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Articles by Team Leaders.

Proposed FBT changes for SMEs

AUTHOR: Team Leaders

POSTED: 07 February 2017

A tax amendment for close companies that provide motor vehicles to shareholder-employees has been proposed for the 2018 financial year onwards.

Overview

Companies with five or less shareholders (close companies) that provide their shareholder-employees with a motor vehicle for private use are required to register and pay fringe benefit tax (FBT) for that benefit, subject to certain exemptions. Sole traders and partners in a partnership who use a motor vehicle in a similar way are not required to register and pay FBT. Instead these taxpayers apportion their motor vehicle expenditure between business and private use under the motor vehicle expenditure rules. These differences in treatment for what is essentially the same benefit (the private use of a motor vehicle) arise because of the different entities involved. The proposed tax amendment provides an option for certain close companies to elect to have the same treatment as sole traders and partnerships.

The proposed tax amendment applies to close companies where the only fringe benefit provided is the use of one or two motor vehicles to shareholder-employees for their private use. These close companies qualify for the close company FBT option and consequently may be filing and paying FBT annually. If they elect to apply the proposed motor vehicle expenditure rules, the close company will not be required to account for FBT on the benefit provided to their shareholder-employees.

Under the proposed tax amendment, when a close company has made the appropriate election, it will apply the motor vehicle expenditure rules. In other words, the close company will use the proportion of business use by the shareholder-employee to calculate the amount of their deduction for motor vehicle expenditure.

In some circumstances a GST adjustment may be required to reflect any difference between the actual proportions of business and private use of the motor vehicle and the intended proportions of business and private use of the motor vehicle.

Summary

Currently close companies that provide shareholder-employees with a motor vehicle for private use are required to register and pay FBT on the value of the benefit provided. The value is based on the availability of the motor vehicle for private use rather than the actual private use by the shareholder-employee.

The proposed tax amendment allows certain close companies to elect to use the motor vehicle expenditure rules instead of paying FBT on the value of the benefit provided to shareholder-employees.

The proposed tax amendment is to take effect from the 2018 financial year onwards, i.e. for those companies with a balance date of 31 March, the amendment will take effect from 1 April 2017.

If you'd like help with motor vehicle expenditure and fringe benefit tax, please contact us via our website, phone +64 9 522 7955 or email [email protected].

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Comments

Testimonials

This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

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