A legal tax rort is still a rort

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The decision to tighten fringe benefits tax (FBT) rules is causing grief for the Government, with struggling car manufacturers and more than 320,000 affected voters crying foul. To fund the bringing forward of the switch to an emissions trading scheme, those with salary packaged motor vehicles will need to log and declare the proportion of their driving that is for business. 

Contrary to the spirit of the tax system, many FBT claimants use their cars for mainly private purposes. The existing formula-based calculation gives them a significant financial advantage that amounts to a legal tax rort. They will lose under the new rules. On the other hand, those who use their cars almost exclusively for business will come out ahead. That is how it should be.

Currently Australians on high and middle incomes benefit from the fortuitous nature of the existing rules. Some relatively lower paid workers rely on the loophole to balance their family budgets. Smaller businesses could suffer under the change, with the logging requirement likely to prove a costly burden. But essentially the existing system is stacked against those who are struggling. The poor are subsidising an unintended tax concession for the better off, as they do with debatable but intended tax concessions such as superannuation incentives and the negative gearing of investment losses.

Much media attention has been given to the plight of workers in the salary packaging and car manufacturing industries, some of whom are already losing their jobs as the sectors are reported to be hit hard by the announcement of the new rules. It seems churlish to think of the prosperity these industries have enjoyed due the FBT legal loophole as 'ill gotten'. But there is an argument for that if we consider the spirit rather than the letter of the tax law. Perhaps it would be fairer to put it that they have operated under a business model that is based on profiting from a loophole that they should have anticipated might one day be closed, and that day has come.

The industries resented not being consulted about the change. But as treasurer Chris Bowen said very succinctly when he shrugged off the criticism: 'This is a matter of the integrity of the tax system.' A tax system that makes compromises with sectional interests is by definition corrupt and turning its back on the common good that it has been set up to serve.


Michael MullinsMichael Mullins is editor of Eureka Street.

Car image by Shutterstock.

 

Topic tags: Michael Mullins, tax, FBT, salary packaging, ATO, Chris Bowen, politics, carbon trading

 

 

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Existing comments

Michael Mullins may have a point here. I would have to think more carefully through the issue. However, I do not recall any article in Eureka Street commenting on the exorbitant awards that workers on Victoria's desalination plant were given. These "working class" men were getting (not earning) in excess of $200K.
Joe Colreavy | 19 July 2013


I agree with Michael and Chris Bowen. The FBT was introduced to bring to account the hitherto tax-free perks that had been enjoyed by many well-positioned people. The rules, as they applied to motor-vehicles, were a flawed compromise from the start, in that the more private mileage one drove the lower the FBT one paid. Abbott's objections are another example of his hypocrisy and 'whatever it takes' approach to electioneering.
Ginger Meggs | 20 July 2013


Is this not exactly what Labor did with the Mining Tax: "'This is a matter of the integrity of the tax system.' A tax system that makes compromises with sectional interests is by definition corrupt and turning its back on the common good that it has been set up to serve."
Will they fix that tax now - using the same reasoning??
John L Hayes | 22 July 2013


"logging requirements likely to prove a costly burden" ? I don't think so. I was fortunate enough to have an "office car" for work purposes in the 1980s/90s. All I was required to do was to fill in a card which required the following data entered: date of travel:time out; speedometer reading; time in; speedometer reading: length of trip: Purpose of trip: W = Work P = Private. Each month the card was submitted to Office Admin, which approved or rejected Work usage and informed me of approved work kilometres. All that is required now is for individuals to do their own approving/logging/arithmetic. In these days of mobile phone apps the admin burden should be minimal.
Uncle Pat | 22 July 2013


The Government should look at all tax rort, including so-called charities and churches. We see charities paying their executives over $250 000.00 a year and then having the audacity to ask age pensioners to increase their monthly contributions. I think people should start reading the annual reports of some of the major charities and then they will see who is benefiting from tax free status. With charities there is a double whammy, as contributions are also deductible form taxes. I strongly suggest everyone to watch a video from Andrew Mwenda about “aid”.
Beat Odermatt | 22 July 2013


Mr Bowen has displayed considerable courage in adjusting that FBT anomaly. Perhaps he can now turn his attention to the negative gearing anomaly - without being blackmailed, as Mr Hawke was - and also abolishing the tax-free status on the family home. There are a few other sacred cows, but those are probably the most prominent. Mining royalties can be adjusted from year to year, as individuals' tax rates can be.
walter p komarnicki | 22 July 2013


It is always better to design programs to achieve a goal directly rather than indirectly. So schemes to assist the car industry should be explicit and directed at the car industry, not some hidden FBT arrangement.
Stephen Duckett | 22 July 2013


The poor are hardly subsidising anything, most pay hardly any tax at all. My wife earns just over $15K p.a and she pays less than $150 p.a. tax, how is that subsidising anything. If we are reigning in rorts maybe we should revisit the tax free status of unions. Perhaps the HSU should pay FBT on 'entertainment' costs just like other businesses. Going by past performance they alone should put a dent in the $1.8B
2ndeffort | 22 July 2013


It doesn't seem much of a burden which is being imposed: as I understand the change, the beneficiaries of this FBT arrangement will have to do nothing more onerous than justify their claims every FIVE years. So that fact (as well as the telling point made by a respondent that phone "apps" will surely attend to this task) makes the abrupt dismissal of staff by a few of the companies involved opportunistic or deceptive. Given that the use of this "loophole" to gain unjustified tax benefit from private use of vehicles, perhaps the most troubling aspect of the adverse response to the government's proposed reform, is the apparent willingness of the Opposition to condone improper behaviour in the hope of some political benefit of its own. And that from a party which represents itself as the better financial managers? What does this all really say about Australians' attitudes to probity and ethics in business?
John Carmody | 22 July 2013


Fair and just , close the loopholes they are as wrought.
David | 22 July 2013


When my fellow employees were offered the option of a novated lease, there was no mention of it being for people who use their vehicle for work purposes - it was presented as a way to save money by buying a car with pre-tax dollars. For those with a legitimate work use component the log book requirement is not onerous. But, changing the rules retrospectively is never fair. By all means change it from now onwards. Even worse was the way the govt pulled the rug out from employers who had signed staff up for training on the understanding that they would be subsidised. Their training budgets were blown out of the water when the funding was withdrawn. Retrospective changes are never fair.
Sue Hoffman | 22 July 2013


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