Many taxpayers will be worse off under the new regime for motor vehicle fringe benefits tax, and businesses should check which of the two methods for calculating the tax will provide them with a better outcome, treasury officials and tax experts have warned.
The comments were made during a Senate estimates hearing last night, where a treasury spokesperson stated that under changes for the statutory method of FBT, 60% of travellers will pay more tax.
“We estimate around 60% of cars are travelling distances of 25,000 or more and therefore would be impacted by an increase in the statutory fraction,” Treasury spokesman Marty Robinson said at the hearing.
“A bit less than 15%, we estimate, are travelling less than 15,000 a year and would see a benefit from a reduction in the statutory fraction.”
Robinson also said the estimates are “relatively sensitive” and are based on an assumption the take-up of the employee contribution method will increase.
The changes will mean that a company or salary-packaged car will be taxed at a flat rate of 20%, whereas previously that rate changed based on the distance travelled. This means those taxpayers travelling less than 15,000 kilometres will see a small tax break, while those travelling over 40,000 kilometres will see their tax increase.
Depending on the cost of the car and the salary of each employee, the difference could be thousands of dollars in some circumstances.
Institute of Chartered Accountants tax counsel Yasser El-Ansary says it is quite plausible that most drivers will be worse off, considering the previous scheme made it more rewarding to travel large distances.
“I think the reality is that most motor vehicles out there that are being salary packaged are travelling longer distances and that’s because advisors who do the financial analytics of that are knowledgeable of the fact that there is a disadvantage for travelling lower distances on the current statutory rates,” El-Ansary says.
“The data that’s being released may well be quite aligned to this theory, and this change put in place on budget night has a significant impact on the majority of employees salary packaging motor vehicles – many of them will end up paying a higher rate of tax.”
However, El-Ansary says businesses have a way out. They can use the logging method to determine their FBT, which requires a detailed transcript of how many kilometres each car has travelled and for what purpose.
Doing so could reduce their FBT liability.
“That method will stay the same under the proposed changes,” El-Ansary says. “This operating cost formula is determined by the overall costs of actually running the vehicle. And for some employees, they will continue to use that method as they will be better off.”
“There will always be that option for employees in certain circumstances.”
However, there are still concerns about when the new FBT arrangements will kick in. While the Government has confirmed the new tax rate will be phased over the next three years, saying drivers recording over 40,000 kilometres won’t see the full rate until then, no further detail has been released for the next three years.
But CPA Australia spokesman Paul Drum says while there has been quite little detail about this, there haven’t been many inquiries either.
“I would suggest no one is really paying too much attention to that,” he says. “Leasing companies, banks and those who do remuneration advice for a living are across all those areas. But I would suggest no one has really turned their mind to it.”
“Members are much more interested in the changes to trust rules,” he says.
El-Ansary adds the changes will allow some companies to salary-package vehicles more tax-effectively when they couldn’t before.
“For those who aren’t salary packaging a vehicle under the current tax rates because it would be a disadvantage, those individuals may well find an advantage in salary packaging under the new regime.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
