FBT and motor vehicles: ATO crackdown increases compliance risk

Thursday 4th July 2024

FBT and motor vehicles: ATO crackdown increases compliance risk

Thursday 4th July 2024
Written by Warwick Turnbull

This year’s fringe benefits tax (FBT) lodgement and payment date has now come and gone. Are you confident you met your obligations?

If you’re unsure, it’s never too late to get on top of things—something which is even more imperative at the moment as the Australian Taxation Office (ATO) has recently ramped up its FBT recovery efforts after re-establishing its data audit programs. 

This regeneration of audit activity is purported to be ‘having a pretty high strike rate’, and one area they’re focusing on is FBT and motor vehicles.   

Audits increased due to high tax gap

The details of this crackdown were recently reported in Accounting Times and are attributed to the growing tax gap estimate for FBT. 

According to the ATO, the tax gap (what is owed versus what is actually collected) is currently around $1.3 billion or approximately 29%. When compared to the 3-4% being seen for other taxes, this is quiet high. 

In addition, they estimate that there are close to 1 million registered employers in Australia, but only 10% of these are registered for FBT.

What the ATO is looking at

As part of this renewed audit activity, the ATO is gathering data from many sources. One of these is going through lists of motor vehicle registry services in each state and territory and identifying vehicles that are registered in a business name.

They’re then checking whether they’re:

  • Registered for FBT
  • Lodging FBT returns 
  • Including those vehicles in those returns

Renewing novated lease program

The ATO has also renewed its novated lease data-matching program.

As a recap, a novated lease is a three-party arrangement involving an employer, an employee, and a lease provider. 

In this setup, the employer agrees to handle the lease repayments, which are then deducted from the employee's salary. Although the employee privately owns the car, it’s treated like a company car.

The novated lease data matching program is designed to identify and assess several tax risks, including:

  • Car fringe benefits tax (FBT) compliance – Vehicles obtained through a novated lease are regarded as a fringe benefit for the employee, resulting in an FBT obligation. However, this FBT liability can be lowered if the employee makes contributions from their post-tax income.
  • Incorrect motor vehicle expense claims – When an employee incorrectly claims deductions related to their vehicle, which is provided through a novated lease arrangement.
  • Incorrect claiming of goods and services tax (GST) credits – When an employer wrongly claims GST credits by incorrectly accounting for the GST paid on the vehicle purchase.

In terms of FBT, the focus is on what benefits employers are providing with their novated lease arrangements, such as: 

  • Facilitating tax benefits through salary-sacrificing
  • Cheaper maintenance and insurance
  • Cover or subsidising fuel expenses
  • Roadside assistance

Be diligent to ensure compliance 

Steering the complexities of car fringe benefit tax can be daunting, especially in the face of the ATO's increased scrutiny and data-matching efforts targeting business-owned vehicles. 

As audits become more regular and thorough, ensuring compliance is vital.

Staying in the loop with regulatory changes, keeping meticulous records, and tapping into professional advice as needed will not only mitigate your risk, including potential penalties, but also ensure you keep you on the taxman’s good side. 

Related: Are you meeting your fringe benefits obligations?

Have you met your FBT obligations this year? If you’re unsure, act now! It’s never too late to get it right. Reach out to your Maxim advisor or contact our team today