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16 March 2010

TAX TIPS - SAVING FBT COST 



PURCHASE OF MOTOR VEHICLES
 

If you are contemplating the purchase of a motor vehicle within the next few months, then the timing of this purchase may have more tax consequences than you anticipated.

 

If the following facts apply to you then you should consider purchasing your new vehicle prior to 31 March 2010: 

  • The vehicle will be purchased by the family trust or company which employs you 
  • The business will possibly be paying fringe benefits tax on the vehicle using the statutory method (as opposed to the "% of business use" or "log book" method) 
  • You may retain the vehicle for four years or more.

 When using the statutory method, fringe benefits tax is based on the cost of the vehicle. The benefit in purchasing the vehicle prior to 31st March is that this cost is "notionally" reduced to two thirds of the original cost when the vehicle has been held for four years at the start of the fringe benefits tax year (1st April).  This results in lower FBT costs. 


Therefore, by purchasing your vehicle just one month earlier, a one-third reduction in fringe benefits tax one year earlier would result.
 

There are other issues to consider, including:
  

  • The tax position on the sale or trade in of an existing vehicle 
  • If you are registered for GST, the level of GST allowed to be claimed as an Input Tax Credit 
  • Whether the new vehicle is under the depreciation cost limit ($57,180 for 2009/2010) or not (sometimes this is an argument for waiting until July)
  • Method of financing the new vehicle, consideration of prepayment of leases etc 
  • Possible discounts available on vehicles in June "end of financial year sales" 
  • The most appropriate entity or name in which to acquire the new vehicle 
  • Trade in value, log books etc

We recommend that you talk to us about any transaction before the deal is finalised.


VEHICLES USING THE STATUTORY FORMULA METHOD

 

As the end of the FBT year approaches, we draw your attention to a factor that influences the taxable value of your car fringe benefits.

 

Under the statutory formula method, as the total number of kilometres (not just business kilometres) travelled in the year increases, the statutory fraction used (per the statutory fraction table below) decreases, resulting in a lower taxable value and lower fringe benefits tax payable.


For example:

  • if you travel 24,900 kms in the year, the taxable value of the benefit is calculated as the value of the car, say $35,000, by .20 (the appropriate statutory fraction) = $7000
  • if you travelled 25,100 kms in the year, the taxable value of the benefit is the value of the car by .11 ($35,000 x .11) = $3850

i.e the taxable value has been reduced substantially, by travelling extra kilometres and moving into the next statutory bracket.

We suggest that it could be worth your while to check your odometer readings and calculate the likely kilometres travelled in the period 1/4/09 to 31/3/10.  If the number of kilometres travelled for the year is close to a threshold change, it would be advantageous to plan and time your travel arrangements to maximise this year's kilometres. 

Annualised Number of Kilometres

Statutory Fraction

less than 15,000

.26

15,000 to 24,999

.20

25,000 to 40,000

.11

more than 40,000

.07

 

Please contact us if you wish to discuss your specific situation.

 
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This Newsletter, of necessity, has dealt with matters of a technical nature in general terms only. Clients should contact us for detailed information on any of the items in the Newsletter. No responsibility for loss occasioned to any person acting or refraining from acting in reliance upon any material in this Newsletter can be accepted by any member or employee of the firm.


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