New FBT Rules

Here is some food for thought about the new changes to Fringe Benefit Tax and Carbon Tax. It would be best that before you make any big decisions regarding this new information that you first see what your accountant says, and do have a talk to us if this new information raises any questions because we are a specialist car finance provider.

For many, the reinstated PM Rudd has been a good move forward for Australia in its current economic and political situation. However, the newly proposed changes to Fringe Benefit Tax and Carbon Tax that PM Rudd has announced hasn’t made for great news if you happen to be in the car lease industry. On July 16th PM Rudd suggested that an Emissions Trading Scheme would replace the carbon tax, and as part of this change there would be a $1.8 billion cut in Fringe Benefit Tax concessions. The main reason for the change was stated by Joe Albanese, the Government Minister for Transport, who said that There’s a lot of people clearly fiddling the system. Those people who are salary sacrificing who use their car less than 20 per cent but claim the 20 per cent offset  less than one kilometre in every five they actually use for work  the chances are it’s not a Holden Commodore; it’s a BMW. The big deal is that under current measuring methods, Fringe Benefit Tax is calculated at 20 per cent of a vehicles cost, regardless of whether the car is used for private or business use or private use via the salary sacrifice, with the assumption that the car is being used for predominantly business use anyway. The more expensive a car, the larger the portion claimed in Fringe Benefit Tax.

Added to the cuts in Fringe Benefit Tax for new car owners, a potential extra cost of around $1400 per year per vehicle could make the car leasing environment a whole lot less attractive for someone who might be on the lookout for a new set of wheels predominantly used for business, with a small portion of the vehicle being run for personal use. Some would say that this bleak outlook could well stop the car lease industry in its tracks.

Again, the new changes bring in the requirement of a far more comprehensive log book keeping system of the vehicle’s use. In order to make sure that the kilometres a car travels for work and personal use are tracked more accurately, recent new technology has made it possible to get a much more precise value for both work and personal use over a twelve week period. According to Federal Climate Change Minister Mark Butler, The Government had considered the FBT changes very carefully. It’s not the same as it was in the 1980s. You can download these very easy apps that use GPS systems to do the work all for you.You effectively just press the button, let it go and after you’ve finished marking that travel or recording that travel over the 12-week period every five years it can be automatically sent to your employer or your tax agent. Using the on-board GPS systems inside new cars for tracking mileage is also a simple and effective way of gathering data for emissions.

While the changes do have some great benefits in ensuring that the system becomes much harder for people to cheat, the Shadow Minister for Transport, Joe Hockey, stated that This is going to be like a baseball bat to the motor vehicle industry in Australia. This is poorly thought out. There was no consultation with any stakeholders.

Mr Hockey pointed out that 75 per cent of recipients of a new company car earn less than $100,000 a year, and that they were going to be hit with a tax bill of $1400 a year, every year, going forward.

It is this sort of change that will make people think twice about leasing a new vehicle for the business fleet. The Federal Chamber of Automotive Industries has responded with CEO Tony Weber claiming that: The changes undermine the long-term certainty the FCAI and its members have called for from government, and threatens to affect around one-third of new car sales in Australia. The effects will flow right through the industry, including to dealerships and service centres.

Though new log book-keeping technology could make it easier, the changes ignore the fact that the costs involved to companies to process manual log book keeping processes will result in the forcing of higher prices for new vehicles, more real-time paperwork and the potential to damage the 80% fleet market sales that Australian car makers have. These effects would be disastrous, and the changes have already caused one major fleet vehicle purchaser to freeze their order, pending any further developments.

Everyone loves a new car. A new fleet is not only great for business marketing they are essential for the smooth operation of a new working business fleet. It’s essential that you are kept in the loop with regards to the new changes, and, as stated at the beginning, please consult your accountant for information, and feel free to give us a call to further help you to clarify this new legislation so you can best decide what’s best for you.