On 16 July 2013, Prime Minister Kevin Rudd, along with Treasurer Chris Bowen, announced the "termination" of Australia's carbon tax and the move to an emissions trading scheme.
As a part of this announcement, they outlined the proposed Budget cuts they plan to make in order to pay for the decision. Under the proposed change, the statutory formula method of determining FBT - which fails to take into account heavy personal use of company cars - will be abolished.
The proposed changes are estimate to affect 320,000 people who currently use the statutory formula method for calculating their car fringe benefit liability.
Tax experts have slammed the Government's decision as it will increase the administrative burden on taxpayers, it is likely to give a much larger tax bill, and will make salary-sacrificing cars much less attractive.
Currently, the FBT rules allow taxpayers to claim a concession under the statutory method (20% of the cost of their car) or the operating cost/"log book method" (calculated running cost based on personal use of the car). The log book method is considered to be more rigorous and requires a log book be kept.
Who will be affected?
The proposed new measure will apply to new contracts from 16 July 2013, and will take effect on 1 April 2014. Existing contracts 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.
Taxpayers currently using the operating cost method will still be able to use that method for calculating their car fringe benefit liability.
It should be noted!
This proposed change will need to be legislated either by the current Government or the incoming Government that will be elected at the next election. Until then, it remains only a proposal.
Please do not hesitate to contact your Lowe Lippmann advisor if you wish to discuss this matter further.