The Federal Government has announced taxation changes that will restore consistency between the income tax treatment and fringe benefits tax treatment of depreciation of cars to ensure employees with company cars are not disadvantaged.
The deemed depreciation rate used under the operating cost method for valuing a car fringe benefit will be changed to realign it with the Commissioner of Taxation's determination for the effective life of cars.
The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, said the decision follows the Commissioner's announcement that the effective life of cars would be increased from six-years, eight months to eight years, reducing the depreciation rate for income tax purposes on vehicles acquired after July 1, 2002.
The disadvantage for taxpayers would arise when the value of a car fringe benefit is worked out using the deemed depreciation rate that, following the Commissioner's determination, exceeds the depreciation rate allowed for income tax purposes. This means that the basis for valuing a car fringe benefit would be greater than the basis for income tax deductions.
"The changes announced today will ensure that alignment between the fringe benefits tax (FBT) deemed depreciation rate and the depreciation rate for income tax purposes is maintained," Senator Coonan said.
The decision has the effect of reducing the FBT deemed depreciation rate from the current 22.5 per cent to 18.75 per cent. The new rate applies to cars acquired after July 1, 2002 that are provided as a car fringe benefit and valued using the operating cost method.
Senator Coonan said that legislation giving effect to this announcement is to be introduced as soon as practicable.