August 14, 2013

Horse 1529 - The End Of Leasing Lurks - Who's Next?

One of the things that we learn about the law and particularly taxation law is that it is hideously complicated. Since 1997 with the introduction of that year's Income Tax Assessment Act the amount of legislation which revolves around taxation has increased at least twenty-fold. Given that complexity of taxation law, it stands to reason that there should be an whole other law in operation; that being the Law Of Unintended Consequences.
Not surprisingly, an entire industry has sprung up within the space created by what is essentially a lurk and a perk and they have cried all kinds of blue murder that that lurk and perk will end.
The website and "Who's Next?" campaign is being run by something called the rather Australian Salary Packaging Industry Association. To be honest it's a bit of a bleeding hearts campaign, for what the advert doesn't admit amidst the squealing and bleating is that the perk advantaged a few select people but that advantage must by inference have been bought by the rest of us through tax avoided. Whilst tax avoidance isn't illegal, I still don't much like whinging when a business model which only exists through exploiting taxation rules, wants to change public opinion to retain that advantage for a privileged few.

A novated lease basically allows a business to lease a motor vehicle on behalf of an employee, with the lease payment being made from that employee's pre-tax income which helps to lower the amount of tax which would otherwise be assessable.
Secondly because the vehicle is effectively owned by the employer, the GST which comes about as a result of buying the vehicle and any running costs (for what is basically a private-use thing most of the time) can be offset by the employer's total GST collection obligation.
Job cuts and redundancies are already a reality. Further job losses in the motor vehicle manufacturing and leasing industries resulting in higher unemployment rates are predicted. ASPIA data has shown 35% of packaged cars are made here in Australia by Toyota, Ford and Holden.
- Who's Next website, as at 14-08-13

If we believe the statistics from the Australian Salary Packaging Industry Association, only 35% of "packaged" cars are made in Australia. Not only does this mean to suggest that two-thirds of the vehicles which are "packaged" cars are NOT made in Australia but I'm willing to bet that the vast bulk of those are also luxury cars anyway (I note that ASPIA is being cute by stating that only 5% of them are BMWs Audis and Mercedes-Benz, they do not speak of the other myriad of car brands), which means that all this time, we the taxpayer have been in effect subsidising the rich - the same people who we know also cry foul at so called "welfare cheats".
We also know that Ford in particular has announced the closure of its Australian manufacturing operations and this like Toyota and Holden, wasn't caused by the residual effects of changes in taxation law but because of the absolute advantage of producing cars in places like Argentina (see Horse 1390), Thailand, Poland and Malaysia. Second to this, the price point at which people are buying cars in Australia has fallen, as Opel found out.

According to the Department of Treasury:
This measure improves the underlying cash balance by $953.9 million over the forward estimates.
- Wayne Swan, Dept of Treasury, 10 May 2011

Let's just back up the subsidised car here. "This measure improves the underlying cash balance by $953.9 million". Nine hundred million dollars. The cost of that nine hundred million dollars would otherwise have to be borne by someone and that someone is the Australian taxpayer. Forgive me, but muggins doesn't like being taken for a ride... especially when I can't even go for a ride in the car with which I've been taken for a ride.
I already personally object to the fact that private motor car use is for the most part written off as business expenses. Small businesses with fewer than 20 employees will often have a structure where someone's car is then owned by the proprietary limited company and all of that car's expenses will be taken to be business expenses.
Never mind the fact that if governments were serious about getting people to use public transport, there'd be a tax deduction for public transport expenses such as bus and train tickets, not subsidising private motor vehicle expenses which is how the law currently operates.

All of this is quite apart from the fact that FBT law and operation was one of the components which was looked at by the Australia's Future Tax System Review (by Ken Henry):
Recommendation 9:
Fringe benefits that are readily valued and attributable to individual employees should be taxed in the hands of employees through the PAYG system. Other fringe benefits, including those incidental to an individual's employment, should remain taxed to employers at the top marginal rate (and non-reportable for employees). The scope of fringe benefits that are subject to tax should be simplified.
b. The current formula for valuing car fringe benefits should be replaced with a single statutory rate of 20 per cent, regardless of the kilometres travelled.
- Australia's Future Tax System Review, 2nd May 2010

The Australian Salary Packaging Industry Association has a willing and able partner in its fight against the government closing its lurks and perks. The commercial press which itself relies on advertising to survive, isn't likely to expose or even report something which has the potential to harm its revenue stream. It's simply not in their own interest to kill the goose that lays the rorty eggs.

Let's call this whole FBT thing and particularly the notion of novated leases for what it is, a lurk and perk, which lives inside a tax minimisation scheme. The whole industry only exists because someone looked long and hard to work out how to game the system. Cars were the one last luxury which could be subsidised through the taxation system and this loophole is finally being pulled shut; in line with a recommendation which has been known about for at least 3 years.
If your whole business model is solely about exploiting taxation law and that law (like all taxation law) is subject to change, it just doesn't seem very sustainable, or smart.

Who's Next? I hope it's other lurky-perky rorty-tory wibbly-wobbly timey-wimey tax avoiders. Is it fair that the taxpayer should continue to fund people's cars? I DON'T THINK SO*.

*I was in Italy with a friend and this woman comes up and throws my friend a baby. Then when he caught it, her other kids ran up and took his wallet right out of his pocket. So let that be a lesson to you. If you're ever in Italy and someone tosses you a baby, just swat it. Swat it to the ground and say: "I DON'T THINK SO!"
- Anthony Clark

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