JOINT MEDIA RELEASE WITH
THE HON WAYNE SWAN MP
DEPUTY PRIME MINISTER AND TREASURER

REFORMS TO CAR FRINGE BENEFIT RULES

The Gillard Government will change the fringe benefit treatment of cars to remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.

Under the 'statutory formula' method, a person's car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car. Currently, the sliding scale of rates provides an increased tax concession for salary-sacrificed or employer-provided vehicles that are driven further.

The Government will replace the current rates with a single flat rate of 20 per cent that applies regardless of the distance travelled.

This reform will only apply to new vehicle contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over four years as shown below:

Compared to the current statutory rates, a single rate of 20 per cent will:

• increase the tax concession provided for vehicles driven less than 15,000 kilometres a year;
• maintain the current tax concession provided for vehicles driven between 15,000 and 25,000 kilometres a year; and
• decrease the tax concession provided for vehicles driven more than 25,000 kilometres a year.

People who use their vehicle for a significant amount of work-related travel will still be able to use the 'operating cost' (or 'log book') method to ensure their car fringe benefit excludes any business use of the vehicle.

CANBERRA
10 May 2011

What does this mean?

• There will be no change for existing vehicle contracts entered into prior to 7.30pm, 10th May 2011
• For new vehicle contracts entered into after 7.30pm, 10th May 2011 the 4 tiered statutory rates will be phased out and replaced with a flat rate of 20% by 1st April 2014.
• This only effects the Statutory Cost Method for determining the cost of the Vehicle Fringe Benefit

What are the benefits of a single rate?

• Employees will no longer need to conduct excessive travel prior to the end of the FBT year.
• The 20% rate will benefit employees who travel less than 15,000 kms p.a., as the rate reduces from 26% to 20%, which means that salary packaging a motor vehicle is more tax effective.
• Employees will be motivated to care for their vehicles,  maintain a lower odometer reading and potentially increasing the resale value of their vehicle.

“Annual Statistics show that the average vehicle travels between 10,000 - 15,000 kms p.a.”

What if I do travel high kms?
(Remember, this is only for new contracts)

• For employees who travel between 15,000 -24,999 kms p.a. there will be no change
• For employees who travel between 25,000-40,000 kms p.a. the rate will rise from 11% to 20% over the next 3 years
• For employees who travel more than 40,001 kms p.a., the rate will rise from 7% to 20% over 4 years

What is the Operating Cost Method?

• For employees who travel larger than normal business use kilometers, the Operating Cost Method (Log Book) has not changed.  This method for determining the cost of the Vehicle Fringe Benefit may produce a lower FBT liability.

What is not clear?
(The 2011 Budget still has to be approved by Parliament)

• The Government is not clear on what rate is to be applied on new contracts signed prior to 7.30pm 10th May 2011 and the vehicle is delivered after 7.30pm 10th May 2011.
• An existing vehicle travelling less than 15,000 p.a. is on the 26% rate, can this existing vehicle apply the 20% rate from 10 May 2011 or does is stay at 26% till the end of the contact.

What is packEDGE doing?

• We are taking the view that the Budget will be passed in Parliament
• We are in the process of changing our systems to accommodate the new FBT Statutory Rates for new contacts
• We will keep you up to date of any changes to the proposed 2011 Budget

For further information on Fringe BenefitsTax, Salary Packaging or Motor Vehicles please click here to submit an enquiry by email