Fringe Benefit Tax Changes Expected To Hit New-Car Sales Hard Photo:

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TMR Team | Jul, 18 2013 | 24 Comments

UPDATE: Comments from Australian Automobile Association Executive Director Andrew McKellar added.

Changes to the fringe benefits tax this week, which saw a number of incentives cut from company-car programs, are expected to have a dramatic impact on new-car sales.

The FBT reforms come as part of the Rudd Government's wider money-saving efforts, introduced to offset this week's dumping of the carbon tax - a move that will cost the budget around $3.8 billion.

The changes will cut out the 20 percent FBT break that allows more than 350,000 motorists to use cars bought on a novated lease, or provided as a company car, for personal use.

Announcing the changes, Treasurer Chris Bowen said:

“Now the current statutory formula allows people claiming fringe benefits tax relief to just nominate a figure of 20 per cent, and to not justify that claim.

“The world has moved on from when this system was introduced in 1986 – we now have much better technology so that people can use phone apps and other devices which are much easier than keeping a logbook.

“The rule stipulates that it is necessary to keep a logbook for up to 12 weeks over a five-year period, but this can now be done through mobile phone technology and applications which are easily downloadable on the web.

“This means that people can claim this if they are entitled to it very easily, and there is no longer any justification for the statutory percentage method of claiming fringe benefits tax.”

While existing contracts will be held to the current formula, drivers of new employer-provided cars will be forced keep a log of private use, which will be subject to fringe benefits tax.

The changes are expected to impact on around one-third of the new car market - particularly for local carmakers, who rely heavily on business fleets for sales.

Local carmakers will be hit hardest, with a massive number of sales of Australian-built models - Toyota's Camry and Aurion, and Holden's Commodore and Cruze - coming from business and fleet buyers.

Speaking with TMR today, Australian Automobile Association Executive Director Andrew McKellar said the changes to the FTB will impact the family budget "for hundreds of thousands of households" that lease vehicles, while causing uncertainty and disruption in the finance and motor sectors.

"Motorists already pay more than their fair share to the Budget bottom line and should not be targeted to help minimise the impact of other policy decisions," he said.

"These changes are a tax on safety as it discourages people from buying newer and safer vehicles."

Highlighting the short-sighted design of the Government's decision, Mr McKellar added that a motorist who varies their current lease due to a change in circumstances could also trigger the new rules.

“It is unfair that someone varying a lease because they go on maternity leave or start working part-time should all of a sudden face a tax hike,” he said.

It is feared that many will now turn to cheaper or used cars, or hold onto their current vehicles longer.

The Federal Chamber of Automotive Industries has called on the Government to reconsider the change, warning of dire consequences for local and import carmakers, dealerships and service centres.

“I want to know if the Government truly understands the consequences of this decision, and why the industry was not consulted on such a significant change," FCAI Chief Executive Tony Weber said.

“The FCAI is yet to do precise calculations but we estimate, this could impact on around a third of new car sales."

“I fear what this means for domestic manufacturing and I am urgently seeking meetings with the Government to encourage them to reconsider this decision.”

In the meantime, some fleet buyers and leasing firms have already put a hold on deliveries until the changes to the fringe benefits tax can be discussed with customers.

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