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FBT All your questions answered

Old FBT rules helped stimulate record new-car sales and record GST revenues from new car sales, servicing, and finance sectors.

 

Was the old FBT system a rort?

No. The Fringe Benefits Tax rules in place for 27 years were supported by successive Federal Governments and taken advantage of by working families, police, teachers, Federal, State, and Local Government workers, charities and others. It's a "rort" that has helped stimulate record new-car sales and record GST revenues from the new car sales, servicing, and finance sectors.

Were “fat cats” the main beneficiaries of the old FBT system?

No. Data from the leasing industry shows less than 5 per cent of cars bought under a novated lease or as part of a salary package are a BMW, Audi or Mercedes-Benz. The average cost of all cars bought under the scheme is $34,750. The average annual wage of novated lease and salary package drivers is $70,000.

Which company-car drivers will be affected most by this decision?

Figures from the salary packaging and leasing industries show middle Australia will be most affected including those in health, education and the emergency services. State and Federal Government public servants represent the largest portion of the novated leasing and salary packaging business (33 per cent) ahead of those in charities and public health (28 per cent), police and teachers (21 per cent) and then the private sector (18 per cent).

Who is exempt from the changes?

Owners of privately registered new or used cars, or owners of utes or vans or “tool-of-trade” vehicles used exclusively for work purposes. Also anyone who bought a car under a novated lease before the Rudd Government’s announcement on Tuesday, although they will be faced with the same issue when the lease ends. Federal politicians will also be exempt. Members of parliament who earn a minimum of $195,130 will keep their taxpayer-funded cars. MPs who opt out get a $19,500 car allowance.


In what conditions will I be caught up in the new FBT rules?

If you bought a car under a novated lease after the Rudd Government’s announcement on Tuesday. That’s why 10,000 new-car deliveries -- about one-third of a week's deliveries -- were frozen in three days as people tried to get out of their contracts. You will also be affected if you have a pre-Tuesday salary-packaged car and change employers and want to take the car with you.

Why were many salary packaging jobs lost so quickly?

Because the order rate all but stopped. For example, Melbourne-based NLC Leasing -- which had been in business for 23 years -- had to sack 74 of its 145 staff because order rates dropped from 40 a day to two. NLC and others fear they will go bankrupt, eventually leading to an estimated 3000 job losses (almost the same number of people in the car assembly workforces of Holden and Toyota).

Is there a chance the FBT changes will be reversed?

The Australian Automobile Association has called on the Rudd Government to put this mistake down to experience and reverse the decision immediately. Leasing and salary package firms say they would rehire staff “in a heartbeat” if the changes were reversed. If the changes are not reversed it's expected new car sales will drop by 30 per cent over the next three to five years.

Why are car manufacturers concerned?

Up to 70 per cent of all locally-made cars are sold to company fleets or drivers who lease cars through their work. If most of these people switch to private purchases they are unlikely to update to a new car as often. Given that local car makers are already on the brink, they need every sale they can get. Otherwise they will need more taxpayer funding to stay afloat.

Why is Holden not as vocal on FBT as it has been on other issues?

Holden is in the middle of sensitive negotiations with the Rudd Government about increased funding and other forms of assistance to build cars beyond 2016. A day after the normally conservative Toyota sent out a distress signal Holden issued the following statement: “Anything that reduces new vehicle sales is detrimental to our operations and a cause for concern.”

Is it hysterical to claim road safety will be adversely impacted by the changes? 

No. The average age of cars bought as part of a salary package or novated lease is four years. The average age of all cars in Australia is 10 years. Today’s cars come with six airbags and anti-skid control, 10-year-old cars are lucky to have one airbag. New cars have been a silent contributor to the massive reduction in the road toll over the past decade even though the number of cars on our roads has increased.

Will used-car buyers be affected?

Yes. Fewer near-new ex-fleet cars will end up in the broader community. One of the benefits of churning through so many new cars is the fact newer, safer, and more efficient cars become more affordable more quickly on the used market.

Why are some car dealers not so concerned?

Because they stand to gain from selling cars with more profit under the new arrangements. Most cars bought under a novated lease are sold at fleet prices (about a 10 per cent discount on average, but sometimes much more). However, given the expected drop in demand for new cars, dealers may end up being no better off.

Should the old FBT rules on company cars have been overhauled?

Yes, but not as quickly and dramatically as has been done by the Rudd Government. A more sensible approach would be to phase-in changes over a five-year period or more. For example, rather than assume the blanket 20 per cent personal use, the government could have increased the personal use component by 5 per cent each year starting from next financial year. Only drivers who dispute this figure would be required to fill-out a logbook.

This reporter is on Twitter: @JoshuaDowling
 

FBT by the numbers:

Why the new arrangements brought new-car sales to a halt.

Changes to Fringe Benefits Tax rules have slammed the brakes on salary-packaged cars and novated leases -- about one-third of all new cars sold -- because they effectively double the tax on personal use. Figures from fleet services provider FleetCEO show the FBT on a $40,000 car that travels 25,000km a year used to be $7680 under the old system (which assumed 80 per cent of a leased vehicle’s use was for business and 20 per cent was personal). 

But in reality most novated lease drivers rarely use their cars for work purposes. So under the changes the FBT would shift to 100 per cent, which in this example sees the FBT increase to $14,209 each year. Obviously car buyers aren’t going to pay this premium, so they will either keep the car they have or buy a secondhand clunker.

This reporter is on Twitter: @JoshuaDowling