FBT Changes Likely to Have Profound Impact on Low-Income Workers

The federal government's recent decision to make drastic changes to the rules on Fringe Benefit Tax (FBT) breaks has left the automotive industry in turmoil. The overhaul of the FBT will particularly affect the car salary packaging industry, businesses and families who rely on this tax benefit to offset their expenses.

Since the announcement of the proposed changes, over 300 workers in the salary packaging industry have been relieved of their jobs, and industry experts have speculated that there could be 3000 more jobs in jeopardy if the proposal passes Parliament.

Salary packaging is widely used in Australia as acar loan finance option because of the FBT. In other words, businesses and households who plan their finances around this type of motor vehicle loan will be greatly affected by this change.

Simon Ellis, a senior tax adviser at a leading salary-packager, said, "This is a policy that's supported Australian families and the vehicle industry and the salary packaging industry for over a decade just announcing it like that, how is the industry supposed to adjust?"

If approved, the changes will take effect on April 1, 2014. Workers with this type of car loan finance will have to start logging records of personal and business usage of the vehicle as written proof to claim their FBT concessions. Even then, employees may not benefit from any tax concession. This could greatly affect low-income workers who can't afford to take up a personal new car loan.

In the current system, salary packaging helps low-paid workers secure a new car loan even if they don't have strong credit history. Instead of paying high interest rates for credit impaired or bad credit car finance, employees would have saved thousands of dollars with a salary packaged car.

Businesses that offer salary packaging options to their employees will also stand to lose from the FBT changes. Salary sacrifice has always been an appealing incentive that enables a business to attract and retain their top employees. Without the added benefit of this car loan finance option, organisations will likely face recruitment and employee retention issues that never existed before.

In addition, business car loans and salary packaging have always been a legal tax minimisation option as it gives companies the opportunity to claim tax deductions on the costs of the FBT that they pay.

Amidst widespread protests from the automotive and motor vehicle finance industry, the Rudd administration has announced their intention to ease the FBT changes by offering government workers a rebate of $3000 on Australian made cars.

However, many industry experts are still very sceptical about this rebate and most would say that it is not a viable long-term solution to the issue. Plus, the dire FBT situation has already affected many in the automotive industry even before it has officially taken effect. In the meantime, we can only wonder: How will this affect the overall car industry in Australia?

Executive director of the Australian Automobile Association, Andrew McKellar, said, "They're getting themselves in an absolute tangle on this FBT issue. A rebate would not be a solution at all. No one in their right mind would take it up. The fastest way to fix this mess is to announce an immediate reversal of the changes. The sooner that happens, the sooner the industry can start to recover."