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The end of the 2014 FBT year (1 April 2013 to 31 March 2014) is fast approaching, and we would like to bring to your attention the following changes, and developments in the FBT landscape.

FBT and employer provided cars

Employer provided cars and other motor vehicles are normally subject to FBT (some exemptions apply for commercial vehicles). Cars can be valued for FBT purposes using either the statutory formula method or the operating cost method. FBT then applies to the private (ie non-business) use. The statutory formula method assumes a certain level of business use which varies with the cost of the car and other factors. The log book method uses a log book to determine the level of business use.

Statutory formula method for cars to stay

As part of the 2013 re-election campaign, the former Rudd Government announced that it would be removing the concessional statutory formula method for cars. After the election the current Abbott government announced that this removal measure would not proceed, thus preserving the tax effectiveness of providing “company cars” with limited business use to employees for salary packaging purposes.

Previous changes to the FBT statutory formula rates (as shown in the Table below) applied to new or refinanced cars provided to employees from 11 May 2011. Those changes have reduced the tax advantages for higher annual distance cars (over 25,000km annually) where employers were previously entitled to use the lower statutory formula fractions (i.e. 11% or 7% of base value) when calculating the FBT taxable value of those cars. Employers will now be required to apply a single statutory fraction of 20% of base value, once the transitional rules cease to apply (this includes all cars acquired or refinanced from 1 April 2014).

Therefore, employers should now closely consider each car they provide to employees before using the statutory formula method and decide whether the operating cost method (and log book) produces a lower FBT liability.

The table below illustrates FBT statutory rates applicable to cars in respect of new or refinanced cars provided after 10 May 2011. The column “Existing contracts” apply to motor vehicle contracts entered into before 11 May 2011, and which have not been varied since.

Distance travelled during the FBT year

(1 April – 31 March)

FBT statutory rates (%)

 

Existing contracts

Rates applicable to new contracts commencing from…

 

10 May 2011

 

1 April 2012

 

1 April 2013

 

1 April 2014

< 15,000 km

26

20

20

20

20

15,000 – 24,999 km

20

20

20

20

20

25,000 – 40,000 km

11

14

17

20

20

> 40,000 km

7

10

13

17

20

 

Log book - operating cost method

The FBT operating cost method can reduce FBT liabilities for motor vehicles with a comparatively high percentage of business use.

When estimating a car’s “business use percentage” under the operating cost method, an employee is required to maintain a log book for a representative 12 week period every five years. The Tax Office has highlighted that all relevant factors including annual odometer records, and any variations in the pattern of use of the car, must be taken into account when estimating the car’s business use percentage.

For example, a car’s log book showed a business use percentage of 90% and subsequently, due to a change in circumstances, the employee’s estimated overall business use of the car falls from 90% to 65% in the FBT year. In that case the employer is then required to take into account that variation of the pattern of business use and increase the FBT taxable value of the car fringe benefit to reflect the increase in private usage from 10% to 35%. This requirement must be satisfied in both the log book year, that is, the year the log book is maintained by the employee, and the subsequent four FBT years of tax.

In some circumstances the Tax Office will accept electronic log books.

Compliance issues - motor vehicles

As a compliance measure, the Tax Office uses records of motor vehicles registered in business names in each State and Territory to cross check whether employers are lodging  FBT returns.

Living Away From Home (LAFH) Allowances from 1 October 2012

New requirements have applied from 1 October 2012 before an employer is entitled to concessional FBT treatment for certain LAFHA based food and accommodation benefits. Briefly, these are:

  • An employee (or their spouse) must have an “ownership interest” in a unit of accommodation located in Australia
  • The employee must “usually reside” in that unit of accommodation
  • The employee is required to live away from home for their employment purposes
  • The employee must demonstrate that the unit of accommodation in which they normally reside is available for their “immediate use and enjoyment” whilst they are living away from home – in practice this normally requires that the employee’s family continues to occupy the employee’s former residence
  • The employee cannot have not been living away from home for more than 12 months at the one (or similar) location
  • Substantiation records is provided by the employee for accommodation expenses incurred whilst the employee is living away from home

An employer is eligible for transitional rules up until 1 July 2014 where they satisfy the following:

  • The employee is a permanent or temporary resident with a written employment arrangement providing for payment of the LAFHA benefits that was in place on or before 8 May 2012; and
  • The employment arrangement under which the LAFHA based benefits are being provided has not materially varied or been renewed after 8 May 2012.

FBT exempt items - Ipads and laptops etc...

FBT exemptions are available for certain eligible work-related items (for example, tools of trade and portable electronic devices including laptop computers and portable digital assistants) that are primarily used in the employee’s employment. The exemption is limited to one eligible item per category per employee per FBT year, for items with substantially identical functions, unless a second item is provided as a “replacement” for the first item.

The ATO has accepted that an iPad does not have substantially identical functions to a laptop computer, and that an iPad is not designed to replace a laptop. Consequently, if an employer reimburses an employee for the cost of an iPad and a laptop computer in the same FBT year, each benefit (or item) will generally qualify for the FBT exemption provided they were primarily for use in the employee’s employment (other than self education).

More information

If you have provided fringe benefits to employees take a look at our 2014 FBT questionnaire and information sheet:

Download 2014 FBT Information Sheet
Download 2014 FBT Questionnaire

Please note this update is provided as general information only and does not consider your specific objectives, situation or needs. Please contact us for more information regarding the matters discussed in this update and for detailed advice relating to your specific situation.