This week we thought we would continue our comments relating to the tax simplification proposals announced by the Prime Minister last Wednesday.
One particular proposal which may be of interest to company owners besides the changes to the provisional tax regime is in relation to vehicle ownership and FBT.
Under the current rules owning vehicles in a company will generally result in fringe benefit tax being payable where there is also some private use and no exceptions apply. The calculation of the FBT on these vehicles can be challenging and the rules difficult to understand, especially where only minor private use, such as travelling from home to work, on a particular day can result in FBT being payable for the whole day.
This mind set change can also be difficult for people to understand as they transition from operating as a sole trader, where there is no FBT, but deductions are apportioned, to a company structure. As a result many people pay FBT on the full value of the vehicle, incorrectly calculate FBT or avoid having vehicles in a company structure.
Under the proposed changes to the tax regime, vehicles owned in a close company and provided to shareholder-employees would be able to be treated in much the same way as a sole trader or partnership, with apportioned expenditure and depreciation. The options will be the same as currently available where expenditure can be claimed under any of actual records, a logbook or IRD mileage rates. Where this method is used, registering and paying FBT will not be required, saving time and compliance costs for the taxpayer.
This proposal is one which we feel may be of interest to a lot of close company owners. While the draft legislation is not yet out, if you would like to talk more about how this could be of benefit to you please get in contact with your Polson Higgs advisor.