Fringe Benefits Tax - Specifically Motor Vehicle

By Jason Fittler,

The fringe benefits tax (FBT) is a tax applied within the Australian tax system by the Australian Taxation Office.

The tax is levied on most non-cash benefits that an employer provides "in respect of employment."

The tax is levied on the employer, not the employee and will be levied irrespective of whether the benefit is provided directly to the employee or to an associate of the employee.

The tax was first imposed in 1986 and the operation of the tax is described by the Fringe Benefits Tax Assessment Act 1986.

A benefit, is a benefit in respect of employment provided to somebody because they are an employee. The 'employee' may be a current, former or future employee, and treatment of the benefit will be the same whether it is received directly by the employee or by associate of the employee.

There are several specific 'types' of benefits listed in the legislation, including car fringe benefits, loan fringe benefits, housing fringe benefits and others. For each fringe benefit type, one or more methods are prescribed for determining the taxable value of the benefit.

Below is more detail about motor vehicle fringe benefits.

Either of two methods may be used operating cost method (log book) or statutory formula method.

The statutory formula method is the more popular one because it requires less record-keeping. It provides lower FBT rates as vehicle usage increases and as vehicle capital value decreases.

The Statutory Formula Method FBT is calculated as follows:

FBT Taxable Value = FBT Capital Value x Statutory Percentage x Number of days in the FBT year the vehicle is available for use / 365.

In the 2011/12 budget, the Federal Government changed the statutory percentage for calculating FBT, replacing the sliding scale statutory rates with the single rate of 20-percent.

Statutory formula method does not take into account the actual personal use of the car. It automatically assumes significant proportion of use of the car is for business purposes.  

Removal of statutory formula method will apply to contracts entered into after July 16, 2013. It will be effective from April 1, 2014.

The Operating cost method calculation is based on the cost of running the car multiplied by proportion of personal use of car (recorded in log book) by the FBT rate. For those employees who use the car mostly for personal use the fringe benefit tax will be much higher as such the employers will no longer offer cars as a benefit.

Clearly now that the Statutory method is no longer available less people will be provided company cars and those who currently salary sacrifice into a leases vehicle (many of these public servants) will not renew once the lease expires.