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