2014 Federal Budget

FRINGE BENEFITS TAX AND SALARY PACKAGING

FBT rate
The FBT rate is being increased from 47% to 49% to align with the highest marginal tax rate inclusive of the Temporary Budget Repair Levy of 2%. Whilst the increased income tax rate will apply from 1 July 2014, the increased FBT rate will not apply until 1 April 2015. Further, whilst the Temporary Budget Repair Levy applies until 30 June 2017, the FBT rate is to drop again as of 1 April 2017.

Changing the FBT rate also changes the FBT gross-up rates, as follows:

2014-15 FBT year 2015-16 FBT year 2016-17 FBT year 2017-18 FBT year
FBT rate 47% 49% 49% 47%
Type 1 gross-up 2.0802 2.1463 2.1463 2.0802
Type 2 gross-up 1.8868 1.9608 1.9608 1.8868

Salary packaging
The reason for increasing the FBT rate is stated to be “To prevent high income earners from utilising fringe benefits to avoid the levy”. But you would need to salary package a lot of income to take advantage of this 2% differential. For instance, packaging $20,000 would only produce a saving of around $400.

So whilst there appears to be an opportunity in both the year ending 30 June 2015 and the year ending 30 June 2017, for high income earners to take fringe benefits in the period where the lower FBT rate applies, it would only be useful to the extent the employee earns above $180,000 and the minimal savings probably mean they are unlikely to bother.

Not-for-profit caps
In order to protect the value of fringe benefits provided in the not-for-profit sector, that otherwise diminishes with an FBT rate increase, the annual caps for concessional treatment are to be increased. Confirmation of the new amounts has not yet been provided.

FBT rebate
The FBT rebate (currently 48%) is to be aligned with the FBT rate as of 1 April 2015.

Leight Penberthy
Chief Executive Office

*Source Elizabeth Lucas – Grant Thornton Australia

Message to all our supporters

To all our followers and friends – thank you for your support. It has been an exhausting two months, but what a tremendous outcome.

To quote Tony Abbott’s open letter to the car industry, employers and employees, the FBT changes are “null and void”.

This is a wonderful outcome for the hundreds of thousands of workers who access a car under the FBT arrangements; the NFP, health, aged and community services sectors who utilise these arrangements and for the local manufacturing, car leasing and broader automotive industries.

Its back to business as usual for our customers, staff and suppliers.

Thank you.

Aytunc Tezay

LeasePLUS Group Managing Director

Tony Abbott’s letterTony Abbott's letter

“Who’s Next?” – National Awareness Campaign Commences

The Australian Salary Packaging Industry of Australia (ASPIA) will today officially launch a national awareness campaign on the impact of the recent Fringe Benefits Tax (FBT) changes to salary sacrificed and employer-provided vehicles.

Download the media release

Fringe Benefits Tax Changes Hit Hard

“Who’s Next?” – National Awareness Campaign Commences

The Australian Salary Packaging Industry of Australia (ASPIA) will today officially launch a national awareness campaign on the impact of the recent Fringe Benefits Tax (FBT) changes to salary sacrificed and employer-provided vehicles.

www.whosnext.com.au

A statement from Richard Dudley, CEO, Australian Automobile Dealers Association

Carr just doesn’t get cars

Australian car dealers are justifiably outraged with comments made by the Minister for Innovation, Senator Hon Kim Carr, on Melbourne radio yesterday when he misquoted car sales data to suggest sales are strong despite the automotive industry imploding since changes to FBT car leasing were announced.

On the 16th July the Labor Government ripped $1.8 billion out of the Australian motor industry when it announced significant and far reaching changes to the Fringe Benefit Taxation system, without any prior consultation with the industry. The immediate effect has been 10,000 car orders cancelled or suspended, with the impact to car dealers and the broader automotive industry devastating and obvious for all to see.

