- Additional burden on employers until the transitional phase ends in March 2014
As expected, the Government announced a crack down on excess company car use by introducing a flat 20 percent statutory formula regardless of the distance travelled. The move is aimed at removing the “unintended incentive” for people to drive further than they need to in order to get a larger tax saving.
The reform will only apply to vehicle contracts entered after 10 May 2011 and will be phased in over four years. The statutory percentage for travelling over 24,999 kilometres and 40,000 a year will progressively increase from the current rates of 11 percent and 7 percent respectively to a standardised 20 percent from 2014.
“The Budget measure of applying a flat statutory rate to car fringe benefits is a step towards a simpler FBT system. However, it may now make it more inviting for some people to take up the offer of a company car because those who drive less than 15,000 kilometres per annum will pay less tax than under the current rules,” said KPMG Tax Partner Andy Hutt.
“Under the transitional rules employers will need to track those cars that were leased or acquired before Budget night separately from those leased or acquired after Budget night because the different FBT calculation rules will apply. This will be an additional burden on employers until the transitional phase ends in March 2014,” said Mr Hutt.