The government’s changes to the FBT treatment of employer-provided and salary-sacrificed motor vehicles have received a lot of media attention since they were announced on 16 July 2013.  But what, exactly, has happened, and what are the implications?

 

The changes to car fringe benefits tax were intended to offset $1.8m of the $3.8m estimated budget cost over the next four years associated with the decision to bring forward the start date for emissions trading (i.e. the move to a floating price on carbon pollution) by one year to 1 July 2014.  We understand, however, that legislation will be required to implement the announced changes, which means that the timing and result of the 7 September federal election will determine their fate.

 

The ‘fact sheet’ issued by the government indicated that

 

·         The changes will remove the statutory formula method for both salary-sacrificed and employer-provided cars for new contracts entered into after the announcement, with effect from 1 April 2014.  

·         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.

·         All car fringe benefits for new leases will be calculated using the operating cost method from 1 April 2014.

·         The operating cost method is based on the actual business use of the car, with tax payable on the portion of operating costs attributable to private use.  

·         People who use their vehicle for work-related travel will still be able to use a logbook to ensure their car fringe benefit excludes any business use.

·         Employers who provide a work car to employees for occasional private use (for example, weekend travel) will continue to be able to use the operating cost method.

·         The changes do not affect the existing exempt car benefit concessions that apply to certain uses of taxis, panel vans, utes and other non-car road vehicles. 

 

Under the current car fringe benefits rules, a fringe benefit arises where an employee is provided with a car for private use, with the benefit valued using either the operating cost (‘logbook’) method or the statutory formula method.

–         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 logbook.

–         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 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.

 

The joint media release from the Prime Minister, The Treasurer and the Minister for Climate Change announcing the move to a floating carbon price and car fringe benefits tax fact sheet are available HERE. 

 

The Opposition has said that they will continue the current method for determining FBT on motor vehicles.

 

Which means the practical approach is to wait to see the result of the election before doing anything.  If the changes are to be implemented, we suggest that companies should then:

 

1.Identify employees who may be impacted;

2.Assess the extent of impact in net remuneration terms; and

3.Consider a policy response comprising either:

a)    Having the higher FBT impact flow through to employees, such that their cash pay is adjusted downward accordingly

b)    Carrying the extra FBT until the next review period, and adjusting remuneration increases to incorporate the higher FBT impost (such that the cash component increase is less than it otherwise would be)

c)    Carrying the extra FBT cost

d)    Varying the response depending on the level and circumstances of employees and the employment relationship.

 

The likely response for most companies is probably 3(b), above.

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