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Carbon tax: Smart workers ‘should start talking’

Dealing a blow: New-car showrooms may need to employ an extra full-time worker just to look after any fringe benefits tax obligations.

Shift to car allowances will be bad for fleets, good for showrooms

General News logo17 Jul 2013

ONE of the world’s top accounting firms has some timely advice for any worker about to roll over a novated car lease – get into your boss’s office and start talking.

Deloitte Motor Industry Services lead partner Grant Cameron said today that workers should consider converting a novated lease into a car allowance to get around any potential fringe benefits tax slugs.

“My advice is to go into the boss’s office and negotiate,” Mr Cameron told GoAuto. “That’s what the savvy people would do right now.”

He said converting a novated lease arrangement to a car allowance would yield most workers a big tax advantage anyway, especially if they earned somewhere between $80,000 to $100,000.

“A novated lease is taxed at 46.5 cents regardless of how much salary an employee is earning,” he said.

“A lot of people do it for the convenience because it is very easy to do, but really it’s complete madness to do it that way.”

He said many people coming off a lease agreement would probably wait and see what happened before deciding on which way to go next.

Of more concern, though, is the impact the removal of the statutory formula will have on car dealerships, where employees drive a different vehicle each day.

“There’s actually a few problems with dealers,” Mr Cameron said. “They will have to deal with a lot more red tape, but at the moment there’s not a lot of detail about what that will be.”

Mr Cameron also said the tax reform removed an almost 30-year-old tax break for car dealerships that helped them work out the fringe benefits tax load on new-car showroom workers.

“A dealership can have up to 20 employees that drive a different car every day,” he said.

“Now what the government says is that the dealerships have to be keeping track of every driver of every car.

“I don’t think they (the government) thought about that.” Mr Cameron said the tax changes would place a “significant burden” on a dealership’s resources, requiring at least a full-time worker to administer the allocation of fringe benefits among staff.

“That’s about an extra $75,000 a year for each dealership, and a lot of them are already operating on a fairly skinny margin,” he said.

“The dealers might say ‘don’t drive any cars, I’ll give you a car allowance instead’.

“If that happens, an employee may pay a little bit more personal income tax, but the fringe benefits tax revenue will be down.”

This would place a big strain on the government’s ability to fill a $3.8 billion hole in the federal budget, created by shifting to an emissions trading scheme instead of sticking with the carbon tax for another year, Mr Cameron said.

He said the reforms would also hurt dealer principals and showroom managers who had contracts to drive a car representative of the brand they were selling.

But amongst all the gloom, Mr Cameron said there could be a positive benefit for the dealership.

He said if a shift to car allowances meant there were fewer fleet sales – which generally were not very lucrative for dealerships – it would mean more private buyers would walk into showrooms ready to buy a car on a fatter margin.

“Fleets have a lot of purchasing power, so if the fleet companies buy less cars, dealers should see more one-on-one dealings with private buyers who are getting a car allowance,” Mr Cameron said.

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