Government’s removal of Statutory
Fringe Benefits Tax concession for motor vehicles

FBT – Statutory Method and Cost Method

When an employer provides an employee with a non cash benefit, such as the use of a car, there may be a tax liability involved called Fringe Benefits Tax (FBT). When an employee has access to a company car, the employer must pay a tax on the private use value of that car at the top marginal tax rate of 46.5%. This is called Fringe Benefits Tax.

There are two methods to calculating that liability:

  • The statutory method of calculating the Fringe Tax Liability is predominately used because it usually gives the best tax concession. It’s calculated by taking 20% of the cost of the car, less any employee contributions.
  • The cost method of calculating FBT takes all the running costs of the motor vehicle (such as lease payments, fuel, registration etc.) multiplied by the personal use percentage of the vehicle which is determined by a log book. This will usually create a higher tax liability due to many employees using the car for personal trips the majority of the time.

Applying the new legislation

The government is removing the statutory method and only allowing the cost method to be applied to calculate FBT. This new law MUST be applied to any new contracts from 16 July 2013, however any old contracts may still be able to use the statutory method until the end of the FBT year being 31 March 2014, or until that contract is cancelled or the type of car is changed. This means that all new contracts, or, contracts after this FBT year must have evidence of separation between personal and business use of a vehicle by maintaining a log book for 12 weeks out of the year to be able to determine what how much of the car is used for private and business purposes.

If you believe this may affect you or if you would like further information, please contact us.

Submitted by: Mark Nasta – Rubiix Accountant

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