Australia: Proposed Changes Remove FBT Statutory Formula Method for Cars
On July 16, 2013, the Australian Federal Government announced significant and unexpected changes to the Fringe Benefits Tax (FBT) treatment of cars. Under it, the statutory formula method of calculating the taxable value of car fringe benefits provided to employees will not be available from April 1, 2014 (except those entitled to transitional relief), impacting both salary sacrifice arrangements and employer provided cars. Under the proposed plan, drivers who buy cars using salary sacrifice schemes will have to keep detailed log books breaking down their personal and business vehicle use.
This plan, however, is looking less certain following the Coalition's announcement that it would oppose the change. Following strong and vocal opposition, the Treasurer released an interesting statement outlining the facts related to the change. The following excerpt will be of interest:
There has been a lot of misleading information in relation to the FBT changes so it is important to ensure that inaccurate assertions are corrected. These facts include:
- This reform will not affect the more than 3.6 million workers - including employees, the self-employed and sole traders - claiming deductions for work related travel;
- It is estimated that around 320,000 people are currently salary sacrificing a car under FBT rules;
- The changes are not onerous, a claimant must simply account for 12 weeks in a 5 year period;
- The changes will not affect existing commitments, even if the vehicle is on order and has not been delivered yet;
- Around two-thirds of these people earn over $100,000 a year;
- Treasury analysis indicates the changes affect around 1 in 6 employees earning over $150,000 a year — compared to around 1 in 25 employees earning between $60,000 and $100,000 a year;
- Claims that the FBT changes will cause massive damage to industry are alarmist and irresponsible;
- Legitimate business use of a car can still be salary packaged and there are no changes to other items that can be salary packaged such as taxis, panel vans and utes, as well as laptops and benefits for not-for-profit workers.
- Even putting aside the context of the changes to carbon pricing, the FBT decision is good tax policy. It protects the tax base for the vast majority of Australians who do not benefit from the salary packaging arrangements.
We will certainly keep you apprised of developments, but in the meantime, see The Truth about FBT on Cars: Meaningful Tax Reform is Hard for another perspective.