The Prime Minister-elect Tony Abbott has made himself very popular with the car industry after confirming his pre-election commitment to dismantle the Labor government’s FBT policy revisions. The move is expected to substantially increase new car demand from September.
“This is a great result for the car industry,” Bill Baker from Novated Leasing says. “It’s also terrific for both employers and employees. With salary sacrificing now effectively reinstated on vehicles, employers can start rewarding key employees with a significant benefit – with negligible impact on their bottom lines. And employees can help stimulate demand for new cars, and therefore boost industry job security, while at the same time deriving a substantial benefit to themselves.” Baker says it is a genuine win-win’ result.
Less than two months before Saturday’s federal election, then Kevin Rudd abolished the 27-year-old FBT concessions on new car ownership. At the time the then-Treasurer Chris Bowen said “The world has moved on from when this system was introduced in 1986.” Bowen dismissed the concessions as a “loophole” exploited by the rich in order to continue to enjoy driving “Maseratis and BMWs”.
The reality, however, was that the majority of salary sacrifice arrangements were in the hands of employees earning less than $100,000 annually. And the system was a significant stimulus on the demand side for the embattled local car manufacturing industry.
Preliminary national car sales figures for August, released on the eve of the election, showed Holden’s sales were down 6% while Ford’s were down by 20%. It means Ford slipped to fifth spot overall (overtaken comfortably by Mazda and Hyundai). Both the local manufacturers were heading for their lowest sales in almost two decades.
Under the reinstated system, employees can invoke a ‘statutory’ method to calculate FBT liability. Regardless of how the car is used, the system assumes that only 20% of the vehicle’s use is personal so FBT is only payable on that amount. The balance, of 80% is FBT-free, and employees can purchase the vehicle via a novated lease, whereby the vehicle is paid for using the employee’s pre-tax income.
Under this system, the FBT payable on a $40,000 car travelling 25,000 kilometres annually is just $7680. When that 20 per cent concession was abolished in July, the FBT amount on the same transaction climbed to $14,209 – which accounted for the impact on car sales in the intervening eight weeks.