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Coalition Reverse Labor’s Tax Crackdown on Novated Leases

Posted on: September 17, 2013 by Platinum Direct

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One of the first orders of business to be carried out by the newly elected Coalition Government was to reverse Labor’s decision to abolish Fringe Benefits Tax (FBT) concessions on novated leases.

In July, the Rudd/Labor Government scrapped the Statutory Method of calculating FBT concessions on novated lease vehicles in order to plug a $1.8 billion leak in the economy.
Labor’s announcement had an immediate effect on the car and finance industries with 300 specialist finance professionals losing their jobs, while 3000 more related jobs were estimated to be in jeopardy. In addition, The Australian reported that many big client companies suspended their vehicle acquisition programs for their fleets, causing new car sales to plummet in August – putting further strain on an already struggling industry.

Moreover, Victoria’s treasury estimated that the tax crackdown would cost local manufacturers 10,000 sales a year, or eight per cent of their Australian sales.

krudd
Photo: Eva Rinaldi – Flickr

Previously, businesses could calculate their FBT benefits by two ways – by recording a vehicle’s actual usage on work-related trips (via a logbook) or by the ‘Statutory Method’ – which allowed businesses to simply multiply the capital cost of the car by 20 per cent. The scrapping of the ‘Statutory Method’, which Labor announced would apply to all new contracts from 16 July 2013, meant that businesses would have to use the log book method on their fleets to claim the benefits.

However, this week, Liberal finance spokesman, Andrew Robb, declared Labor’s FBT crackdown on company cars “dead, buried and cremated,” and pointed to a bright future for the Australian car industry.

Indeed, since the Federal Election, Mr Robb said the car industry has reported an upswing in inquiries for novated leases. These comments were echoed by Leigh Penberthy of the Australian Salary Packaging Industry Association. “We’ve has an increase in phone calls coming in,” said Mr Penberthy.”It’s like a lot of things, we’ve got to get out there and talk to people and we’ll be able to turn things around.”

While the immediate reversal of Labor’s FBT changes brought a sigh of relief from many in the financial and auto industries, the Premier of South Australia, Jay Weatherill and Independent MP, Nick Xenophon, still believe an overhaul of the current Fringe Benefits Tax scheme on cars is needed.

“The current system disadvantages Australian-made vehicles,” said Mr Weatherill. “Something like 70 per cent of the vehicles that go into those novated leases are foreign-made vehicles. We think some important changes could be made.”

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