Oz Automotive Industry Blasts Federal Tax Revisions

A shocked Federal Chamber of Automotive Industries warns of the dire consequences for Australia’s auto industry after new Prime Minister Kevin Rudd abruptly ends the fringe-benefit tax concession on vehicles to help pay for his decision to abandon a carbon tax.

Rudd says Australia will move to a market-based emissions trading-scheme on July 1, 2014 – a year earlier than planned – and the fixed-carbon price of A$25.40 ($23.42) a ton (0.9 t) won't apply. Analysts say the price should drop to about A$6 ($5.53) from the current A$24.15 ($22.27).

The move to an emissions-trading scheme will cost the federal budget A$3.8 billion ($3.5 billion) over the next four years, of which A$1.8 billion ($1.66 billion) will be made up through the new fringe-benefit tax changes relating to salary-sacrifice and employer-provided motor vehicles.

“I fear what this means for domestic manufacturing, and I am urgently seeking meetings with the government to encourage them to reconsider this decision,” FCAI CEO Tony Weber says in a statement.

He says the change affects sales of both locally built and imported cars in Australia, and the effects will be felt throughout the industry, including dealerships and service centers.

“I want to know if the government truly understands the consequences of this decision, and why the industry was not consulted on such a significant change,” Weber says.

“The FCAI is yet to do precise calculations but we estimate, from today, this could impact on around a third of new car sales.”

Webber says auto manufacturing is a scale industry requiring plans to be made well in advance, and the government’s announcement “undermines the long-term certainty” sought by the FCAI and its members.

Rudd’s change means the current statutory formula will be abolished for new contracts, and each employer will have to use a logbook to track the costs relating to each car and estimate the business use of the vehicle. The fringe-benefit tax is payable on the private portion of the costs.

Until now, the statutory formula allowed people claiming fringe-benefit tax relief to nominate a figure of 20% and not justify that claim.

The Victoria Automotive Chamber of Commerce says it is concerned the tax revisions may depress new-car sales, while increasing red tape for small businesses.

“The Labor Party changed leadership, but clearly has not changed its attitude towards the automotive industry,” VACC Executive Director David Purchase says in a statement.

“Labor has introduced a new policy, which will have a significant impact on the automotive industry, without consulting us. Not for the first time, VACC members and members of the automotive industry are grappling for information and trying to second- guess the changes they’ll have to make.”

Purchase says early indications are the tax changes will affect new-car sales, as buyers of company cars will have to invest considerably more time in logbooks and paperwork.

“It appears that drivers of company cars will now have to keep a record of every journey they make,” he says.

Rudd and Treasurer Chris Bowen make the announcement at Townsville in northeastern Queensland, 1,365 miles (2,180 km) north of Canberra.

“We're abolishing the statutory formula in relation to the fringe benefits tax on cars… this is a significant savings decision,” a transcript of the news conference quotes Bowen as saying.

He says the world has moved on from when the system allowing the flat 20% claim was introduced in 1986. “We now have much better technology, so that people can use phone apps and other devices which are much easier than keeping a logbook.

“The rules stipulate that it's necessary to keep a logbook for up to 12 weeks over a 5-year period, but this can now be done through mobile-phone technology and applications which are easily downloadable on the web,” Bowen says.

“This means that people can claim this if they are entitled to it very easily, and there is no longer any justification for the statutory percentage method of claiming fringe-benefits-tax use on cars.”

Bowen says many tradespeople and others who already use logbooks are not affected by the change and neither are the 3.6 million Australians who directly claim the tax relief through their tax returns.

“It does affect potentially around 320,000 people who are expected no longer to be able to justify that percentage claim,” he says.