Senator Carr must think the motor dealers and the public are ignorant when he says that the FBT changes won’t impact the car industry. Despite his misinformed assurances that sales remain strong, I can report that:

  • Nearly 80% of car dealers have reported lost sales – between 1 and 100 car sales have either been cancelled or suspended at individual dealerships around Australia
  • More than 60% of car dealers are reporting they will need to consider staff number reductions if the changes are introduced

Our figures were reinforced in the VFACTS sales data which was released on Monday. Federal Chamber of Automotive Industries (FCAI) Chief Executive Tony Weber said:

“It is disappointing that even after only a few weeks, we are seeing sales significantly impacted by the Government’s FBT announcement. The full impact, however, will take some time to completely work its way through sales figures.”

The Labor Government continues to ignore the real facts. The impact of these changes has already cost jobs in dealerships and throughout the automotive industry supply chain.

We also note that the $200 million bailout package announced by the Government has no detail attached to it. What will it be used for and who will benefit? Car dealers in Australia, who have millions of dollars invested and employ thousands of people, need assurances that the Labor Government will overturn this catastrophic decision. I encourage Senator Carr to visit dealers and inspect the damage that these changes have caused first hand.

The Federal Opposition Leader was right when he said the bailout package was like putting a band-aid over a bullet wound.

Richard Dudley
CEO AADA

Download the .pdf

Letter to the Assistant Treasurer

4 August 2013

David Bradbury MP
Assistant Treasurer
Parliament House Office
Parliament House
Canberra, ACT 2600

Dear Minister Bradbury,

RE: REMOVAL OF THE STATUTORY FORMULA FOR MOTOR VEHICLE FRINGE BENEFITS

On Friday 2 August, we met with staff from the Department of Treasury to discuss the recent removal of the motor vehicle fringe benefit statutory formula. Our discussions with the Treasury officials were productive and I thank you for arranging the meeting.

It became apparent through our discussion that modelling undertaken by the Treasury had not considered the likely impact on motor vehicle sales and any associated flow on impact through the broader supply chain with direct consequences for economic activity, tax receipts and employment. Authoritative industry bodies quote a likely reduction in new motor vehicle sales in excess of 10% over the short to medium term. These numbers are consistent with the estimated impact as modelled by respected economists and included as part of the industry’s submissions to the Henry Tax Review which appear to have been ignored. There has already been a significant diminution in new motor vehicle sales with July recording a reduction in the growth trend. A recent survey of motor vehicle dealerships by the Australian Motor Industry Federation showed 79% of dealerships within the respondent group had been negatively impacted through either a loss or cancellation of orders and as a result, 64% would be forced to sack staff.

It was also evident that the underlying analysis of salary sacrifice benefit recipients has been based on an unrepresentative and small dataset. The Government’s assertion that two thirds of those affected earn more than $100,000 per annum is not consistent with the industry’s extensive data (100,000 vehicle and employee details) which shows that the majority of employees earn under $100,000. This discrepancy will also impact the forward estimate savings due to the higher marginal tax rates applied by Treasury when you consider a high percentage of employees negatively impacted actually earn under $80,000. In addition, more than one third of the vehicles are Ford, Holden or Toyota’s and less than 5% are BMW, Audi, Lexus or Mercedes-Benz models.

Two of the sources of information identified by Treasury officials for this analysis included the ATO’s income tax and FBT return dataset together with the Australia Bureau of Statistics Survey of Income and Housing (SIH) and the Household Expenditure Survey (HES), 2009-10. In respect to the ATO income tax and company FBT return dataset, it is clear that the data is not accurate given albeit for a small number of employees, the ATO does not have a complete dataset connecting the employee’s income and the receipt of a motor vehicle fringe benefit. Motor vehicle fringe benefit information is not identified at an employee record level rather it is consolidated into a single figure within the organisation’s FBT return. Tax and Accounting peak bodies confirm that the ATO does not possess sufficient records to have determined that two thirds of recipients earn more than $100,000.

The Australia Bureau of Statistics Survey of Income and Housing (SIH) and the Household Expenditure Survey (HES), 2009-10 is based on a very small sample of 18,071 households, or less than 15,000 once pensioners are excluded, of which we would expect the number of households who salary sacrifice a motor vehicle not to exceed 800 versus the industry’s data set of 100,000.

