“Fringe Benefits Tax – Car Benefits rules changed 2012”. Some people are winners; some are losers; which one are you?

In 2012 the government enacted legislation which changed the way some car fringe benefits were calculated.

The government have recently announced further changes which will take effect for the 2014 year if they are passed in parliament, which will not sit before the federal election which is tipped for August 31, 2013.  If the current governement is not re-elected the oppososition has vowed to return to the 2012 rules for FBT. These are those rules:

Previously if your employer used the “Statutory Method” to calculate FBT on your car, the calculation starts by applying either 7%, 11%, 20% or 26% to the base value (basically, the purchase price) of your car, depending upon the total distance you travelled during the year.  The current rates are:

Total kilometres travelled during the FBT year Statutory percentage
Less than 15,000 26
15,000 to 24,999 20
25,000 to 40,000 11
Over 40,000 7

The Change

The change has been to scrap the progressive rates and move straight to
a flat rate of 20%.

Unless….

The change applies to all car fringe benefits paid after 10 May 2011; unless there is a pre-existing commitment in place to provide a car. So if the employer provides a car for an employee already then you are OK. All pre-existing commitments will remain under the old statutory rates unless there is a change made that would amount to a new commitment.

A new car, refinancing a car, altering the duration of an existing contract, or changing employers are all considered new commitments, and will result in the new arrangements applying.

Phasing in

For new commitments, the flat rate will be phased in over four years, unless the employer chooses to skip these transitional arrangements and move straight to the 20% rate.

Employee agreement

However, if the employee is disadvantaged by the employer’s decision, employee consent is required.

Still use Operating Cost method

Employers will still be able to use the Operating Cost (or log book) method, which ensures that any business use of the car is excluded from the taxable value of their car fringe benefits.

Be Careful – Tax Avoidance

Employers and employees who try to end existing contracts early and immediately enter into new contracts just to get the benefit of the new arrangements may be caught by the general anti-avoidance provisions, with fines and penalties.

If you’d like to know more about the changes to the FBT on cars
and how to deal with it, call the office on (03) 9585 7555
and ask for Noel or Amanda, or emailnoel@noelmay.com.au