The federal government has announced it will remove the
statutory formula for fringe benefits tax (FBT) for both
salary-sacrificed and employer-provided cars.
The changes, which take effect from 1 April 2014, will affect
vehicle contracts entered into, or materially altered, after 16
Under the current car fringe benefits rules, a fringe benefit
will arise where an employee is provided with a car for private
use. A 'car fringe benefit' is valued using either the
operating cost ('log book') method or the statutory formula
Under the operating cost method, the car fringe benefit is the
cost of running the car multiplied by the proportion of personal
use of the car worked out by a log book.
Under the statutory formula method, a person's car fringe
benefit is the cost of the car multiplied by 20 per cent,
regardless of actual personal use of the car.
The statutory formula method provides a significant tax
concession for taxpayers using their car fringe benefit mainly for
private travel, because it assumes a significant proportion of the
use will be for business purposes.
If an individual uses their vehicle for a significant amount of
work-related travel, they will be able to continue to use the
operating cost method to ensure their car fringe benefit excludes
any business use of the vehicle. Fringe benefits tax will still
only apply to the private portion of any benefit provided to an
Employers who provide a work car to employees for occasional
private use (for example, weekend travel) will also be able to
still use the operating cost method.
WHO IS EXEMPT FROM THE CHANGES?
Most people claiming car expenses will be unaffected including
employees, the self-employed and sole traders claiming deductions
for work-related travel expenses when they use their own car for
The changes do not affect the existing exempt car benefit
concessions that apply to certain uses of taxis, panel vans, utes
and other "tool-of-trade" or non-car road vehicles.
Anyone who bought a car under a novated lease before the
Government's announcement will be exempt until the lease
Employees will be caught up in the new FBT rules if they have a
pre-announcement salary-packaged car and they change employers and
want to take the car with them.
WHAT ARE THE IMPLICATIONS?
The proposed changes may have a big impact on organisations
looking to hold on to top-tier employees as a recent survey of HR
managers by Smartsalary revealed that 100% of managers surveyed
believe employee benefits are a great driver to retention, with
salary packaging and novated leasing being a functional alternative
to increasing wages.
If the proposed changes become legislation it will increase the
administrative burden on both employees and employers. The
operating cost method will require employees to keep valid logbooks
and employers will have to maintain adequate documentation of all
running costs of the car such as fuel, repairs and lease payments
to meet all ATO requirements. Using this method also requires an
imputed interest and depreciation amount to be calculated.
Organisations whose employees commute long distances will become
disadvantaged, as commutes to and from work are deemed as
ClarkeKann Lawyers will provide up to date information to its
clients on the changes to FBT requirements as they are legislated,
but if you are looking to offer a vehicle as part of a salary
package to new employees from 16 July 2013, it is worth considering
the possibility that additional reporting will be required.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).