This may drive business to implement new processes for managing logbooks to reduce FBT liability using the operating cost method. Particularly since paper logbooks are extremely onerous in administration and compliance and newer technologies like GPS logbooks are now available.

Background

Currently under the statutory formula method, the taxable value of a car fringe benefit is determined by a formula that is dependent on:

• The FBT cost of the car, otherwise known as the base value;
• The number of kilometres travelled;
• The period during the year where the car is available for private use by the employee; and
• Any post-tax employee contributions made by the employee in respect of the car fringe benefit provided.

As part of the calculation, the number of kilometres travelled during the FBT year is annualised and assigned to a statutory fraction according to the below table:



The Greens are of the view that the current legislation encourages employees with employer-provided cars to artificially inflating the number of kilometres travelled during the FBT year in order to obtain a lower statutory fraction and reducing the FBT payable.

The expected measures seek to remove such incentives.

How will employees be affected?

For employees who in previous FBT years travelled 25,000 kilometres or more per year, the proposed measures, if enacted, are likely to raise questions about the attractiveness incorporating cars as part of their remuneration packages.
This is due to:

• An increase in FBT as a result of the higher statutory fraction; and
• Where applicable, any post-tax employee contribution made by the employee will also have to be increased in order to reduce the FBT payable to nil.

Some employees may resort to the use of logbooks to reduce the FBT arising from the current lease arrangements.  However, the record-keeping requirements for vehicle logbooks are often onerous and prone to errors.  The use of electronic logbooks may assist in this area.

It is also worthwhile noting that employees who travel less than 15,000 kilometres for the FBT year will benefit under the proposed measures given the reduction of the statutory fraction from 0.26 to 0.20.

Potential implications for employers

1.    From the employers’ perspective, the FBT liability will increase.  In some cases, employers will be required to complete logbooks to keep this cost down by using the operating cost method.

• Moore Stephens can introduce employers to providers of electronic logbooks that use GPS technology to reduce the administrative burden.

2.    More importantly, employers will require a rethink of how to best structure the remuneration packages for their employees.  Questions employers will need to consider include:

• Should we shut down novated lease programs?
• How do we deal with the existing arrangements?

Moore Stephens can provide assistance in this regard through our practical solutions & employee contribution strategies. 

For further information on the above please contact the authors or your Moore Stephens Relationship Partner.

Authors: Michael van Schaik and Peejade Cheng


Contact

Michael van Schaik
T +61 3 8635 1800
mvanschaik@moorestephens.com.au

www.moorestephens.com.au