The Government announced on 16 July plans to remove the statutory formula method for calculating fringe benefit tax (FBT) on both salary-sacrificed and employer-provided cars. Everyone will now be forced to use the operating cost method.
The statutory formula method is used in relation to approximately 80% of FBT claims for two reasons. First, it is simpler, requiring significantly less recording keeping. And second under this method, the taxable value of the car reduces as the number of kilometers travelled increases, regardless of whether the car is used by business or private purposes.
It is this second advantage of the statutory formula that the government are targeting claiming that the move to ban this method will make the tax system fairer by ensuring FBT exemption only targets business use.
CCH Group’s recent article on the topic suggests that the change is largely motivated by the Government’s need to bridge the budget shortfall caused by bringing the emissions trading scheme (ETS) forward a year.
Whatever the reason get ready for more onerous paperwork to justify FBT exemptions on your vehicles.
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