Commercial Vehicles and FBT: When Is a Vehicle Exempt from FBT?

For many tradies and business owners, a dual cab ute is the ideal work vehicle. It can carry tools and equipment during the week while still having enough seats for passengers.

But buying a dual cab ute through a business does not automatically make it exempt from FBT.

Under Australia's Fringe Benefits Tax (FBT) rules, certain commercial vehicles can qualify for an FBT exemption when provided to an employee. However, both the type of vehicle and the way it is used matter.

A qualifying dual cab ute, single cab ute, panel van or other eligible vehicle may be exempt where the employee's private use is limited. If the vehicle does not qualify, or private use goes beyond the permitted limits, the employer may need to pay Fringe Benefits Tax.

Here's how the rules work.

What is Fringe Benefits Tax?

Fringe Benefits Tax is a tax employers may pay on certain benefits provided to employees or their associates in addition to salary and wages.

A common example is allowing an employee to use a business-owned motor vehicle for private purposes.

Where a car is provided or made available for an employee's private use, a car fringe benefit can arise. The employer may then have to calculate the taxable value of that car fringe benefit and pay FBT.

However, the FBT rules contain exemptions for certain work-related vehicles where the employee's private use is appropriately restricted.

This is particularly relevant to tradies and businesses providing utes, vans and other commercial vehicles to employees.

Are dual cab utes exempt from FBT?

Some dual cab utes can be exempt from FBT, but there is no blanket exemption simply because the vehicle is a ute.

There are two main questions to consider:

1. Is the dual cab an eligible vehicle?
2. Is the employee's private use limited?

A dual cab ute may qualify where it is designed to carry a load of one tonne or more, or where it has a load capacity of less than one tonne but is not designed principally for carrying passengers.

Even where the vehicle itself is eligible, the FBT exemption generally depends on the employee's private use being limited to work-related travel and other use that is minor, infrequent and irregular.

This means a work ute can still create an FBT problem if it effectively becomes the employee's family car outside working hours.

Which vehicles can qualify for an FBT exemption?

The ATO rules allow a number of eligible vehicles to potentially qualify for the limited private use exemption.

These can include:

• a single cab ute
• qualifying dual cab vehicles
• panel vans and goods vans
• taxis
• certain four-wheel-drive vehicles
• a qualifying modified vehicle
• other road vehicles designed to carry a load of one tonne or more
• vehicles designed to carry more than eight passengers, including the driver.

Vehicle type alone does not guarantee a Fringe Benefits Tax exemption. The vehicle must meet the relevant eligibility requirements and its private use must also fall within the rules.

For dual cab vehicles in particular, carrying capacity can determine whether the vehicle is treated as being principally designed to carry passengers.

How do you determine dual cab vehicle eligibility?

The easiest place to start is with the vehicle's designed load capacity.

Dual cabs designed to carry one tonne or more

Where a dual cab is designed to carry a load of one tonne or more, it can generally fall outside the definition of a car for FBT purposes and may be an eligible vehicle for the limited private use exemption.

The gross vehicle weight and basic kerb weight can be used to calculate its carrying capacity:

Gross vehicle weight – basic kerb weight = designed load capacity

The gross vehicle weight is generally specified by the manufacturer and can usually be found in the vehicle specifications or on its compliance plate.

If the total load capacity is one tonne or more, the vehicle satisfies the relevant load capacity requirement.

What if the dual cab carries less than one tonne?

A dual cab ute with a carrying capacity of less than one tonne may still be eligible.

The next question is whether the vehicle is designed principally to carry passengers.

For this test, the vehicle's designed passenger carrying capacity is calculated using a weight of 68 kg for each seating position.

For example, a dual cab with a designed seating capacity of five people has a passenger carrying capacity of:

5 passengers × 68 kg = 340 kg

This passenger capacity is then compared with the vehicle's total load capacity.

If the passenger carrying capacity represents more than half of the vehicle's total carrying capacity, the vehicle is considered to have a principal purpose of carrying passengers.

If it represents less than half, the vehicle may instead be regarded as principally designed to carry goods.

