The Real Impact of Proposed FBT Changes on Vehicle Salary Packaging

FBT and car packaging

Prime Minister Rudd announced on 16th July 2013 that the ‘statutory’ method for claiming an FBT (fringe benefit tax) deduction for vehicle expenses, based on the flat rate of 20% of the cost of the car, would no longer be permitted. 

Without the ‘statutory’ method introduced to simplify red tape, FBTers need to use the ‘operational’ method aka the logbook method.

The Rudd government claim a $1.8 billion saving over the next four years, helping pay for the decision to move from the carbon tax to a market based emissions trading scheme (ETS).

Now whilst the details of the announcement are unclear, as ever there are immediate and long-term implications of such an announcement.  Businesses need certainty in policy so they can plan and remain competitive.  Equally, taxpayers deserve the same certainty else, chaos quickly rules the decisions they make with vehicle packaging.

What are the implications of any change?  From my understanding, it is not so good.  Here are some pointers:

 

The Good

  1. $1.8 billion over 4 years for the government coffers to offset the cost of moving to an ETS.
  2. People living away from the city that rely on the cost effectiveness of vehicle salary packaging will move closer in and thereby reduce the carbon footprint.
  3. It only affects 320,000 people.  Two thirds of which earn over $100 000.
  4. The used car market can expect some growth as ex-leasers switch to retain their income.

 

The Ugly

  1. Leasing businesses are immediately affected.  Any leases taken up from 16th July 2013 that run into April 2014 are impacted.  Consumers are less likely to take up new leases whilst uncertainty remains.
  2. Leasing companies need to make decisions today.  If there is a substantial fall in new leases in the short term, jobs will be lost.
  3. The share prices of leasing companies fall.  Maxxia saw a 15% fall in its share price on 16th July before its share were put into a trading halt.
  4. Individuals that live in the outer suburbs or away from public transport will lose out unless they can prove ‘business use’ with the logbook method.  The incentive for those that don’t is to up sticks and move back towards the city.
  5. With fewer leases written, the new car market falls.  Up to 80% of all locally made cars are bought by fleets.
  6. With fewer new cars built, there is a predominately negative effect on jobs in the primary and secondary car market (new builds, parts, accessories, components)
  7. An argument put forward by leasing experts suggests a move from leased, new cars to private, used cars.  This affects road safety and increases used car prices.

 

What are your thoughts on the FBT change?  Do you see any ‘Good’ or ‘Bad’ points not covered here?

By Phil Williams

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