In July this year the Federal Government announced that motor vehicle Fringe Benefits Tax (FBT) rules were to be changed to remove the statutory formula method of calculating fringe benefits tax. Current novated leases or company vehicles will not be affected provided there is no material change to the lease condition. Car leases signed after 16 July 2013 will be affected by the proposed changes.

Previously, the taxable value of a car fringe benefit was calculated using one of two methods – the statutory method or the operating cost and log book method. The statutory method of calculating the FBT is calculated by taking 20% of the cost of the car, less any employee contributions.

The operating cost method of calculating FBT totals all the running costs of the vehicle (fuel, service, registration etc) and multiplies it by a personal use percentage of the vehicle as determined by the log book.

If the main use of the car is for private purposes the statutory formula will generally produce a lower taxable value than the log book method. If the change proposed by the Government is legislated, everyone who has a company vehicle will be required to keep a logbook for 12 weeks every 5 years justifying the business usage percentage of their car.

The federal opposition have stated that they do not support the changes and will not proceed with the policy changes if elected. However until the outcome of the election is decided it is important businesses consider the private use of any vehicles before purchasing a new vehicle.