This is why the make and model of the vehicle matters. Two dual cab utes that look similar may have different carrying capacities and therefore different FBT outcomes.

Does private use affect the FBT exemption?

Yes. Private use is one of the most important parts of the exemption.

Having an eligible vehicle does not give an employee unrestricted personal use without FBT consequences.

For the work-related vehicle exemption to apply, private use generally needs to be limited to:

• travel between the employee's home and workplace
• travel that is incidental to employment duties
• other private use that is minor, infrequent and irregular.

The employee's private use should therefore remain genuinely limited.

For example, occasionally stopping at a shop on the way home from work may be very different from regularly using the dual cab for school drop-offs, weekend activities and family holidays.

What does "minor, infrequent and irregular" private use mean?

The phrase minor, infrequent and irregular is important because it determines how much additional private travel may be acceptable.

The ATO's Practical Compliance Guideline PCG 2018/3 provides a practical compliance approach for employers providing certain eligible vehicles.

Where all of the guideline's conditions are satisfied, the ATO generally accepts limited private use where:

• travel between the employee's home and work occurs with no more than a small diversion
• wholly private travel is limited to 1,000 kilometres in total during the FBT year
• no single return journey undertaken wholly for a private purpose exceeds 200 kilometres.

The guideline also limits diversions from the employee's normal home-to-work journey.

These limits should not be treated as a universal definition of exempt private use. They form part of the ATO's compliance approach under PCG 2018/3, and other conditions must also be satisfied.

A business falling outside the guideline does not automatically have an FBT liability, but it may need to establish its entitlement to the exemption based on its actual circumstances rather than relying on the ATO's simplified compliance approach.

Examples of limited and excessive private use

Consider a tradie who is provided with an eligible dual cab ute and drives it between their employee's home and different job sites.

That travel may fall within the work-related vehicle exemption.

An occasional small private errand may also be acceptable where the overall private use remains minor, infrequent and irregular.

However, private use becomes more difficult where the vehicle is regularly used for activities such as:

• school drop-offs and pick-ups
• weekend shopping
• children's sport
• regular recreational travel
• camping trips and family holidays
• general use as the household's second vehicle.

For example, an unusual one-off school run may be treated differently from using the work ute for school drop-off every weekday.

Regular private use can mean the exemption no longer applies and the employer may have an FBT liability.

What records should employers keep?

Businesses should be able to demonstrate that both the vehicle and the way it is used satisfy the requirements of the exemption.

A written policy limiting private use can be particularly useful.

The policy should explain what employees can and cannot do with the vehicle, rather than simply saying that private use is not allowed.

Employers should also consider retaining:

• vehicle specifications and sales documentation
• evidence of carrying capacity
• odometer readings
• employee declarations or confirmations where appropriate
• records of any significant private trips
• evidence that the business monitors its vehicle-use policy.

If the employer meets the ATO’s conditions under PCG 2018/3, they may not need to keep detailed records of every private trip.

A 12-week logbook is therefore not automatically required simply because a business is claiming the limited private use exemption.

Logbook requirements can become relevant for different purposes, including where an employer uses the operating cost method to calculate the taxable value of a car fringe benefit.

What happens if the vehicle is not exempt from FBT?

If an eligible exemption does not apply, providing a vehicle for an employee's private use may result in a taxable fringe benefit.

However, the tax treatment depends partly on how the vehicle is classified.

Car fringe benefits

Where the vehicle is a car for FBT purposes, a car fringe benefit can arise when the car is used or available for the employee's private use.

The taxable value of a car fringe benefit can generally be calculated using either:

• the statutory formula method, or
• the operating cost method, where the record-keeping requirements are satisfied.

Under the statutory formula method, the calculation is based largely on the vehicle's base value and the period during which it was available for private use.

Under the operating cost method, the taxable value of the car fringe benefit is linked to the vehicle's operating costs and the proportion of private use.

The operating cost method can therefore require more detailed records to determine business and private use.

What about utes and other commercial vehicles that aren't "cars"?

