Editorial - Let’s end the FBT ‘March Madness’

Changes in the workplace environment and technological advancements cannot adequately be catered for under the existing legislation. FBT legislation should be reviewed and reformed to make it workable in the current commercial environment. While calls for reform of the FBT legislation have been ignored, the accounting bodies, including Taxpayers Australia, have as an interim step been pushing for changes to ease the compliance burden associated with administration of this tax. These recommendations are contained in a submission titled Fringe Benefits Tax and the Cost of Compliance Issues, which is available on our website. This submission was originally sent to Treasury in August 2004 but was re-submitted on 2 November 2007 for the outstanding issues contained in the original submission.

Some of the compliance issues raised in the original submission have now been addressed as part of the review undertaken by the taskforce on reducing the regulatory burden on business. However, there remain a number of outstanding compliance concerns which continue to place a heavy burden on businesses.

A major problem with the FBT system is the way the statutory formula encourages the wasteful use of cars. Put simply, if you drive more kilometers the FBT rules increase the concessionary benefit of having an employer-provided car.

Significant savings are gained by moving into the next FBT tax threshold for valuing cars under the statutory formula; this method is relatively straightforward and the most common way cars are valued for FBT purposes. The current rates are:

You cannot blame taxpayers who have employer-provided vehicles for clocking up additional kilometers to take advantage of these outdated rules. The savings far outweigh the additional cost, resulting in what some observers call the last month of the FBT year … “March Madness”. This is where drivers get advised of how many additional  kilometers are required to be driven by the end of March to qualify for the extra tax break.

Taxpayers Australia is not advocating the removal of the concessionary treatment of cars under the FBT rules. Our local car industry has been in decline and now only accounts for 20% of new car sales. We understand the Australian car industry relies heavily on employer-provided cars and a review should be sensitive to any potential impact any changes will have on the existing concessional treatment of cars for FBT purposes.

We do not advocate getting rid of the simple methodology such as the statutory formula for valuing cars. What we would like to see however is for the formula to be reviewed as it encourages the wasteful use of employer-provided cars which in turn adds unnecessarily to our greenhouse emissions. What we do advocate, is a replacement formula that is administratively simple to implement as there are already more than enough FBT compliance issues facing employers.  

Tony Greco, Chief Executive Officer