Money
Issue No. 11 - June/July 2003
Taxing Times
Fringe benefits tax changes announced in March by the Federal Government created some last-minute compliance headaches and confusion for taxpayers seeking to value car fringe benefits.
While the changes clarified some issues over the depreciation of cars, the timing of the amendments — to apply in the 2002-3 year — came just hours before the FBT year concluded on 31 March.
The effect of the changes is that the deemed depreciation rate, used under the operating cost method to value car fringe benefits, has been reduced and realigned with the effective life of cars.
Certainly the last-minute changes would have confused many employers who were working to complete their FBT returns by May.
It appeared to be an example of the tax administrators legislating by press release, leaving taxpayers uncertain as to how to comply with their tax obligations.
Many taxpayers were likely to have already commenced their FBT returns for lodgement, with some relying on software which had the current deemed depreciation rate embedded in its formulas.
In its announcement, the Government promised legislation to enact the proposed amendment ‘as soon as practicable’. Unfortunately taxpayers can’t use the same line with the tax authorities when it comes to meeting their compliance obligations.
The Government stated that its intention behind the change was to restore consistency between the income tax treatment and fringe benefits tax treatment of depreciation of cars to ensure employees with company cars were not disadvantaged.
While such a change is commended, the issue should have been addressed during the FBT year, rather than at its completion, in order to reduce additional FBT compliance concerns.
In a 2002 ATO ruling, the Commissioner of Taxation determined that, for income tax purposes, the effective life of motor vehicles acquired from 1 July 2002 would be eight years, increasing the effective life from six years and ...
