Fringe benefit rules reformed with respect to cars

Measures contained in Tax Laws Amendment (2011 Measures No. 5) Act 2011 (assented 30 June 2011) change the statutory formula method for calculation car fringe benefits tax.

The changes remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession. In this way the government claims that phasing out the current car fringe benefit treatment is a sensible reform from both the taxation and environmental perspectives. The government further claims the reform implements another recommendation of the Australia's Future Tax System Review.

The current 'statutory formula' method provides that a person's car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car. Currently, the sliding scale of rates provides an increased tax concession for salary-sacrificed or employer-provided vehicles that are driven further. The government’s reform will replaces the current rates with a single flat rate of 20% applying regardless of the distance travelled. Removing the advantage gained by driving the car further. The government claims the reform is “a step in the right direction for Australian families, the environment and the Budget bottom line”. This reform only applies to new vehicle contracts entered into after 7:30pm (AEST) on 10 May 2011, and will be phased in over four years.

Sources and more information
See Treasury media release No. 050 (10 May 2011) Reforms to car fringe benefit rules and ATO background information.

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