FBT and Utes: The Common Misconception That Could Cost Your Business

The FBT Exemption Myth: Not All Utes Are Created Equal

Many business owners assume that their company utes are automatically exempt from Fringe Benefit Tax (FBT). This widespread misconception could be costing your business significantly in unforeseen tax liabilities. At Business Like NZ Ltd, our teams have observed that a lot of business utes actually don’t qualify for the exemption that owners believe applies.

Let’s clear up the confusion and ensure your business isn’t caught in this common tax trap.

What Exactly Makes a Ute Exempt from FBT?

For a ute to qualify as a “work-related vehicle” exempt from FBT, all four of these critical criteria must be met:

1. Vehicle design requirement – The ute must not be designed primarily or exclusively for carrying passengers. Importantly, Inland Revenue has specifically confirmed that a double-cab utes fail this test.
2. Business identification – Your company name must be prominently and permanently displayed on the exterior of the vehicle. A magnetic sign that’s only occasionally attached doesn’t meet this requirement.
3. Documented usage restrictions – The employer must provide a written letter to the employee stating that the ute is strictly not available for personal use, with only two exceptions:
   • Travel between home and work
   • Travel directly related to business activities
4. Regular compliance checks – The business must conduct quarterly checks to verify that employees are following the private use restrictions.

The Weekend Use Trap: Utes and FBT

One of the most common mistakes we see is businesses allowing employees to use company utes on weekends while still claiming the FBT exemption. This practice immediately triggers FBT liability.

Important clarification: If you permit weekend personal use, FBT becomes payable on those two days each week, even if the employee doesn’t actually use the vehicle during that time. The mere availability for private use is what triggers the tax obligation.

Case Study: The Cost of Misunderstanding FBT and Utes

One of our clients, a construction company with five utes in their fleet, had their vehicles sign-written and believed they were fully compliant with FBT exemption requirements. During a routine tax review, we discovered they had no formal private use restriction letters and had never conducted compliance checks.

Additionally, employees were using the utes for weekend activities. This oversight resulted in an unexpected tax bill of over $15,000 when calculated for the previous financial year.

By implementing proper procedures and documentation, we helped them become compliant moving forward, but the previous liability couldn’t be avoided.

Steps to Ensure Compliance

To protect your business from unexpected FBT liabilities:

1. Review your current fleet – Assess each vehicle against the four criteria listed above.
2. Implement formal documentation – Draft and distribute clear usage restriction letters to all employees with company vehicles.
3. Establish a compliance system – Set up quarterly checks and maintain records of these reviews.
4. Educate your team – Ensure employees understand the restrictions and why compliance matters.

Beyond Utes: Other FBT Considerations

While this article focuses on utes, it’s worth noting that FBT applies to various benefits provided to employees, including:

• Company cars
• Low-interest loans
• Discounted goods and services
• Private health insurance
• Certain gifts and prizes

See our article: Fringe Benefit Tax Explained: What You Need to Know

Expert Advice When You Need It

Navigating FBT regulations can be complex, especially when it comes to work-related vehicles. At Business Like NZ Ltd, our tax specialists can help:

• Review your current fleet arrangements
• Establish compliant documentation systems
• Calculate potential FBT liabilities
• Implement efficient FBT strategies

Don’t wait for a tax audit to discover compliance issues. Reach out to our team today for a review of your FBT obligations.

This article is provided for general information purposes only and does not constitute professional advice. For specific guidance related to your business situation, please contact our team at Business Like NZ Ltd.

Have questions about FBT and your business vehicles? Contact our team today for personalized advice.