2011 and 2012 were years of big change in the Australian tax landscape. The headlines were grabbed by new costs on carbon and proposals for mining profits taxes. While all this was happening a major shift also occurred in the area of FBT (Fringe Benefit Tax). In short the new situation will see the rates of FBT flattened to 20% across all kilometre ranges from 1 April 2014. What made the change remarkable was the fact that the previous system actually granted drivers lower rates as a result of higher kilometres usage. While all this was settling in peoples heads a discussion started online about what options were actually available when it came to recording of vehicle usage.
The change to the rates pressed those with business and/or salary packaged vehicles to consider new ways and methods for adjusting to the changed circumstance. One area of note was the growing interest in the idea of switching to the operating cost method for FBT compliance. This involves calculating the FBT liability by using a different calculation. This different calculation involves taking the vehicle operating costs and applying them to the business usage of the vehicle using the formula below.
This is calculated using the base value of the car, the relevant statutory percentage for the vehicle and the period that the vehicle was available for private use by an employee or associate. The statutory percentage is the amount that is changing under the new legislation, and ranges from 7% to 26%, depending on kilometres travelled and when the vehicle was purchased.
Taxable value = car base value x statutory fraction x (number of days in the FBT year the CAR benefit was provided/number of days in FBT year) – less any employee contributions
Operating Cost Method
This method uses a formula that determines the amount of the operating costs of the car that are attributable to private purposes. A log book must be maintained to use this method, as it determines the business use percentage of the car. No changes have been made to the Operating Cost method as a result of the 2011 legislation changes.
Taxable value = (operating costs of the car during the FBT year x (100% - business use percentage as determined by the log book)) – less any employee contributions
Paper logbook; this is where you manually fill out a physical log book. These can be picked up in most stationary shops and in some cases your company or fleet manager will provide you with one.
Electronic logbook; these are a digital version of the paper logbook. The advantage these have over the traditional method is that they usually have far more features than a standard log book and can usually be downloaded onto any good smartphone. The Logit app from Fleetcare is an example of an electronic vehicle logbook and can be downloaded here.
Tax planning and tax management strategies are an important part of any person or businesses tax management. Knowing what to do when rules change is important as in many cases people and organisations which stand still can be penalised. At times of change Knowing what tools and systems to use is important because, as we all know, knowing the system and the tools can lead to real rewards. In the end people and organisations will have to look at their own FBT liability to work out which method will suit their circumstances.