SENATE

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

Chapter 8 - Car benefits - statutory formula method

Overview

8.1 Schedule 6 of this Bill will amend the Fringe Benefits Tax Assessment Act 1986 (FBTAA) to increase the taxable value of car benefits calculated under the statutory formula method. This will be done by increasing the statutory fractions used in the statutory formula method for determining the taxable value of a car benefit.

Summary of the amendments

Purpose of the amendments

8.2 These amendments will amend subsection 9(2) of the FBTAA to increase the statutory fractions used in the statutory formula method for determining the taxable value of a car benefit.

Date of effect

8.3 This amendment will apply to assessments for the FBT year commencing on 1 April 1995 and later years. [Item 74]

Background to the legislation

8.4 An employer is entitled to choose one of two methods for calculating the value of a car benefit: the 'statutory formula method' or the 'operating cost method'. Under the operating cost method, the taxable value of a car fringe benefit is calculated by applying the business proportion to the total costs of operating the car. To use this method, the employer must comply with the substantiation rules. This involves keeping log books and other records.

8.5 Under the statutory formula method an arbitrary taxable value is determined. The base value of the car is reduced by a statutory fraction to give the value of the car for the year. Different statutory fractions may apply depending on the number of kilometres travelled during the year. The greater the statutory fraction, the higher is the taxable value of the car benefit and the more tax is payable. An employer is not required to comply with the substantiation rules to use this method.

8.6 The statutory formula method is set out in section 9 of the FBTAA.

Explanation of the amendments

8.7 Items 2, 3, 4 and 5 in Schedule 6 will amend subparagraph 9(2)(c)(ii) to increase the statutory fractions. The new fractions are set out in the table below.