Fringe Benefits Tax Changes – FAQ’s
These FAQ's are based on the sgfleet interpretation of the proposed legislation and are subject to change as more information comes to hand.
This page was last updated on Friday 18th June 2011.
On the 10th of May 2011, the 2011/12 Federal Budget was released with a focus on Fringe Benefits Tax as it relates to motor vehicles. These changes simplify the treatment of FBT for the future and will be phased in over the next four years for new contracts (this is being referred to as ‘transitional arrangements’). The new regime makes salary packaging a motor vehicle more beneficial for drivers travelling low annual kilometres as it will result in a single statutory rate of 20 per cent being applied regardless of the distance travelled during the FBT year.
To assist with the transition phase we have developed the following FAQ’s and will continue to add to these as more questions arise.
Q. Why have these changes been made?
A. These changes have been made by the Federal Government to simplify the treatment of FBT for the future, and remove the adverse environmental incentives for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.
Q. I have an existing lease, how does this impact me?
A. There are no changes in respect of any vehicles that were delivered prior to 7:30pm on the 10th of May 2011. Accordingly, the previous FBT regime will continue to apply to existing novation arrangements, including those vehicles travelling less than 15,000 kilometres per annum.
If you make any changes to your existing lease that results in a ‘new commitment’ the new FBT regime as outlined in the table below will apply from the beginning of the next FBT year.
The following is an example of a new commitment, a similar example was provided in the Explanatory Memorandum recently released by Treasury (click here to view the full Memorandum).
Blake entered into a novated lease arrangement with his employer for a car benefit in 2009. The lease expires in September 2011 and Blake has been travelling approximately 32,000km each FBT year. In August, Blake decides to re-finance the same car for another year, and signs a form saying he is extending the lease by 12 months. This is considered to be a new arrangement. Since the amendments begin to apply part way through an FBT year the original statutory rate of 11 per cent will continue to apply for the remainder of the 2011-12 FBT year with the amended rate of 17 per cent applied from 1 April 2012.
Q. What is a ‘new commitment’?
A. The draft legislation recently issued indicates that changes made to an existing contract that will result in a new commitment include changes such as:
- Re-financing a car
- Changing employers
- Altering the duration of an existing contract (increasing or decreasing the term of your lease)
- Altering the number of kilometres to be travelled
Q. I had a vehicle on order prior to 7.30pm 10 May 2011 how does this impact me?
A. The new FBT regime will not apply if a financially binding agreement was in place prior to 7:30pm (AEST) on the 10th May 2011. On the basis that the receipt of a properly executed, accepted quote for sgfleet is a financially binding commitment, the date that the accepted quote was received will determine whether the new FBT regime will apply.
The following is an example of a financially binding commitment. A similar example was was provided in the Explanatory Memorandum recently circulated (click here to view the full Memorandum).
During April 2011 Constance begins discussions with a salary packaging provider about obtaining a car through a salary sacrifice arrangement. On 2 May 2011 Constance agrees to a particular option with the provider and the car is ordered. She signs a contract with her employer. The car is scheduled for delivery on 1 August 2011 at which point she will sign documents with the leasing provider for the provision of the car. Constance entered into a commitment prior to 7:30pm (AEST) on the 10th May 2011 and her contract will continue to use the old FBT statutory brackets.
We are reviewing all of the vehicles on order and those that have been delivered since the change to determine which leases are affected by this and will be contacting the drivers to supply new salary sacrifice information.
Q. What are the new FBT rules?
A. As previously mentioned, the Government have implemented changes to replace the current statutory fraction rates with a single flat rate of 20 per cent that applies regardless of the distance travelled. This reform will apply to new contracts and new commitments entered into after 7:30pm (AEST) on the 10th May 2011, and will be phased in over four years as shown below:
Source: Joint Media Release with The Hon Bill Shorten MP Assistant Treasurer Minister for Financial Services and Superannuation (click here to view the media release).
Q. I am considering a novated lease, will this still be a viable option?
A. The new FBT regime continues to present an excellent opportunity for you to salary package your vehicle using a novated lease arrangement. Those drivers travelling less than 15,000 kilometres will be better off. There will be no change for drivers travelling between 15,000 and 25,000 kilometres. Those driving more than 25,000 kilometres will be subject to a sliding scale, and may have other FBT options available to them which can be discussed with one of our Novated Lease Sales Consultants on 1300 138 235.
Q. I am considering a 3 year novated lease in the 25,000-40,000km bracket, how will my FBT Liability be calculated?
The following example explains how the phased approach (or transitional arrangements) affect the calculation of the FBT Liability over the life of the lease.
James enters into a novated lease on 1 July 2011 for 3 years and travels in the 25,000-40,000km bracket in each FBT year.
- From 1 July 2011 until 31 March 2012 the statutory rate of 14 per cent is applied
- From 1 April 2012 until 31 March 2013 the statutory rate of 17 per cent is applied
- From 1 April 2013 until 31 March 2014 the statutory rate or 20 per cent is applied
- From 1 April 2014 until 30 June 2014 the statutory rate of 20 per cent is applied
Q. If I enter into a new lease in the 25,000 - 40,000 bracket now, do I need to travel a minimum number of kilometres in the 2014/2015 FBT year and beyond?
A. No, from 1 April 2014 all leases entered into after 7:30pm (AEST) on the 10th May 2011 will have been transitioned on to the flat rate of 20 per cent and from that time on there will be no requirement to travel a nominated kilometre bracket in relation to FBT liability.
Q. I have an FBT exempt vehicle, how do these changes affect me?
A. Our understanding is there will be no changes to FBT exempt vehicles.