Government holds fire on FBT

THE car industry dodged a bullet in last week’s federal budget when rumoured changes to the fringe benefits tax (FBT) did not eventuate.

The industry feared that the government would change the way tax was calculated on cars for FBT.

At present there are two ways of establishing entitlement to a reduced tax under FBT.

One is the operating-cost method, which involves keeping a record of mileage, differentiating between private and business distances to determine tax status.

The other is the statutory method, which lays down specific distances that have to be covered to qualify for lower tax rates.

Federal Chamber of Automotive Industries (FCAI) spokesman James Goodwin said: “We dodged a bullet in the budget.” He said the chamber had expected changes, although it was considered more likely that the government would wait for the results of the Henry tax system review by secretary of the treasury Dr Ken Henry.

The FBT on cars has fallen into disrepute as stories spread about how drivers have been deliberately accumulating kilometres on little-used or “brief case” cars to qualify for a lower tax rate by reaching the next threshold.

Mr Goodwin said the chamber did not believe there was such abuse on a widespread basis, although it conceded there was a possibility of such behaviour when it lodged its submission to the Henry review.

Part of the submission read: “A financial incentive to increase vehicle usage can occur where, in the normal course of business, a vehicle’s annual kilometres travelled remains just below one of the FBT thresholds. In this instance, there can be an incentive to increase the vehicle’s usage to achieve a lower FBT threshold.” However, in the executive summary of the submission, while the FCAI agreed “the statutory formula had been the subject of much debate”, it said: “This debate has not been substantiated with sound empirical evidence.

“It is noted that the evidence that the statutory formula creates an incentive to increase distance travelled is equivocal, at best.” The FCAI reproduced a graph by the Bracks report into the car industry showing strong spikes in the number of vehicles subject to the FBT at the various thresholds.

However, the FCAI said the graph “almost certainly” overstated the extent to which drivers’ behaviour was changed by the (thresholds).

Mr Goodwin said the FCAI had suggested that a way to prevent any artificial mileage being accumulated to reach a threshold would be to have more thresholds, offering smaller increments in tax savings.

That way, the inducement to reach the next threshold would be minimised.