Industry experts say taxpayers will be worse off under the new regime for motor vehicle fringe benefits tax, urging businesses to determine which of the two methods for calculating the tax will provide them with a better outcome.
Changes to the FBT rule saw the different tax rates currently applied to 570,000 cars, purchased on salary sacrifice, replaced with a single 20% FBT rate.
Earlier this week, a Senate estimates hearing was told by Treasury the reform will create less advantageous conditions for about 60% of the current users of such cars.
“We estimate around 60% of cars are travelling distances of 25,000 [kilometres] 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 [kilometres] a year and would see a benefit from a reduction in the statutory fraction.”
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 do have another option. He says 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.
“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,” he says.
While the Government has confirmed the new tax rate will be phased in over the next three years, no further details have been released for the next three years.
According to El-Ansary, the changes will allow some companies to salary package vehicles more tax effectively when they couldn’t before.