The Federal Government will be removing the statutory formula method used to calculate fringe benefits tax, which will change the rules that apply to motor vehicle Fringe Benefits Tax (FBT). This was announced in July this year, and will be applicable on car leases signed on or after 16 July 2013. Current novated leases or company vehicles are not affected, provided that there is no material change to the lease condition being effected during the period in which this FBT change is applicable..
There are two methods to calculate taxable value of a car fringe benefit – the statutory method or the operating cost and log book method. The statutory method involves calculating the FBT by taking 20% of the cost of the car, deducted by any employee contributions.
The operating cost method involves totalling up all the running costs of the vehicle (fuel, service, registration etc), then multiply it with the percentage of personal use of the vehicle, which is determined by the log book, to arrive at the taxable value.
Generally, if the main use of the car is for private purposes, the statutory formula will produce a lower taxable value than the logbook method.
Once the change proposed by the Government is legislated, everyone who has a company vehicle will be required to keep a logbook containing 12-week worth of log, detailing the personal and business-related mileage usage. Employers are required to keep these logbooks for 5 years.
The federal opposition have stated that they do not support the changes and will not proceed with the policy changes if elected. However, until the outcome of the election is decided, all businesses should consider the extent of private use of any vehicles before purchasing a new vehicle.