Massive Change to Treatment of FBT on Car Fringe Benefits

Editor: The government has announced that it will bring forward the commencement of the emissions trading scheme so that there will be a floating, rather than a fixed, price on carbon
emissions from 1 July 2014.

As this will affect government revenue the government has also announced other changes, including to the FBT treatment of car fringe benefits, which alone is expected to save $1.8 billion over 4 years.

The detail about the FBT changes was contained in a fact sheet (released with the announcement regarding the proposed change to the carbon price) entitled "A fairer treatment for FBT on cars", and we have extracted the relevant parts below.

The NTAA opposes this change, and issued a media release on 17 July 2013 stating that the proposed change "will ‘crush’ the car industry and result in tens of thousands of hard working Australians losing their jobs".

Note that the government stated that households and pensioners will continue to receive their payments calculated on a higher carbon price, as these changes were ‘permanent’.

The government will ensure the FBT "exemption" for cars is targeted to actual  business use, rather than including personal  use, by removing the statutory formula method for both salary-sacrificed and employer provided cars for new contracts entered into after 16 July 2013, with effect from 1 April 2014.

Editor: The government states that he "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" (i.e., currently under the statutory formula method, a person’s car fringe benefit is basically the cost of the car multiplied by 20%,  regardless of actual personal use of the car).

People who use their vehicle for work-related travel will still be able to use a log book to ensure their car fringe benefit includes any business use (i.e., the operating cost method).

According to the government:
"Recent advances in technology, such as cheap and easy-to-use car log book ‘apps’, make this much easier today than when these rules were originally introduced in 1986.

"Many of these apps will let the GPS on a smart phone do most of the work for you and let you send the results directly to your employer or tax agent — no calculations required."

The fine print
All car fringe benefits for new leases (i.e., those entered into after 16 July 2013) will be calculated  using the operating cost method from 1 April 2014, which is based on the actual business use of the car, and which therefore "ensures an appropriate amount of tax is paid on the private benefit where there is significant private use".
Existing contracts materially varied after 16 July 2013 will also fall under the new arrangements.

Existing contracts that are not varied will continue to have access to the existing statutory rate  throughout the contract.

This reform will not affect:

  • employees and sole traders who claim deductions for work-related travel expenses when they use their own car for work reasons;
  • the existing exempt car benefit concessions that apply to certain uses of taxis, panel vans, utes and other non-car road vehicles; and
  • employers who provide a work car to employees for occasional private use (for example, weekend travel) and use the operating cost method.

Ref: Treasurer’s media release No.006 (jointly with the Prime Minister and Minister for Climate Change), 16 July 2013

The Treasurer was asked at a later doorstop interview about whether "with the implementation, will that apply to cars that are already on order or is it only contracts signed?"

The Treasurer responded "This applies to new contracts from the date of announcement", so, presumably, if the contract to acquire the car had already been signed prior to 16 July 2013, the employer should be able to calculate FBT under the "old rules".
Ref: Doorstop interview, Sydney, 17 July 2013