Rudd targets car fringe benefits to fund removal of carbon tax

The government has revealed a range of measures to pay for the removal of the carbon tax, which prime minister Kevin Rudd said would cost the budget $3.8 billion over the next four years.

“The Government has decided to terminate the carbon tax to help with the cost of living pressures for families and to reduce costs for small business,” Rudd said in Townsville this morning.

He said the government would abolish the ability of businesses to use the statutory formula for calculating their fringe benefits tax on salary-sacrificed cars, which the government says will save it $1.8 billion over forward estimates.

There are currently two methods to calculating the fringe benefits tax for cars. The operating cost method requires businesses to log the cost of running a car multiplied by the proportion of their personal use of the car. The statutory formula method multiplies the cost of the car by 20%, regardless of the actual personal use of the car.

This means the statutory formula automatically assumes significant proportion of use of the car is for business purposes.

Under the government’s plan – from July 16, 2013 – contracts entered into will have to use the operating cost method in calculating the fringe benefits tax on cars.

Treasurer Chris Bowen said the development of smartphone applications to track car usage meant it was much easier to log the use of a company vehicle than it had been previously.

“There is no longer any justification for this statutory percentage method of claiming fringe benefits tax on cars,” he said.

“It’s important to note that many tradespeople and others who already use log books are not affected by this change. And it doesn’t affect the 3.6 million Australians who directly claim the fringe benefits tax relieve through their tax return.

“It does affect the 320,000 people who are no longer able to justify that percentage claim.”

Close to another $2 billion worth of cuts have come from carbon-tax funded industry assistance and climate change mitigation programs.

The government plans to cut $568 million from the Clean Technology Program and the Carbon Capture and Storage Program. The government also plans to change the energy security fund, bringing forward scheduled free permits and then discontinuing the program.