We call on the Government to publically acknowledge the unintended consequences of this policy and to immediately reverse the decision to remove the statutory formula. All the information available to us indicates that the Government’s decision has been based on insufficient information and a lack of understanding of the consequences of removing the statutory fraction. Should this reform come to pass there will be significant and long lasting consequences for the motor vehicle industry at large including large scale job losses, further stress to the household budgets for hundreds of thousands of working families and material impacts to a strained manufacturing sector.

On behalf of our ASPIA member base and the broader motor vehicle industry, I would also like to take this opportunity to register my grave disappointment in the Treasurer’s decision to reject our meeting request despite a commitment to the contrary from the Prime Minister.

Yours sincerely,

Leigh Penberthy
President
ASPIA
cc. Mr Kevin Rudd, Prime Minister
Mr Chris Bowen, Treasurer
Senator Kim Carr

IMPORTANT INFORMATION REGARDING THE PROPOSED FBT CHANGES

On Tuesday 16th July 2013, the Federal Government announced the proposed removal of the FBT tax concession for personal use on a novated lease vehicle. This proposed change, if passed by the current Government will remove the statutory formula method used for both salary sacrificed and employer provided vehicles.

Impact on Novated Leases signed on or before Tuesday 16th July 2013

For customers that have signed to proceed with a novated lease on or before Tuesday 16th July 2013 please note:

  •  This lease once delivered will be subject to the old Statutory Method of FBT calculation, ie. No change
  •  Your lease will only be impacted by the Federal Governments proposed FBT Legislation change IF there is a material variation to your lease. Example: Change of employer/employment/kilometres/decrease in budget

Impact on Novated Leases signed on or after Wednesday 17 July 2013

You can still benefit from taking out a Novated Lease.

  • It is important to note that this legislation will need to be passed through Parliament for these proposed FBT changes to occur.
  • For anyone who has signed the acceptance of a Novated Lease on or after Wednesday 17 July 2013 you will still be able to receive the FBT tax concession (the current Statutory Method of FBT Calculation) up until 31 March 2014.

If the current Government is elected, you will receive the benefits listed below, including the FBT Tax Concession until 31 March 2014. After 31 March 2014, your benefits will be restricted to the list below.

  • Your choice of vehicle through LeasePLUS’ Preferred car dealerships, offering significant Fleet discounts
  • Fleet discounts on vehicles servicing, maintenance and tyres obtained through LeasePLUS’ Pre-negotiated Parts and Labour Rates
  • Do not finance the GST component on the purchase price of the vehicle up to the luxury car tax threshold
  • Do not pay GST on the vehicles running costs
  • No upfront deposit required

It is important to note that if the current Government is not elected you will continue to receive the benefits listed above as well as the current FBT Tax Concessions for the term of your lease.

FBT Fact Sheet

THE REAL IMPACT OF THE RUDD GOVERNMENT’S MOTOR VEHICLE REFORMS

Figures consolidated and released today from ASPIA (Australian Salary Packaging Industry Association) confirm that the costings behind the Rudd Government’s proposed motor vehicle reforms are flawed and have been collated without any consultation.

“The data we have been collecting in the days since Mr Rudd announced his policy reforms is tellingly at odds with information the policy appears to have been based on, which raises legitimate questions around the veracity of the Government’s costings,” said ASPIA President Leigh Penberthy.

“For example, the Treasurer and various Ministers have been suggesting that salary packaging is somehow the domain of the wealthy by saying only those that drive high end luxury cars and earn high incomes benefit from packaging. Our data confirms it is actually middle income earners, largely from the not-for-profit and public sectors, who drive modest vehicles that will be hardest hit. Specifically, this would affect teachers, nurses and charity workers who drive everyday cars like Toyotas, Holdens and Fords.”

