ATO MINUTE	540-2009	8 september 2009		
format	Minute no.	ISSUE Date	Classification	
ATO Minute	File Ref:	09/6250	
	
	To:	Maryanne Mrakovcic, General Manager, Tax Analysis Division		
	Copies to:	Treasury:  Brenda Berkeley (GM), Tax Design Division, Colin Brown, Cliff Bingham		
	Treasury ref:			
	
	From:	Michael Monaghan, First Assistant Commissioner, GGR		
	Business Line:	Governance and Government Relations	Section:	Revenue Analysis Branch		
	Contact officer:	Paul Brodie	Contact Phone:	(02) 621 62134		
	Contact fax no:	(02) 621 62676	Contact email:	Paul.brodie@ato.gov.au 		
	Other refs:			
	
	Category:	

	
	Issue date:	8 September 2009	Response Date:			
	
	Subject:	Fringe Benefits Tax on Car Benefits		
	
1.  Purpose
To provide an estimate of the revenue impact of a proposal to change the statutory fraction used to value a car fringe benefit. 

2.  Proposal
Currently the statutory fraction varies depending on the number of kilometres the car travels during the year.  This proposal has two alternative options to replace the current statutory fractions 

Option A:  introduce a flat statutory fraction of 0.20 with the following transitional arrangements

FBT Year	Distance Travelled (kms)	
	1 – 15,000 	15,000 – 25,000 	25,000 – 40,000	40,000 +	
2010-11	0.20	0.20	0.14	0.10	
2011-12	0.20	0.20	0.17	0.13	
2012-13	0.20	0.20	0.20	0.17	
2013-14	0.20	0.20	0.20	0.20	

Option B:  introduce a flat statutory fraction of 0.15 with the following transitional arrangements

FBT Year	Distance Travelled (kms)	
	1 – 15,000 	15,000 – 25,000 	25,000 – 40,000	40,000 +	
2010-11	0.15	0.15	0.12	0.09	
2011-12	0.15	0.15	0.13	0.11	
2012-13	0.15	0.15	0.14	0.13	
2013-14	0.15	0.15	0.15	0.15	

The new statutory fractions will only apply to new leases.  The existing fractions will continue to apply to arrangements entered into before 1 April 2010.

3.  Start Date

1 April 2010

4.  Background

One method for valuing a car fringe benefit is the statutory formula method.  Under this method, the taxable value of the car fringe benefit is a percentage of the car’s cost price and is calculated using the following formula:

(A x B x C ) – E
	D
Where:
A = the base value of the car
B = the statutory percentage
C = the number of days in the FBT year when the car was used or available for private use of employees
D = the number of days in the FBT year
E = the employee contribution
The greater the total distance the car travels (business and private), the lower the taxable value. 

The statutory percentage depends on the total kilometres the car travels, as follows:
Total kilometres travelled 
during the FBT year	Statutory
percentage	
Less than 15,000	26	
15,000 to 24,999	20	
25,000 to 40,000	11	
Over 40,000	7	

5. Impact analysis – summary details	
5.1 Revenue impact – (see Appendix 1)
The revenue impact has been estimated using different behavioural responses.

 Option A  Flat 0.20 statutory fraction
Financial Year	
2010-11	
2011-12	
2012-13	
2013-14	

$m	
$m	
$m	
$m	

Revenue Impact	
125	
383	
723	
968	

Option B Flat 0.15 statutory fraction
Financial Year	
2010-11	
2011-12	
2012-13	
2013-14	

$m	
$m	
$m	
$m	

Revenue Impact	
38	
524	
501	
682	

	
5.2 Compliance cost impact 
Not requested
	
5.3 Departmental impact 
Not requested

Michael Monaghan
First Assistant Commissioner
Governance and Government Relations

Appendix 1 – Revenue impact

Option 1 – Statutory formula method - flat 0.20 statutory rate (phased-in, new contracts only) PLUS 0c/ km - 1 Apr 10 start date						
 						
Salary Sacrifice	2010-11	2011-12	2012-13	2013-14	Total	
FBT	-38	-76	-84	-92	-291	
Company	0	0	0	0	0	
Personal Income Tax	152	406	686	900	2,144	
GST	21	54	91	119	284	
 	 	 	 	 	 	
