles when they are used for emergency calls; and
- vehicles in certain instances when the employee is regularly “absent from home” for more than 24hrs with the vehicle (the Business travel exemption).
Work related vehicles
Interesting points to note in relation to “work-related vehicles”:
- temporary signage (eg magnetic stickers) attached to a motor vehicle will be sufficient for the motor vehicle to be regarded as a work related vehicle. This is a change to what has perhaps been accepted in practice;
- named number plates are not regarded as sufficiently visually prominent for the motor vehicle to be regarded as a work related vehicle
No FBT arises if a motor vehicle is used by an employee to make emergency calls. Note that:
- The vehicle must be actually used for an emergency call (i.e. it is not sufficient if the employee was simply “on call”);
- The services must be “emergency services relating to the health and safety of any person” or “essential services”
- The visit must be made from the employee’s home. If the employee is away from home with the vehicle when they are obliged to make a visit, this requirement will not be met
- When a vehicle is used for an emergency call at any time on any day, the vehicle is deemed to be unavailable for private use for the entire 24-hour period
Business travel exemption
The business travel exemption applies when an employee is required, in the performance of their duties, to be absent from home with a vehicle for at least 24 hours. The exemption will only apply if the employee is required, in the performance of their duties, to use a vehicle and regularly be absent from home.
The requirement for the employee to be absent from home “with” the vehicle was introduced in 2004 and departs from the previous meaning which did not contain this requirement. As such the view expressed in the IS departs from the Commissioner’s previously published view in “Cars parked at airport carparks”. If you have left the car at the airport while travelling overseas or outside of your home town, FBT will apply on those days (even though the average person would expect the vehicle is not available on those days). This seems to be an odd position. It is unclear what “mischief” the Commissioner is trying prevent.