ASPIA has collected a volume of information from its member organisations and other independent sources, revealing the following:

Unravelling the Government’s $1.8 billion in savings

To date, despite repeated requests from the industry, there has been no explanation from the Government as to how the $1.8 billion in savings arising from the change has been calculated. ASPIA believes the Government’s calculations do not take into account the significant negative revenue impacts that will flow throughout the entire Australian automotive industry (and associated supply chains). Specifically, there are a number of factors that will impact on the Government’s ability to realise $1.8 billion in savings:

  • Job losses:
    • more than 300,000 people are employed directly and indirectly in Australia’s automotive industry according to FCAI
    • are benefit vehicles (as modelled by Access Economics and Lateral Economics in response to the Henry Tax Review) the loss of jobs across the automotive industry and its associated supply chain may run into the tens of thousands
  • Reduced production within this sector and associated job losses will mean lower company and personal tax revenue
  • Reduced vehicle sales means a drop in GST, stamp duty and new car registration fees which ultimately impact on respective State Governments.

Sectors that salary package

ASPIA has reviewed the salary packaging data for over 100,000 vehicles and confirmed the following sector by sector use:

  • Charities & public health – 28%
  • State & Federal Government public servants – 33%
  • Police & teachers – 21%
  • Private sector – 18%

Salary packaging at a glance

ASPIA has reviewed the salary packaging data for over 100,000 vehicles and confirmed:

  • The average price of a packaged car is just $34,500
  • Just 5% of packaged cars are BMW, Mercedes and Audi
  • 35% are made by local manufacturers Toyota, Ford and Holden
  • Over 70% of drivers earn less than $100,000

Salary packaging & new car sales

  • The Government has estimated that the recent decision will not unduly impact the Australian vehicle industry, and yet:
    • There are approximately 550,000 employee benefit vehicles on Australian roads at any one time. This is in addition to the tool-of-trade vehicles owned or leased by a large number of Australian businesses and Federal, State, and Local Government entities;
    • It is estimated that around 21% of new vehicles sold in Australia annually are employee benefit vehicles; and
    • It is estimated approximately 40% of locally manufactured new vehicles sold annually in Australia by Toyota, Holden and Ford in 2012 were employee benefit vehicles
  • In fact, modelling by Access Economics and Lateral Economics shows that removal of the existing FBT arrangements could lead to a fall in sales of locally manufactured vehicles of up to 10.9%
  • It is therefore clear that the proposed reforms will significantly reduce demand for new motor vehicles and will have a disproportionate effect on Australian made motor vehicles (given their large share of benefit vehicle sales).

The complexity of keeping a log book

It is ASPIA’s view that the requirements of a ‘valid’ log book are onerous and will be a significant administrative burden to Australian businesses. It is an oversimplification that logbooks need be maintained only 12 weeks every 5 years. Each of the following instances would require a further 12-week refresh of a logbook:

  • Every time a driver changes jobs
  • Every time cars are rotated amongst staff
  • Every time a driver moves residences
  • Every time a driver moves to another branch or location within their employment
  • Every time driving patterns change

If a log book is considered invalid for any reason then the entire annual cost of an employee benefit car, including all running costs, become taxable at the top marginal tax rate.

Log books mean significantly higher compliance costs for businesses and organisations across Australia, including government, private and not-for-profit organisations.

It is also likely the ATO will also face challenges in monitoring, capturing and verifying this information given its breadth and complexity.

In addition to benefit vehicles, all tool-of-trade vehicles will be required to operate a log book.

Data Sources:

This information has been collated by the ASPIA and is based on data collated from a number of sources including:

  • ABS Motor Vehicle Census
  • AFLA member data
  • ASPIA member data
  • ATO Taxation Statistics 2010-11, Fringe Benefits Tax
  • FCAI: VFACTS National New Vehicle Sales by Country of Origin, December 2012 and FCAI Key Industry Facts
  • Fringe Benefit Tax Analysis Report prepared by Access Economics Pty Limited and Lateral Economics, 16 March 2009

Download the fact sheet

ASPIA President Leigh Penberthy interviewed by Neil Mitchell

ASPIA President Leigh Penberthy, interviewed by Neil Mitchell.

Click here to listen!