The Federal Government announced a proposal to abolish the formula method for valuing car fringe benefits provided to employees.

If this proposal becomes law, from 1 April 2014, only the operating cost method will be available to work out the Fringe Benefits Tax (FBT) liability on cars. This could mean that the tax position for salary-sacrificed cars and cars bought with after-tax dollars (after claiming relevant operating costs), could be effectively the same.

What does this mean for you?

By removing the statutory formula method, there will no longer be a (phased in) 20% cap of non-business use even if employees use salary-sacrificed cars for minimal or no business use. Instead, FBT will be imposed on the actual value of non-business use attributed to the salary-sacrificed car.

To account for the breakdown of business and non-business use of the car under the operating cost method, log-books will have to be kept and the details of business and non-business use of the car must be recorded.

Needless to say, this will impose a huge compliance burden on employers and employees (who still elect to salary sacrifice if these changes become law). Furthermore, business systems may also have to be updated to keep track of each individual operating cost relating to each car.

Next Steps

At the moment, only a few paragraphs of information are available on these proposed changes. We will keep you up to date when new information becomes available.

If you currently have a car that is provided by your employer or via salary-sacrifice there will be no changes. However if you enter into a new arrangement from 16 July 2013 onwards (provided the proposal eventually becomes law) then you will need to comply with the new rules. For vehicles with limited business usage, the additional tax could be considerable.

If you have any questions, please contact Murray Howlett on (07) 3023 1300.