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The ATO has outlined some of the common errors attracting its attention with fringe benefits tax with the FBT year ending soon on 31 March.
ATO flags top target areas for FBT this year
12 March 2025
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9 minute read
Jennifer Madigan, director of FBT risk and governance for the ATO, has outlined some of the common mistakes that employers are making and what the Tax Office's compliance approach is towards FBT this year.
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Speaking in a Wolters Kluwer webinar this week, Madigan said the ATO often sees mistakes with one of the most common incentives that employers offer their staff, which is a car or a ute.
Employers often did not classify motor vehicles correctly, which could lead to mistakes calculating FBT, Madigan cautioned.
"There are different categories when it comes to motor vehicles. The first category is cars designed for carrying fewer than nine passengers and that includes the driver," she said.
The second category is cars that are not designed for carrying passengers but have a good carrying capacity of less than one tonne.
"That's going to be most of your dual cab Utes," Madigan said.
"The final category is all other vehicles with a higher carrying capacity over one tonne. It's important to note that these are not classified as cars, but they still give rise to a fringe benefit."
The ATO reminded tax professionals that the type of vehicle being provided will affect the method used to calculate the FBT and whether certain exemptions can apply.
Another common error is where employers treat an employee's private use of a motor vehicle as business use, which is incorrect, Madigan said.
"The simple way to work that out is to ask yourself 'if the employee had paid for the cost of using the car, could they have claimed an income tax deduction themselves?'," she said.
"Journeys that involve using the car to travel from home to work, going and grabbing your lunch or picking the kids up from school are all examples of private use.
"There are some exemptions, but the default position for all of these trips is that they are private and they will attract FBT."
Madigan said the ATO also continues to see a lot of mistakes being made with log books.
"In general, log books need to contain enough detail to clearly demonstrate the car usage during the log book period," she said.
"Employers need to ensure they include the start and end dates of the journey, the odometer readings, the kilometres traveled and the purpose of the journey.
One of the common problems the ATO sees is insufficient information about the purpose of the journey.
"You can't just say 'business' – we need a bit more information around exactly what the journey was for," Madigan said.
"We also see discrepancies and inconsistencies between log book entries and other records or we'll see log book entries that are impractical and can't be explained.
"For example, we might see a journey and when you look at maps we know the distance is 50 kilometres but the log book shows it as regularly being recorded as three or four times that distance. That's something that can't be explained."
Another common issue was that log books were not representative of the actual use.
"[For example], the log book only includes minimal kilometres, but the yearly odometer records indicate significantly more travel, we will ask employers to explain whether the logbook is representative of the actual usage," Madigan said.
The other common error the ATO encountered with log books was business and private travel combined and listed as one entry, she added.
"If the purpose of a single journey is a mix of business and private, they do not need to be listed as separate entries," she said.
Madigan said it was important that employers avoid making these types of mistakes.
Where employers have made these mistakes, this meant the ATO did not have confidence in the accuracy of the log book, and it would be deemed invalid.
"That can result in either the percentage of the business use being reduced to zero or we may use the may use the default statutory formula method to calculate the FBT," Madigan said.
"What this means is that the employer will end up with a higher FBT liability than if they've done it correctly the first time."
Madigan said her biggest advice to employers was to ensure they followed the ATO's four key steps.
The first step is identifying if you are providing benefits and the type of benefit it is, she explained.
"There are different methods to value the benefits depending on the type of benefit you're providing and different record keeping obligations so make sure that you take the time to identify what benefits you're providing," Madigan said.
"Next, you want to determine or work out the taxable value for each benefit. Again, there's different methods depending on the benefit."
The third step was to lodge the report and pay.
"Lodge your FBT return, report reportable fringe benefit amounts in the employee's payment summary or through single touch payroll and then pay any FBT owning by the due date," Madigan said.
"Finally, keep records. [There are] different rules and obligations around record keeping. This does depend on the type of benefits you're providing, so employers do need to make sure that they have all of those records in place and that they retain them."
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