• 12 Issues raised by the States and Territories

    12.1 Reform to statutory formula method for cars

    Issue:

    The proposal to remove the statutory formula method to calculate FBT liability will require entities to use the operating cost method. For some entities, use of the operating cost method will increase administrative burden.

    Background:

    Under the current car fringe benefits rules, a car fringe benefit is valued using either the operating cost (log book) method or the statutory formula method.

    Under the operating cost method, the car fringe benefit is the cost of running the car multiplied by the proportion of personal use of the car (worked out by a log book) minus any employee contribution to costs. However, under the statutory formula method, the car fringe benefit is the cost of the car multiplied by 20 per cent, regardless of personal use of the car.

    The proposal to remove the statutory formula method used to calculate the value of car fringe benefits will ensure that the FBT exemption for cars is more targeted at business use rather than personal use.

    Industry view/suggested treatment:

    It is expected that the car industry will oppose the FBT reforms. The Australian Salary Packaging Industry Association also opposes the reform.

    Although the reform has been proposed, the success of legislative amendment to implement the reform is dependent on a number of factors, such as the outcome of the 2013 federal election.

    Technical references:

    Fringe Benefits Tax Assessment Act 1986

    Impact on clients:

    For some entities, use of the operating cost method will increase administrative burden.

    Priority:

    High

    Has previous advice been sought from the ATO?

    No

    Has this issue been discussed at any other consultative forum?

    Victoria has not discussed this issue at any other consultative forum

    ATO Response

    A response was not provided to this agenda item as it concerned an announcement made by the former Government.

    Note: The Treasurer and Assistant Treasurer on 6 November 2013 announced the Government will not proceed with the proposed car fringe benefit reform.

      Last modified: 03 Feb 2014QC 38409