Trade vehicle policy - by Tristam Price

Updated: May 9

Here’s a rare ERA determination concerning a dispute over private use of a work vehicle.

It cost Mr Osborne just under $1,300 including the $71.56 filing fee. No legal costs were awarded because the former employer (for five months in 2019) Caleys Ltd was self-represented. Mr Osborne was represented by his father.

Neither party should complain about the determination because Member Arthur was fair. But obviously the principle was more important than the result because of Caleys’ nearly three year wait for an expense reimbursement of under $1,300. Even more importantly, Inland Revenue constantly seeks to prevent tax avoidance within the scope of an employment relationship, and we briefly explain Fringe Benefits Tax, and exemption where appropriate.

Fringe Benefits Tax

A privately owned vehicle is not tax-deductible. The default position is employees are expected to travel to and from work at their own expense.

A company vehicle is a tax-deductible business expense. The running costs (fuel, maintenance, insurance etc) are tax-deductible in two ways – the company that owns it can claim back the 15% GST, and the running costs reduce the profitability of the company which pays 28% on whatever net profit it does make.

If an employee is given access to a work vehicle, and permission to use it privately, FBT applies, currently at the rate of 63.93%.

FBT exemption

A common example of a vehicle use agreement that does not attract FBT would entail providing a signwritten van that the employee uses to get to customer sites. The employee is usually allowed to take the vehicle home, as opposed to parking at the office and commuting between work an home at their own expense. Such an agreement would forbid private use and GPS tracking allows the employer to keep tabs on how their vehicles are being used.

FBT can be complex and businesses with vehicles should get advice from an accountant or at least refer to Inland Revenue’s publications.

Breach of vehicle use agreement

In Caleys Ltd v Osborne it appears that the vehicles were GPS-equipped. While the company was not particulary vigilant in its monitoring of vehicle use, it did eventually find some unauthorised private use for which it went to the trouble of seeking reimbursement.

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