Changes to the fringe benefits tax rules means some employees will no longer benefit from racking up the mileage on company cars.

The Federal Budget removes the unintended incentive for people to drive their vehicle further than necessary to receive larger tax concessions.

The government will replace the current rates with a single flat rate of 20% that applies regardless of the distance travelled.

People who travel less than 15,000 kilometres per year will receive the greatest benefit from the changes, while employees travelling more than 25,000 kilometres will see a small tax break. Those driving between 15,000 and 25,000 kilometres will not notice any change, while those travelling more than 25,000 kilometres will be expected to accurately record their business kilometres in a logbook – or face penalties.

While the savings only amount to $26.4m next year, the benefits grow exponentially in the following years to a total savings of more than $950m by 2014-15.

Not only is the measure a budget winner, but the government says it’s a win for the environment as well.
Under the current formula, a person’s car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car. The sliding scale of rates provides an increased tax concession for salary-sacrificed or employer-provided vehicles that are driven further.

The reform implements a recommendation from the 2009 Henry Tax Review.