Proposed changes to FBT Legislation

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The government has announced that it proposes to remove the statutory formula method of fringe benefits calculation for both salary sacrificed and employer provided cars. This will come into effect for any new contracts entered into from 16 July 2013. New contracts will include any existing contracts that are substantially varied. If you provide or are planning to provide vehicles for your employees then these proposed changes  will affect your business.

So what does that mean to me?

Currently there are two methods of calculating fringe benefits for motor vehicles; the operating cost method (often referred to as the log book method) and the statutory formula method.

The change will force businesses to increase their administration for vehicles where they would have otherwise used the statutory formula method or be subjected to a significant fringe benefits tax bill. All vehicles will be treated as 100% private usage unless logbooks are kept.

The statutory method does not require that a log book be kept and assumes that a significant portion of the vehicle use is business related; this calculation method is generally of an advantage where the vehicle has a high private use proportion. This is often the case where the vehicle is provided as part of a salary package and not essential to the employees position.

It is important to note that there is no draft legislation on this proposed change as yet, and the Coalition does not support this change. 

If you have any queries as to how this may affect you or your business please contact your NKH advisor or our specialist tax manager, Emma Barns.