Federal Budget
27 September 2011
Car Fringe Benefits Statutory Fraction Method Changes
We recently announced the Federal Parliaments introduction of a single flat rate of 20 per cent to calculate Fringe Benefits Tax (FBT) on vehicles under the Statutory Formula Method.
Since our last bulletin, The Tax Laws Amendment (2011 Measures No 5) Bill 2011, (the Bill), was introduced into Federal Parliament accompanied by an Explanatory Memorandum (EM) providing further details of the May 10 announcement.
A Summary of TFM's May bulletin notes that no changes have been made to the Operating Cost Method, stating that the new FBT rates apply to new vehicle contracts entered into after 7:30PM (AEST) on Tuesday, 10 May 2011, but will be phased-in over the next four years as detailed below.
| Annualised Km's |
Existing Contracts |
10-May-11 |
01-Apr-12 |
01-Apr-13 |
01-Apr-14 |
| 0 - 14,999 | 26% | 20% | 20% | 20% | 20% |
| 15,000 - 24,999 | 20% | 20% | 20% | 20% | 20% |
| 25,000 - 40,000 | 11% | 14% | 17% | 20% | 20% |
| 40,001 plus | 7% | 10% | 13% | 17% | 20% |
Essentially, all existing contracts will remain unchanged. Any new contract entered into after the effective date will have the new rates phased-in over the next four years.
Full details of the changes are not currently available, and will not be until legislation is passed by Parliament. To enable customers to continue processing transactions TFM has taken the following interim strategies and assumptions until the changes have been legislated.
A "new vehicle contract" covers:
- A new or second hand vehicle that has a vehicle purchase order, a lease contract or a finance contract (whichever comes first) entered into after 7.30pm (AEST) on 10 May 2011.
The new vehicle contract date is:
- New vehicles ordered by TFM on behalf of the Customer: the vehicle order date
- New vehicles not ordered by TFM: the TFM Contract Start date (also the Registration date)
The second hand vehicle contract date for vehicles new to the Employer is:
- The TFM Contract Start date
Vehicles that are re-financed, extended or varied or changing employer after 10 May 2011 are new commitments and therefore will be subject to the new arrangements.
- If the changes are made part way through the year, the new rates will apply from the beginning of the next FBT year
- Employers and employees who seek to terminate existing contracts early and immediately enter into new contracts, just to get the benefit of the new FBT rates may be caught by the general anti-avoidance provisions.
Where TFM calculates the FBT liability for new vehicle contracts the rates used are shown in the column headed 10 May 2011 above. The FBT liability for these vehicles in future FBT years will change for vehicles travelling 25,000km or more, in accordance with the table.
We will be issuing further bulletins when the new legislation is passed by parliament, and will seek further clarification and provide updates, including a detailed analysis of alternative strategies. TFM will comply with the legislation and will make adjustments to the contracts accordingly.