Last week, the Federal Government announced it’s intention to change the method of calculating the Fringe Benefits Tax (FBT) on cars. The proposed changes will abolish the Statutory Formula for all new motor vehicle contracts entered into from 16 July, 2013. As a result, employers will use the operating costs method (logbook method) to calculate FBT.
The operating cost method is more arduous and is based on the actual business use of the car as recorded in a log book. Tax is payable on the portion of operating costs attributable to private use. It is important that sufficient detail is recorded in relation to each work related trip, otherwise the employer risks the logbook being deemed by the Australian Tax Office as invalid and it is therefore assumed that the total running costs of the vehicle be subjected to FBT.
The proposed changes will also affect employees, with those with salary package cars expected to be most affected. The tax saving from packaging cars has traditionally come through the use of the statutory formula method.
It should be noted that this proposal has not yet been passed through Parliament. Should the legislation be passed by Parliament, the change from Statutory Method to Operating Cost Method will apply to all contracts entered into- or materially varied-after the announcement on July 16, 2013, with effect from 1 April, 2014. All existing contracts prior to the announcement will not be affected by the change.