FBT Solutions

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Cars and FBT


With the growth in use of the after tax contribution method (or Employee Contribution Method “ECM”) when salary packaging a car (or even a car parking space) the ATO is concerned that employers are not fully aware of their tax obligations.

The contribution results in a GST liability to the employer, such that 1/11th must be remitted to the ATO on the monthly / quarterly BAS and 10/11ths must be included as assessable income on the employers income tax return.

These obligations are sometimes overlooked or there can be challenges faced by employers in meeting these obligations.

 


With the new rates applicable from 10 May 2011, subject to transitional rules, it is necessary for the FBT return preparer to determine for each car:

  1. What set of statutory fraction rates apply for 2012
  2. What set of statutory fraction rates will apply from 1 April 2012 due to a new committment occurring in 2012

This will be quite a challenge, not just for 2012, but for 2013 and 2014 FBT years.

For all new committments (between 11 May 2011 and 31 March 2012), then the new transitional will only start to apply from 1 April 2012.


Cars, being the most common and highest valued benefit, continue to be a major ATO focus. The ATO are targeting cars on a number of fronts….

 Luxury cars and use of logbook

The ATO have focussed closely on the use of log books in respect of luxury vehicles, especially high end luxury sports cars.

We highlight the following key action items:

  1.  Do you have logbooks for every car where the logbook method has been adopted historically? If there is no logbook, then revert to the      statutory formula method for 2012. Consider the exposures you may have for the earlier years, not just the FBT liabilities, but also payment summary reporting errors and underpayment of payroll tax
  2. Do you have a process in place for reviewing & approving logbooks or do you accept the word of your employee?
  3. Does the business percentage make sense? Is it realistic given the employee’s role and responsibilities?
  4. Assuming the business percentage is high (80% plus), then what are the nature of the business trips and why have they been undertaken?
  5. Make sure you have original signed versions of logbooks on file and check that they have not expired or that the employee role / duties      remains the same as when the logbook was originally prepared.

Documentation of the above should be included on the employee’s personal payroll file, especially where the car is salary packaged.


Key change for 2012 – reform of SFM car rules

The reforms will apply to all car fringe benefits after10 May 2011, unless it can be proved that there was a pre-existing commitment in place to provide a car prior to that date, either an existing lease or a commitment to a new lease. A commitment is considered entered into at the point that there is commitment to the transaction, and it cannot be backed out of. The commitment needs to be financially binding on one or more of the parties. Therefore, it will be important to understand the application of the rules for both FBT purposes and in determining after tax contribution amounts.

Changes made after 10 May 2011 to commitments existing prior to 10 May 2011, such as re-financing a car, altering the duration of an existing contract or changing employers, are new commitments and will therefore be subject to the new arrangements. Under the transitional rules, if the amendments (new commitments) do not apply at the start of an FBT year (or from the time the car was first held if that happens after the beginning of the FBT year), the amendments will instead begin to apply from the start of the next FBT year as follows:

Thresholds

Existing   rates to 10 May 2011

New   rates after 10 May 2011

2012

2012

2013

2014

2015

0 – 15,000 kms

26%

20%

20%

20%

20%

15,000 – 25,000 kms

20%

20%

20%

20%

20%

25,000 – 40,000 kms

11%

14%

17%

20%

20%

More than 40,000 kms

7%

10%

13%

17%

20%

Therefore, the key point is that whilst a car may be subject to the new rates, the application may not occur until the first day of the next FBT year. This requires 2012 FBT return preparers to flag these changes for the 2013 FBT return.

If the above changes are not carefully considered at 2012 FBT return time for each car, and flagging of cars in transition, then this will create further work for 2013 FBT.