Tax groups say crackdown on tax breaks for company cars likely in Budget

Tax groups say a crackdown on tax breaks for company car usage is likely to be part of the Federal Budget on May 10, as the Government scrambles to find savings and meet its climate change commitments.

Yasser El-Ansary, Institute of Chartered Accountants tax counsel, says the momentum to slice the fringe benefit tax concession offered to employees driving company cars is being driven as much by environmental reasons as financial ones.

“The way the laws work at the moment inherently provides an incentive for taxpayers to use their vehicle more often than necessary because the potential upside for doing so is a lower tax bill,” El-Ansary told SmartCompany.

“With a government policy aimed at lowering Co2 emissions, it seems sensible that a tax policy should be looked at with a view to recalibrate those rules in a way that removes the incentive to drive cars unnecessarily,” he says.

El-Ansary says his group has been recommending the Government change the rules for some time.

Under the current arrangements, drivers who travelled between 15,000-24,999 kilometres received a higher tax benefit the more kilometres they travelled under the 24,999 kilometre limit. But the Henry Tax Review recommended the concession be limited to 20% regardless of the number of kilometres travelled.

El-Ansary says implementing a flat rate so there’s no longer an incentive to clock up more kilometres would strike the right balance between protecting workers and bringing the tax policy in line with its environmental objectives.

He adds transitional agreements for those who signed up to long-term contracts might be appropriate.

And while the concession is said by the Australian Financial Review to have cost the Government almost $2 billion last year, El-Ansary says the primary objective for changing the laws would be environmental and social.

The Government has pledged to return the budget to surplus by the 2012-13 fiscal year.

Paul Drum, head of business and investment policy at CPA Australia, says there are rumours that the Government might follow the Henry Tax Review’s line.

“A unilateral abolition of the benefit is out of the question, but I think some tapering or winding back the benefit – and certainly in the context of the carbon emission debate – is certainly on the cards,” Drum says.

Drum says the stories of people taking enormous drives to qualify for better tax treatment are legendary and too common.

While CPA Australia is supportive of changes to the regulations, Drum says the Government should look in to the economic impacts rather than just slashing the concession.