The Australian Government has announced with effect from 1 July 2014 it will abolish the statutory formula as a methodology to calculate taxable value of a car benefit for FBT purposes.
The abolition of the statutory formula method for cars is likely to have a significant impact on businesses and employees.
In particular, all new car fringe benefit arrangements entered into on or after 16 July 2013 must adopt the operating cost method as the method to calculate the taxable value of car benefits from 1 April 2014.
Existing contracts that are not varied will continue to have access to the statutory formula rate for the duration of the arrangement. However where employee and employers materially vary or change existing contracts governing the provision of car benefits after 16 July 2013, it will also fall with the scope of the new measures.
It would seem that the new measures would apply equally to both purchased and leased vehicles.
The new measures may result in increased FBT liability for employers in instances where there is significant private use of cars by employees. In such cases FBT may be payable on almost 100% of the operating costs of the car, as opposed to a maximum of 20% of the cost of the car under the current statutory formula method.
Apart from any additional FBT cost, employers also face far more onerous and burdensome administrative requirements under the operating cost method. For instance, employers would now be required to keep a detailed log book for a minimum of 12 weeks and detailed records of the operating costs, which include lease costs, insurance, registration, petrol, oil, services and car washes, whereas no such obligation exists where FBT is calculated under the statutory formula method.
This will affect everyone who owns and operates a vehicle that is not FBT exempt via their operating entity.
Please contact us to discuss the implications this will have for your business.
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Phone: (07) 5503 0466 | Fax: (07) 5503 1477