Australian company car users tax concession recommendation
Company car users could lose up to $1.1bn in tax concessions under recommendations presented to the Government by the Senate Rural and Regional Affairs and Transport Committee.
The Committee has called for the Government to address the perverse incentives for car use which currently saves some of the heavy company car users an average of $2,300 a year in tax.
The Committee has identified an anomaly in the way fringe benefits tax (FBT) is calculated, which encourages company car owners to drive more and puts environmentally friendly drivers at a disadvantage.
Despite growing international acceptance of global warming, and the impact that carbon emission have on climate change, under Australia’s current FBT statutory formula a company car owner’s tax reduces the further the car travels.
The Committee made its recommendation as part of its report on Australia’s future oil supply and alternative transport fuels and sees the provision of concessionary FBT rates for cars as contributing to Australia’s oil dependency, urban congestion, pollution and greenhouse gas emissions.
According to Chartered accountants and business advisors PKF , the statutory formula for fringe benefits was introduced to support the Australian car industry and to minimise the compliance burden on employers.
But the Australian car industry can be supported by direct assistance, rather than through the statutory formula for car fringe benefits. As only 29% of new cars sold in this country are made in Australia, the current system is actually assisting foreign car manufacturers than Australian ones.
However, there is a risk that changes to the regime will impose burdens on employers that offer company cars. It is vital that any changes made to the concessionary method do not increase the regulatory compliance burden on employers. The existing system requires less documentation than the alternative log book method.
The Committee question of whether the tax should be concessionary is different from the question of minimising compliance costs. It claims a statutory formula method can be retained for the sake of compliance, while the concessionary aspect can be removed by adjusting the rates. The Government must consider this very seriously when reviewing these recommendations.
An alternative approach would be to follow the example of the UK, where environmental concerns have been incorporated into the company car tax regime. In 2002 the UK replaced its old calculation method that was based on vehicle engine size and age, with a new emissions linked system.
The new car benefits charge in the UK is based on a percentage of the price of the car, graduated according to the level of the car’s carbon dioxide emissions. The charge is 15% of the car’s price for those with emissions at or below the qualifying level, rising by 1% for each 5g of emissions above the qualifying level, to a maximum of 35%.
This system ensures that companies are encouraged by their employees to purchase more environmentally friendly vehicles, especially given electric cars attract a tax rate of just 9% of the vehicle’s value.
In additional to reviewing company car FBT, the Committee discussed the option of giving public transport tickets a tax concession as a way of discouraging car use. While this should be supported in principle, especially for travel to and from work, any tax incentives for public transport use must be accompanied by additional public transport infrastructure.
Value of the existing car fringe benefit tax concession:
The Senate committee report states at paragraph 8.84 that the value of the concession was about $1.1bn in 2004-05 and that the tax forgone is about 43% of the tax that would otherwise be collected. They also say the benefit is about $2,300 per vehicle.
The report does not say what the current value of the concession is. However, it may have reduced as some people may have ceased salary sacrificing cars. This is because the FBT is based on the high marginal tax rate while some people on low marginal tax rates have experienced a reduction in their personal tax rate since 2004-05.
3-May-2007