Employer Provided	2010-11	2011-12	2012-13	2013-14	Total	
FBT	-23	-39	-28	-22	-112	
Company	0	0	-7	-23	-30	
Personal Income Tax	14	38	64	84	201	
GST	0	0	1	2	3	
 	 	 	 	 	 	
Option 1 - Total	2010-11	2011-12	2012-13	2013-14	Total	
Revenue Impact	125	383	723	968	2,199	
Underlying Cash Balance	104	329	632	847	1,912	
						
Option 2 Statutory formula method - flat 0.15 20 statutory rate rate (phased-in, new contracts only) PLUS 0c/ km - 1 Apr 10 start date						
 						
Salary Sacrifice	2010-11	2011-12	2012-13	2013-14	Total	
FBT	-48	34	38	89	112	
Company	0	0	0	0	0	
Personal Income Tax	133	356	600	788	1,876	
GST	17	45	75	99	236	
 	 	 	 	 	 	
Employer Provided	2010-11	2011-12	2012-13	2013-14	Total	
FBT	-73	64	-268	-306	-583	
Company	0	0	13	-43	-30	
Personal Income Tax	9	25	43	56	134	
GST	0	0	0	0	0	
 	 	 	 	 	 	
Option 1 - Total	2010-11	2011-12	2012-13	2013-14	Total	
Revenue Impact	38	524	501	682	1,746	
Underlying Cash Balance	21	479	426	584	1,510	

Reliability of estimate
This estimate is of low to medium reliability.  It is highly sensitive to the number of cars the statutory fraction distribution and the behavioural response effects.

Data
FBT return 2008-09
Individual tax return 2006-07
The impact of Australia’s Fringe Benefits Tax for cars on petrol consumption and greenhouse emissions by D Kraal, P Senarath Yapa and D Harvey

Assumptions
•	The distance travelled by cars is distributed in the following proportions:
Annual km thresholds	0-15	15-25	25-40	>40	
Proportion of vehicles in range (as % of total using SFM)	14.1%	25.5%	40.8%	19.6%	

•	Average car price of $34,323
•	Acquisition price of 90.9% of car price (to exclude GST)
•	The cash out value is equal to the operating costs of the car 
•	34.38% marginal tax rate for individuals that cash out
•	Fuel costs of 0.20 cents per kilometre
•	5.85% deemed interest rate 
•	18.75% depreciation rate
•	91.7% of pay as you go withholding collected within year
•	0% of company collection collected within year.  
•	45% of cars are salary sacrificed, the remainder are employer provided cars
•	The proportion of cars using the grandfathered statutory rates over time are

	2010-11	2011-12	2012-13	2013-14	
Proportion of current affected by new FBT	80.0%	50.0%	20.0%	0.0%	

Option A
•	All cars which currently travel up to 25,000 kilometres per year continue to receive a car fringe benefit
•	Eighty percent of individuals who have a salary sacrificed car fringe benefits where over 25,000 kilometres per year are travelled will opt out 
•	Thirty percent of individuals who have an employer provided car fringe benefits where over 25,000 kilometres per year are travelled will opt out
•	Where an employee opts out their total remuneration package will only increase where the car was an employer provided fringe benefit.  

Option B
•	All cars which currently travel up to 25,000 kilometres per year continue to receive a car fringe benefit
•	Seventy percent of individuals who have a salary sacrificed car fringe benefits where over 25,000 kilometres per year are travelled will opt out 
•	Twenty percent of individuals who have an employer provided car fringe benefits where over 25,000 kilometres per year are travelled will opt out
•	Where an employee opts out their total remuneration package will only increase where the car was an employer provided fringe benefit.
						
Methodology

Estimated FBT collections for car fringe benefits where the statutory formula method is used were calculated for the 2010/11 budget year onwards.
where
FBT collections = (car price X acquisition price adjustment X statutory fraction – employee contributions) X number of cars X type 1 gross up rate X FBT rate

FBT collections for these years under the proposed statutory fractions were then calculated after taking into account the behavioural response by individuals who choose to cash out their benefit for extra salary, the transitional statutory fractions and the rate of new lease acquisition.  The resultant impact on pay as you go withholding, company and GST collections were also estimated.

The impact on revenue is the difference between current FBT collections and the overall impact on revenue from the proposed statutory fractions.