Booming motor vehicle FBT called into question

A sharp rise in motor vehicle related fringe benefit tax concession claims has reinforced calls for tax reform to better reflect the environmental consequences of increased vehicle use.

The value of claims for FBT concessions on company cars will reportedly reach almost $1.5 billion in 2007-08, almost 50% higher than Treasury forecasts, and are predicted to top $2 billion by 2009-10.

The sharp increase in FBT concession costs comes as a coalition of taxation groups including the Taxation Institute of Australia and Taxpayers Australia call for reform of tax rules to reflect the environmental cost of car use.

Under the current FBT system, company cars receive a greater FBT concession if they travel a higher number of kilometres because this is deemed more likely to be work-related travel.

The effect, according to Taxation Institute of Australia senior tax counsel Michael Dirkis, is that businesses have an incentive to make sure work cars travel further.

“It makes good compliance sense but not good environmental sense because it tends to encourage car use – especially if they’re close to the threshold. You do see people taking the car for trips or moving them to a high user driver so they get the concession,” Dirkis says.

Dirkis says a move to a standardised regime, perhaps involving lower concession rates overall but requiring less travel, could be a way to improve the system.

“It just doesn’t make a great deal of sense to have people driving around the countryside just to avoid a tax liability, so we’re calling on the Government to implement a simple set of rules that provides the concession without the mileage requirement,” Dirkis says.