On 16 July the Federal Government announced major changes to the Fringe Benefits Tax (“FBT”) legislation in relation to car fringe benefits. The change is estimated to save the Government approximately $1.8 billion in the forward estimates.
According to Treasurer Chris Bowen, the Government intends to remove the statutory formula method for both salary sacrificed and employer provided cars.
The proposed change to the FBT legislation will apply to all contracts entered into from 16 July 2013, with effect from 1 April 2014.
Who will be affected by the change?
It is our understanding that the following contracts will be affected by the change to FBT legislation:
* Existing contracts materially varied after 16 July 2013;
* All new contracts entered into from 16 July 2013.
Existing contracts (that are not varied) will continue to have access to the existing statutory rate (or transitional statutory rate) throughout the contract (generally the FBT is based on 20% of the car’s base value).
All contracts affected by the change will be required to calculate FBT based on private use percentage multiplied by the operating cost.
What do you need to do?
The proposed change to the calculation of FBT on car fringe benefits could have a substantial impact on both FBT and other salary packaging costs, not to mention the calculation of employee’s overall salary package.
We recommend employers take the following steps in anticipation of the proposed changes:
* Review existing contracts which may be due for renewal.
* Where contracts due for renewal, or new contracts are entered into, the employer’s Human Resources or Payroll division re-calculate the value of car fringe
benefits provided under salary packaging or salary sacrifice arrangements. This will help to determine the potential additional FBT exposure to both the
employer and employee.
* Introduce a policy with immediate effect that requires all employees with employer provided cars, or a car provided under a novated lease arrangement, to
keep a valid log book for a period of 12 weeks (where a valid log book is not already held).
As mentioned, the announcement relates to proposed legislation and as yet is not law.
If you believe you may be affected by the proposed changes and require assistance with reviewing your existing or new salary packaging or salary sacrifice arrangements, please do not hesitate to contact an [email protected] or 02 6217 0311.