Some commercial vehicles, including vehicles with a designed carrying capacity of one tonne or more, do not fall within the FBT definition of a car.

If one of these vehicles is used privately and the limited private use exemption does not apply, the benefit may instead be treated as a residual fringe benefit.

This distinction matters because the taxable value of residual benefits is determined differently from a car fringe benefit.

Businesses should therefore avoid assuming that every work vehicle is treated as a car under the Fringe Benefits Tax rules.

What expenses are included with a car fringe benefit?

Where a vehicle gives rise to a car fringe benefit, various associated car expenses can also be relevant to the FBT calculation.

Depending on the circumstances, operating costs can include expenses such as:

• fuel
• registration
• insurance
• servicing and maintenance
• repairs
• leasing costs.

The treatment of associated expenses depends on the type of benefit and the method used to calculate its taxable value.

This is another reason the classification of the vehicle and the way it is provided to the employee should be checked before determining how much FBT is payable.

Are electric vehicles exempt from FBT?

There is a separate exemption for eligible electric cars that should not be confused with the commercial vehicle exemption for utes, vans and other work vehicles.

Under the electric car exemption, an eligible electric vehicle can be exempt from FBT even where private use occurs, provided the legislative requirements are satisfied.

Broadly, the exemption can apply where:

• the vehicle is a qualifying zero or low emissions vehicle
• the first time the car was both held and used was on or after 1 July 2022
• the vehicle is used by a current employee or their associate
• luxury car tax has never been payable on its importation or sale.

To qualify for the electric car FBT exemption, the vehicle must meet the relevant luxury car tax requirements.

If it qualifies, the employer generally does not have to pay FBT on the employee's private use of the car.

However, the benefit may still need to be reported as a reportable fringe benefit for the employee.

What changed for plug-in hybrid electric vehicles?

The rules for plug-in hybrid electric vehicles changed on 1 April 2025.

From that date, a plug-in hybrid electric vehicle is generally no longer considered an eligible vehicle for the electric car exemption.

However, transitional rules can allow the exemption to continue where:

• the use or availability of the plug-in hybrid was already exempt before 1 April 2025, and
• a financially binding commitment to continue providing the vehicle was entered into before that date.

An option to extend an arrangement exercised on or after 1 April 2025 does not itself satisfy the requirement for a pre-existing financially binding commitment.

Businesses considering electric vehicles, electric cars or plug-in hybrid vehicles should therefore check which exemption applies rather than assuming all low emissions vehicles receive the same FBT treatment.

FBT and claiming car expenses are different issues

The FBT exemption rules should not be confused with the income tax rules for claiming car expenses and other motor vehicle expenses.

A business may be able to claim eligible expenses associated with a vehicle used for business purposes, such as:

• fuel
• registration
• insurance
• servicing and repairs
• depreciation or decline in value
• certain financing or leasing costs.

Where a vehicle has both business and private use, deductions may need to be apportioned depending on the business structure and circumstances.

Being entitled to claim business vehicle expenses does not automatically make an employee's private use exempt from FBT.

Likewise, registering a vehicle in the business name does not automatically turn all vehicle use into business use.

For more information on claiming vehicle expenses, read our guide to understanding work-related vehicle expenses.

Is your work vehicle exempt from FBT?

When determining whether a ute, van or other work vehicle qualifies for an FBT exemption, there are two separate issues to check.

First, determine whether the vehicle itself is eligible. For a dual cab ute, that can mean looking at gross vehicle weight, basic kerb weight, total load capacity, seating capacity and whether the vehicle is principally designed for carrying passengers.

Second, consider how the vehicle is actually used.

Even an eligible commercial vehicle can lose favourable treatment where an employee's private use goes beyond what is permitted.

Businesses should therefore review their vehicle specifications, employment arrangements, private-use policies and actual usage rather than relying on the assumption that a commercial vehicle is automatically FBT-free.

If you are unsure whether a dual cab ute or other business vehicle is exempt from FBT, or whether you may need to pay FBT on private use, get in touch with Bonerath for advice based on your circumstances.

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