FBT will cost $4000 extra a year

Fleet management firm proffers a figure for the extra tax company car drivers will incur

Employees getting around in company cars can expect to pay an extra $4000 a year, says the CEO of a local fleet management firm.

If they're lucky, suggests Nigel Malcolm, of Fleetcare, their employers will absorb that extra cost.

"A business owner now faces the stark choice between telling staff they will earn $4000 less because of the tax, or taking that same amount of money out of company profits," Malcolm said in a press release issued last week.

"Log books offer no real solution because business must bear the cost of managing and verifying travel logs. That’s 12 weeks of data per car every 5 years. But if a driver’s job changes, if they’re given a new business territory, if their home or business address changes or there is any material change for the driver, then the driver will need to do another log book. When you have a fleet of vehicles of any size, it’s a massive undertaking."

Malcolm's comments follow hard on the heels of tirades from lobby groups representing the interests of motorists and industry, in response to government plans to end the statutory method of calculation for fringe benefits tax.

According to Malcolm, over 70 per cent of managed fleets could be affected. This is the proportion of fleets using the now rescinded statutory method, which presumed that private use for each company car was up to 20 per cent of travel – but no more. Now that company car drivers are required to fill in log books to verify that their private use is no more than 20 per cent, productivity is affected, for both the driver and admin staff employed to collate the data. There's also a very strong likelihood that many of the company car drivers who have been paying less FBT by applying the statutory method will now find themselves paying more tax.

Malcolm's figure of $4000 is believed to be based around private use over 50 per cent, rather than the 20 per cent figure fixed in the statutory method. But most company car drivers are unlikely to be hit with that sort of impost.

For a fleet of around 60 vehicles, each one costing roughly $1400 a year to run, the FBT payable would total close to a quarter of a million dollars by the statutory method – or close to $300,000 by the operating method. Those figures are for vehicles priced up to $30,000 and travelling an average of 30,000km a year. The operating method, based on an average private use component of 30 per cent applied would cost company car drivers around $800 extra a year – a far cry from $4000.

30 per cent private use may prove to be a conservative figure though – which is undoubtedly what the government is hoping. Just deducting annual leave, public holidays and weekends reduces the working days in an average year to 60 per cent of the total. But it's almost certain that fleets and company car drivers will time their logged travel to minimise their exposure to taxable private usage – or they'll simply take the family car rather than the company car during that three-month period.

Without log books it's pure guesswork to establish the private usage habits of company car drivers across the country – and even with log books it's unlikely to be highly illuminating.

The question has been raised as to how this change will affect sales of locally-manufactured cars. Assuming that there will be a serious downturn in sales across the board, something like close to half the local production output could be affected.

VFACTS figures reveal that in 2012 over 65,000 of the nearly 140,000 cars built for the domestic market were sold to: large and small fleet operators, non-profit organisations, company capitalisation or federal, state and local governments. In many cases those cars (Commodore for police forces or Territory for mobile intensive care paramedics) are 'pool' cars that won't incur FBT, but that leaves a substantial percentage that will be subject to the tax.

Late last week the VACC released a follow-up press release that painted a picture of dealers suddenly faced with a massive surge in cancelled orders.

“Rightly, the Federal Government has been widely censured by the whole automotive industry for this ill-conceived and counter-productive change to the FBT. However, we need to emphasise the specific plight of the new car dealers,” David Purchase, VACC Executive Director, said in the press release.

“New car dealers will suffer the most from the Federal Government’s new policy. They are telling us that, already, orders have been cancelled, settlements suspended and deliveries to customers postponed.

“We know of one member, with multiple dealership franchises in Victoria which normally sells between 120-150 cars a month as leased or company cars. Customers have put a stop on these sales until further notice, resulting in some employees being surplus to requirements. While sales have stopped, stock keeps arriving from orders placed months in advance. The dealership will soon become overstocked with cancelled back orders and the arrival, and storage, of new vehicles. If swift action is not taken, this could be as big an issue as the floor plan credit crisis in 2008.

“We call on the Federal Government to reverse its decision. If changes to FBT are desired, there should be consultation with all sectors of the automotive industry, and new car dealers, in particular. The retail, service and repair sector of the automotive industry is significant and should not be ignored.”

The FCAI was quick to twist the knife in the wound also, welcoming word from the federal opposition that it will not adopt the changes to the FBT if it wins government at the next election –yet to be officially announced, but due in the next few months.

"This is a positive development after a difficult week for the Australian automotive industry," FCAI Chief Executive Tony Weber said in his press release.

"Long-term policy certainty is vital for motor vehicle importers and domestic manufacturers, and other connected elements of the industry, including dealers, component suppliers and the finance sector."

For its part, the government claims that "two-thirds" of drivers who salary sacrifice earn over $100,000 and less than one in 50 of those earning less than $100,000 will be affected by the FBT amendment.

Picture courtesy of James086/Wikimedia Commons

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FBT will cost $4000 extra a year

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