George Christensen (Dawson, National Party) Share this | Link to this | Hansard source

asked the Treasurer, in writing, on 26 May 2011:

(1) Has he considered that the impact of the recent changes to the Fringe Benefits Tax (FBT) on salary sacrificed company vehicles will be financially deleterious to many mine workers in Central Queensland who have to travel hundreds of kilometres to get to and from work.

(2) Can he confirm that when a mine worker renews the lease on his or her salary-sacrificed vehicle valued at $65 000, the fringe benefits tax payable will go from $4550 to $13 500 if the mine worker has to drive more than 40 000 kilometres per year; if so, can he confirm that this was intended.

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

The answer to the honourable member's question is as follows:

(1) By way of background, when an employer makes a car available to an employee for private use, a car fringe benefit will generally arise and be subject to fringe benefits tax (FBT). Car fringe benefits are valued under either the 'operating cost' (or 'log book') method or the 'statutory formula' method.

Under the log book method, the taxable value of the benefit is based on the cost of owning and operating the vehicle, reduced by the portion which relates to the business use of the vehicle. Employers are required to substantiate the business use of the vehicle by maintaining a log book for a specified period.

The statutory formula method is designed to provide employers with a low compliance cost alternative to the log book method, eliminating the need to maintain a vehicle log book. The statutory formula method removes the need to explicitly distinguish between the business and private use of a vehicle.

The Government announced on 10 May 2011 that it will reform the statutory formula method by replacing the sliding scale of statutory rates with a single rate of 20 per cent that applies regardless of the distance travelled. Previously, the taxable value of a car fringe benefit was reduced as a car travelled more kilometres, as a greater business use element was assumed.

Replacing the sliding scale of statutory rates with a flat statutory rate of 20 per cent removes the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.

The changes do not apply to existing contracts, and will be phased in over four years.

People who use their vehicle for a significant amount of work-related travel will still be able to use the log book method to ensure their car fringe benefit excludes any business use of the vehicle.

The reforms do not fully remove the FBT concession for cars, and the benefits from salary packaging will still be greater for employees with higher variable costs of car ownership (e.g. fuel and maintenance) as a proportion of total costs. This is because these variable costs are salary sacrificed and are therefore paid from pre-tax dollars rather than post-tax dollars, and don't affect the amount of FBT payable.

Some types of cars, in certain circumstances, are exempt from FBT, such as where there is only limited private use of a panel van or ute. There are no changes to these exemptions.

In addition, there is an FBT exemption for the provision, by an employer, of transport to and from an employee's usual place of residence and a remote area work site, such as a mine, under what are commonly known as fly-in fly-out arrangements. The exemption applies where an employee is provided with accommodation at or near the remote area work site on working days, the transport is provided to enable the employee to return to their usual place of residence on days off, and where it would be unreasonable to expect the employee to travel to and from work on a daily basis.

(2) The taxable value of the car fringe benefit, and the FBT payable on that car fringe benefit, depend on whether the statutory formula method or the log book method is chosen. If the statutory formula method is chosen, the FBT payable will depend on the cost of the vehicle, how far the vehicle is driven, and whether the employee makes an employee contribution. If the log book method is chosen, the FBT payable will depend on the cost of owning and operating the vehicle, how much the vehicle is driven for work, and whether the employee makes an employee contribution.

Under the statutory formula method, the taxable value of the car fringe benefit for a vehicle with a base value of $65,000, being driven further than 40,000 kilometres per annum, will increase from $4,550 to $13,000 following the changes to the taxation of car fringe benefits. However, this is not the FBT payable. The FBT payable depends on whether the employee makes an employee contribution, which can substantially reduce and even eliminate the FBT payable both before and after the reform. Whether the employee makes an employee contribution or not, the FBT liability is not equal to the taxable value of the car fringe benefit.

Under the log book method, the taxable value of the car fringe benefit depends on how much the car is driven for work, and how much the car is used for private travel. If the vehicle is driven only for work, the taxable value of the car fringe benefit, and the FBT payable, will be zero.