Tax Advisory

Increased ATO Scrutiny on Companies Holding Significant Motor Vehicles

4 min read

30 March 2026

Takeaways:

The ATO is actively targeting companies with significant motor vehicle holdings, viewing them as high-risk for FBT and LCT non-compliance.
Expanded data-matching (2022–2025) allows the ATO to identify businesses with vehicles over $10,000 that may not be properly reporting FBT, GST, or income tax.
Tribunal cases show businesses must prove genuine commercial activity, with proper records and operations, or risk losing deductions and tax benefits.
Despite some taxpayer wins (e.g. Automotive Invest case), the ATO continues to scrutinise LCT treatment, including misuse of quoting rules and GST “enterprise” eligibility.

Increased ATO scrutiny on companies holding significant motor vehicles

The Australian Taxation Office (“ATO”) has significantly increased its focus on auditing or reviewing companies with significant motor vehicle or luxury car holdings, identifying this as a high-risk area for non-compliance of Fringe Benefits Tax (“FBT”) and Luxury Car Tax (“LCT”) purposes.  The heightened scrutiny is primarily driven by sophisticated data-matching programs and a sustained focus on closing the FBT tax gap.

Recent tribunal cases and audit programs highlight several key points:

The ATO has extended its motor vehicles data matching program for 2022-2023 to 2024-2025 financial years. The program acquires data for vehicles with a purchase price or market value of $10,000, enabling the ATO to identify non-compliance with FBT, LCT, GST and income tax obligations. It allows the ATO to identify employers who have purchased high-value vehicles but have not registered for FBT or reported car fringe benefits.

The High Court case Automotive Invest Pty Ltd v Commissioner of Taxation [2024] HCA is a significant indicator of the ATO’s willingness to pursue matter involving LCT.  The Court examined whether the taxpayer was liable for LCT and GST for the tax periods from June 2016 to November 2017 for 40 cars it had acquired and displayed in the museum. The LCT issue turned on whether each of the 40 cars had been used for a purpose other than being used as trading stock for the purposes of s 9-5(1) of the LCT Act, due to the fact they had been displayed in the museum.  The Commissioner issued the taxpayer with assessments for LCT and GST on the basis that each vehicle was (i) used for the purpose of holding as trading stock and (ii) also used for the additional purpose of being displayed as an exhibit in a car museum.  The High Court ultimately ruled in favour of the taxpayer, but this has not stopped the ATO from auditing this niche market.

Tribunal decisions show that the ATO will look for evidence of systematic and organised activities, maintenance of adequate books and records, and application of ordinary commercial principles typical of the business claimed.  If the company cannot substantiate that it is carrying on a business, deductions and credits related to motor vehicles may be denied.

The ATO may also review whether companies are using LCT quoting provisions appropriately and whether their activities meet the definition of an “enterprise” under the GST Act.

Companies with significant motor vehicle or luxury car holdings should ensure their business activities are genuine, well-documented, and consistent with their tax claims, as the ATO is actively reviewing such arrangements.

How can we help?

At Kelly+Partners, we can assist by:

Advising on the correct substantiation and documentation required to demonstrate that vehicles are used in carrying on a business, including maintaining proper records and evidence of business purpose.
Assisting in preparing responses to the ATO information requests and position papers, ensuring that all relevant facts and arguments are presented clearly and accurately.
Supporting the company during interviews or meetings with the ATO, acting as a representative or advisor to facilitate communication and protect the company’s interest.
Advising on voluntary disclosures and strategies to mitigate penalties, including demonstrating reasonable care and addressing any issues before formal audit notification.
Assisting with applications for private rulings or early engagement with the ATO to clarify tax positions and reduce uncertainty.

Book a Discovery Session

Contact us today to arrange a confidential discussion or review of your FBT or LCT tax exposure. Early action can help mitigate liabilities and avoid costly reassessments.