Treasurer Chris Bowen has announced that the government plans to cut $1.8 billion worth of fringe benefits tax (FBT) car concessions, leading to an outcry from the automotive industry.
Treasurer Bowen has defended the changes, and said the change to the FBT mirrors similar rules that apply elsewhere in the tax system. The government said the change is necessary in order to help pay for the decision to axe the carbon tax one year early.
“We have not abolished the FBT concession for business use despite some of the rhetoric I’ve seen in the political debate over the last day or so. That is far from the case,” Bowen said. “It doesn’t affect people, tradies who already use their log books. This affects people who are claiming an upfront deduction for business use and we are just asking them to show us some evidence of that business use.”
The change is applicable to drivers who buy cars via a salary sacrifice scheme, and they will have to keep detailed logbook, which records the break down their personal versus business vehicle use.
Opposition spokesman Joe Hockey called on Bowen to release data proving the existing system was being rorted.
Treasurer Bowen does not agree that a policy change will hurt business – he said it simply means people claiming tax concessions on car use will have to provide evidence. “This is a matter of the integrity of the tax system and ensuring that we are using modern technology,” he said, adding “If you’re claiming business use for a car … there’s a need to back that up with some evidence.”
There are currently two methods in which the Taxable Value of a car fringe benefit can be valued, the statutory method, and operating cost method. The statutory method is calculated as 20 per cent of the cost of the car, while the operating cost method is calculated using the running costs based on the personal use of the car.
Under the operating cost method, employees must keep a logbook recording each journey, and its purpose. The operating cost method often produces a higher Taxable Value for cars that have a high private use.
Under the changes, the statutory method may no longer be used, meaning that all employees will be required to keep logbooks. The logbook is required to be maintained for a continuous period of 12 weeks for the first year the logbook method is used and then every five years.
Rami Brass, director of Tax Services at RSM Bird Cameron said employers will need to be sure that logbooks are maintained correctly under the operating cost method. “Employers will need to ensure that the logbooks maintained meet all the ATO’s requirements. If they are believed to be invalid, the ATO will deem a zero business use percentage, which would mean a higher FBT liability,” he said.
The new measure will apply to new contracts entered into after the announcement on July 16, 2013 taking effect from April 1, 2014.
Existing contracts materially varied after July 16, 2013 will also fall under the new arrangements. Existing contracts that are not varied will continue to have access to the existing statutory rate throughout the contract.
