Labor backs crackdown on company car tax breaks in budget

A clampdown on fringe benefits tax rules is expected at next Tuesday’s Federal budget, with the introduction of a flat-rate concession for company car usage expected to save hundreds of millions of dollars for the Government.

There are expectations that the Government will follow a recommendation from the Henry Tax Review to scrap the incentive for employees to clock up excess kilometres in their company car for better tax treatment.

The review called for a 20% rate for vehicle use, rather than a rate contingent on how many kilometres are travelled.

Under current rules, employees driving more than 25,000 kilometres a year are granted a bigger tax break than those travelling fewer kilometres.

According to the Australian Financial Review, the new rules will deliver a greater tax break for those travelling less than 15,000 kilometres per year, while employees travelling more than 25,000 kilometres a year will get a small tax break.

Those driving between 15,000 and 25,000 will see no change, the paper says.

MGI principal Sue Prestney says people who travel less than 15,000 kilometres will likely be better off under the changes, while those doing more than 25,000 ought to acquaint themselves with their log books.

“You would expect that for those who travel 25,000 kilometres, much of that would be business kilometres and therefore put into the logbook,” Prestney says.

“For people who travel more than 25,000 a year, the fringe benefits tax is going to be more costly,” she says.

“At the other end of the spectrum, those who don’t do a lot of kilometres will actually be a lot better off.”

Prestney says while there are examples of employees milking the system, most are simply using the system as designed, or can’t be bothered keeping up-to-date with their logbooks.

Robert Jeremenko, Senior Tax Counsel at the Tax Institute, says the mooted reforms are “sensible” and a “welcome development”.

“Adopting this would be a step towards a simpler fringe benefits system, which would be welcome,” he says.

Jeremenko says removing the incentive for people to drive further is better suited to the Government’s push to reduce carbon emissions, and addresses peaks over the key thresholds identified in the Henry Review.

The changes will also give people the chance to continue to use their logbooks if they choose to, he said.