Additional Comments from Coalition Senators


Additional Comments from Coalition Senators

Car fringe benefits tax rule changes

The proposed changes

1.1        Schedule 5 of the Tax Laws Amendment (2011 Measures No.5) Bill 2011 changes the current ‘statutory formula’ method for determining the taxable value of car fringe benefits.

1.2        It replaces the three current statutory rates with a single rate of 20 per cent that applies regardless of the distance travelled.

1.3        The statutory rates that applied prior to these changes were as follows:

Total kilometres travelled during the year

Statutory percentage

Less than 15,000

26%

15,000 to 24,999

20%

25,000 to 40,000

11%

Over 40,000

7%

1.4        The changes contained in Schedule 5 were announced in the 2011-12 Budget and apply immediately from 10 May 2011 to all new car leases or car purchases from that date onwards.

1.5        The changes will mean that those who drive less than 15,000 kilometres a year will now pay less FBT and those who drive between 15,000 and 25,000 kms a year will pay the same.

1.6        However those drivers who drive more than 25,000 kms a year will pay more fringe benefits tax.

1.7        The proposed measures will not apply to existing car leases or car purchases entered into before 10 May 2011.  For these contracts, FBT will be calculated based on the old statutory fractions that applied prior to that date.

Increase in Government Tax Revenue

1.8        This measure has an ongoing gain to Budget revenue of $961.9 million over the forward estimates. This increased tax revenue will be spread across the forward estimates as follows:

2010-11

2011-12

2012-13

2013-14

2014-15

$5m

$29.4m

$140.4m

$331.2m

$455.9m

1.9        This measure is also expected to increase GST payments to the States by $50 million over this period due to the increase in FBT liabilities under the proposed change. This will occur as the increased FBT will increase State revenues from payroll tax and WorkCover which therefore increases GST Payments to the States.  

Increased costs on Employers

1.10      Employers will be affected by the changes. Where an employer previously paid FBT at a statutory fraction of 26% on a car benefit, the reduction to the 20% statutory fraction will reduce the FBT payable.

1.11      However, as above, the FBT on those cars which were previously valued at statutory fractions of 7% or 11% will add to the FBT cost for employers.

Increased taxes for Australians who use motor vehicles for work purposes

1.12      This measure is another tax on those Australians who rely on their motor vehicle to earn their income and have to travel long distances, including tradespeople, salespeople, couriers, primary producers and small business people.

1.13      Official figures show that there are 570,000 cars operating under the existing statutory formula.

1.14      According to evidence given at Senate Estimates of those 570,000 cars around 60% will be worse off, 15% will be better off, and 25% will see no change to their current arrangements.

1.15      These figures highlight that 342,000 Australians will pay more tax because of this latest Labor tax grab.

1.16      The impact of these increased taxes will fall disproportionately on people who live in outer metropolitan, regional and rural areas of Australia who need to drive longer distances than inner city residents.

Comment

1.17      This is another tax grab inflicted on Australian workers by a government that is addicted to higher taxes and higher spending.

1.18      The negative impact of this tax grab will be harshest on people who live and work in outer metropolitan areas as well as regional centres and rural areas. These people will be punished by the Labor government through no fault of their own, as they need to drive longer distances on a regular basis.

1.19      The government will earn nearly $1 billion of extra taxes over the forward estimates as a result of these changes. This tax grab is only needed because the Labor government has mismanaged Australia's finances so badly over the past 4 years resulting in huge budget deficits and net government debt forecasted to peak above $100 billion in 2011-12.

1.20      If the government had not spent outrageous amounts on programs such as the pink batts fiasco, overpriced school halls and failed green loan schemes there would be no need to slug working Australians with extra taxes.

1.21      People in outer metropolitan, regional and rural areas are now being asked to pay for Labor's reckless spending, record Budget deficits and record government debt.

1.22      The Coalition notes that this measure was a recommendation from the Henry Tax Review, and that to date the government’s approach towards addressing issues outlined in the Henry Tax Review has been to cherry pick those measures which assist in improving the government’s budget bottom line, as opposed to genuine taxation reform.

Recommendation 1

1.23      That the Senate Economics Committee examines the changes made by Schedule 5 within one year of their introduction to assess the actual impact of the changes on:

  • small business in Australia;
  • motorists in outer metropolitan, regional and rural areas; and
  • any substitution effect between the statutory method and alternative methods of calculating FBT on motor vehicles, such as the log book method.

Senator Alan Eggleston

Deputy Chair

Navigation: Previous Page | Contents | Next Page