• FBT changes for cars: What you need to know

It’s been a week since the Government announced its proposal to scrap the statutory formula method for car fringe benefits. So what’s happened since and what do you need to do about it?

Will the changes ever happen?

The Liberal Party have said they will not support the changes and will not proceed with them if elected. It is doubtful that Parliament will sit again before the election, depending on when the election is called, so it is likely we will only see legislation for this if the Labor Party is returned. Even then, getting the legislation through is not a done deal.

Application date

The Government has now released a small amount of detail regarding the proposal. If the changes are introduced, arrangements in place or financial commitments made as at 16 July 2013 would not be affected for the life of those contracts – that is, the statutory formula method could be adopted indefinitely. For new arrangements or material variations to contracts from 17 July 2013, the statutory formula method could be used through to 31 March 2014, but from 1 April 2014, the log book method would be the only option for calculating FBT. Please contact Grant Thornton for further information regarding what constitutes a financial commitment or material variation.

Impact of the changes

Aside from the well-publicised impact on the car industry and salary packaging providers, abolishing the statutory formula method for car fringe benefits would have a huge impact elsewhere in the market.

Employers with fleets of vehicles for which the statutory formula method is used would need to switch to the log book method as of 1 April 2014 for cars acquired after 16 July 2013. This means tracking costs specific to each car and ensuring proper log books are completed (for 12 weeks every 5 years) in order to reduce the FBT cost. Grant Thornton’s experience in reviewing the adequacy of log books is that the description of the purpose of business trips is where they often fall down. Please speak to us if you need assistance with what constitutes as a valid log book. There is no need to have employees commence log books for new cars prior to 1 April 2014, since the statutory method can be applied until then, but this might be appropriate where the data would be useful in budgeting for the following year.

Switching to the log book method would increase the FBT cost for some employers. Whether or not this is the case, employers with significant FBT liabilities should speak to Grant Thornton about the strategies we have successfully implemented for many clients to minimise FBT costs.

The tax advantage of new salary packaging arrangements for cars would be practically eliminated from 1 April 2014 – aside from small savings through some associate lease arrangements and access to discounted services such as fuel. This message is the same for employees in the not-for-profit sector, as there was no indication of any different rules for any particular industries in the Government’s announcement.

Car dealers might find the Tax Office agreeable to new administrative arrangements to simplify the calculation of FBT on their demonstration stock if the proposed changes are implemented. Perhaps something similar to the current administrative arrangements based on the statutory formula method would be possible, but based on a log book methodology. Grant Thornton is already active in this space and will be pursuing such opportunities if this becomes necessary.

Follow up checklist

  • Do you know which cars would be affected by the changes? Are there any issues determining dates of financial commitments?
  • Do you need assistance with reviewing the adequacy of current log books, or setting up new log book arrangements?
  • Do you understand the potential impact on the cost of running your cars?
  • Do you pay significant FBT and wish to explore minimisation strategies?
  • Are employees wishing to salary package fully informed about the potential changes?