FEDERAL BUDGET 2011: Government to save $953 million in crackdown on FBT for company cars

The Government has followed through on threats to clamp down on fringe benefit tax rebates for company cars, abandoning the system that gave drivers a bigger tax break the further they travelled.

In a widely-anticipated move that will save $953 million over the next four years, the Government will reform the existing “statutory formula” method for calculating a person’s car fringe benefit.

Currently, the benefit is determined by multiplying the relevant statutory rate by the cost of the car. But the Government argues the sliding scale of rates provides an “unintended” increased tax concession for salary-sacrificed or company-provided vehicles that are driven further.

The Government will replace the current rates with a single flat rate of 20% that applies regardless of the distance travelled.

This will mean drivers who travel less than 15,000 kilometres will receive a bigger tax break than they currently do, drivers who travel 15,000-25,0000 will receive the same break, and drivers who travel further than 25,0000 will receive a smaller benefit.

“This reform is a step in the right direction for Australian families, the environment and the budget bottom line,” Treasurer Wayne Swan said.

The new rates will apply to contracts signed after 7.30pm on May 10.

The Government says those taxpayers who still use the “operating cost” or “log book” method to calculate the FBT will still be able to use this method and “ensure their car fringe benefit excludes any business use of the vehicle”.