Crackdown on excess car use to avoid tax
Phillip Coorey
May 6, 2011
http://images.smh.com.au/2011/05/05/...-tax-420x0.jpg Salary-sacrificed cars ... the government is cracking down on tax concessions rorting.
THE federal budget will save almost $1 billion by cracking down on the rorting of fringe benefits tax concessions for those who drive salary-sacrificed cars.
It is understood the government has adopted a recommendation from the 2009 Henry tax review to end the system in which people can reduce their tax bill by clocking up extra kilometres.
Instead, a flat rate of tax will apply, regardless of the distance driven in a year.
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This will end the practice of people going for a long drive towards the end of the financial year to reduce their tax bill.
While those who drive short distances in a year will be better off, those who drive more than 25,000 kilometres a year will be penalised unless they log every kilometre travelled and separate business from personal use.
The measure is expected to save about $950 million over four years and will be one of the biggest saving measures in the federal budget on Tuesday.
The changes will apply to what is known as the statutory formula which applies to an employee's car fringe benefit.
Under the present system, if a person drives a salary sacrificed vehicle up to 15,000 kilometres a year, the taxable fringe benefit is calculated at 26 per cent of the purchase price of the vehicle.
This drops to 20 per cent for distances of 15,000 to 25,000 kilometres a year, and to 11 per cent for distances of 25,000 to 40,000 kilometres. Distances of more than 40,000 kilometres attract a tax rate of 7 per cent.
Under the change, a flat rate of 20 per cent will apply for all distances. This means those who drive up to 15,000 kilometres a year will be better off. The Henry review found large spikes in the numbers of people who drove just far enough at the end of each financial year to put themselves in a lower tax threshold.
The Greens have long demanded the rort be stopped because in effect it rewards people for burning fuel. The Greens are expected to be happy with the change.
The car industry is also expected to be happy with the change, first signalled in the 2008 Bracks review of the automotive industry, because there is an option for those who drive more than 25,000 kilometres a year largely because of work.
The government will not touch the alternative to the statutory formula which is the log book method. If drivers choose this option, all business use of the vehicle does not count towards the fringe benefit.
Meanwhile, budget measures to force teenage mothers into work or training or face losing their parenting payments are likely to face resistance from the Greens and the opposition.
Extra money would be provided for childcare and other support for young mothers while they either work, go back to school or learn skills.
