Articles by Mark Ward

The government has proposed the abolition of the statutory formula method of valuing car fringe benefits. Where there were previously two methods an employer could use to value car fringe benefits, now only the operating cost method is available. In most cases the operating cost method will result in a higher taxable value and a greater FBT liability. The operating cost method will result in a much greater compliance cost. The changes apply for all new arrangements contracted after 16 July 2013 and will be effective from 1 April 2014. This change will force many businesses to change the way they provide car benefits to employees, including where it is part of a salary package. There are negative impacts for motor dealers both in reduced sales and as a result of their own increased cost of fringe benefits and compliance. Fleet inquiries have stopped while employers try to assess the impact the change will have on their own FBT liability, but dealers are also telling BDO private enquiry and sales have slowed since the announcement, as even people who won't be impacted look for assurance that this change does not affect them. Some reports have suggested this will primarily impact luxury car drivers, or those who get a car as part of a novated lease arrangement. But the impacts are much broader. Obviously the most commonly provided car fringe benefits will come from the volume brands including Toyota, Holden and Ford. Also, a novated lease is just one form of salary packaging, but the impact extends to any employer who provides an employee with a car under any employment arrangement. The reduction in new car volume will undoubtedly threaten jobs. New car sales are critical to the dealer model and a reduction in vehicle sales also impacts revenues from parts, service and finance, all of which are necessary to achieve an acceptable return in this competitive industry. The potential increased FBT liability and compliance costs for a motor dealer are also enormous. Motor dealers themselves have used the statutory formula to value the taxable value of cars provided to employees. The approach allowed by the ATO for motor dealers allows dealers to use average cost of vehicles in stock in order to calculate the taxable value. This approach -- known as the Pooling method -- avoids the administrative burden of tracking the value attributable to the benefit when it is common that employees will access a different car each night. The removal of the statutory method will force fundamental changes to employment arrangements in the industry. BDO has reviewed the modelling prepared by one large dealer group in Queensland. It is expected their FBT liability in respect to the provision of cars to employees will increase fivefold from $150,000 to $750,000. Motor dealers will not be able to absorb this significant increase in FBT costs and administration and will be forced to change their behaviour. Allied to this, is the commercial challenge that the provision of a car is also a means of having the "brand" represented in the marketplace. Mark Ward is Partner, Automotive, at accounting group BDO Australia.