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Submission No. 240 Back to full list of submissions
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16 April 1999

 

The Secretary
Review of Business Taxation
Department of the Treasury
Parkes Place
CANBERRA ACT 2600

 

Dear Sir

A Platform for Consultation (Discussion Paper 2)
Submission - Taxation of Fringe Benefits

We act as tax agent for Holden Ltd (Tax Agent number 16436-115).

We make this submission on behalf of our client in relation to the valuation of motor vehicle benefits as outlined in the proposed fringe benefits tax ("FBT") regime. Specifically, our submission is directed at the difficulties that would be encountered by the motor vehicle industry in Australia under the proposed changes, which are aimed at improving efficiency and removing distortions in the valuation of benefits.

As noted in the Foreword to the Platform for Consultation ("the Platform") of the Review of Business Taxation ("RBT"), the purpose of the Platform "is to put the issues out for discussion and deliberation, to facilitate effective consultation, and to consider how the national objectives and principles should be applied in the best overall interests of the country".

Accordingly, we have outlined below our views in relation to the proposed changes to the statutory formula method of valuing motor vehicle fringe benefits under the Fringe Benefits Tax Assessment Act 1986 as they would apply to the motor vehicle industry in Australia.

In our view, the need to focus on the future success of the motor vehicle industry is more important than the need to reform the statutory formula method of valuing car benefits to more closely approximate market value.

Statutory Formula Method

As identified in the paper, for most fringe benefit items, the current law approach to determining the taxable value seeks to approximate the market value of the benefit. Further, as also illustrated, there are cases where the statutory formula method for valuing car benefits is clearly concessional in nature.

As an alternative, the paper proposes two valuation methods as Appendix B to Chapter 38. The alternative valuation methods "all offer a reduced level of concession to the top marginal rate taxpayer compared with the current statutory formula and, by and large, seek to offer a less concessional regime overall."

Australian Motor Vehicle Industry

Holden Limited have proven to be a success story of the Australian motor vehicle industry. The contribution that the company has made to the industry and the Australian economy as a whole, including job creation, indicate that they are a valuable commodity for Australia and their interests should not be disregarded.

Our client, and we, are of the opinion that the changes proposed to the valuation of car benefits will have an adverse effect on the motor vehicle industry in Australia. We note that this is an opinion which is also made in the paper where it is recognised that "the options for reforming the statutory formula could have varying effects on the competition and size of the new car market." Furthermore, as also identified, "where significant revenue increases (to the Government) are likely to arise, the market might see a decline in the growth of new car numbers."

We submit that the alternative methods proposed do not offer any reduced compliance or administrative cost of applying the tax, nor improve the equity of the tax as it applies to taxpayers on a marginal rate of tax of less than 48.5%. Furthermore, we believe that any associated net revenue gains from the proposed FBT regime may in fact be negated by a loss in new and used car sales.

In our view, the need to focus on the future success of the motor vehicle industry is more important than the need to reform the statutory formula method of valuing car benefits to more closely approximate market value.

The Federal Government has traditionally provided tariff protection and other forms of concessional treatment to Australia’s motor vehicle industry, which have provided growth and other social and economic benefits to the country as a whole. The investments made to date by the Government and the Industry should not be compromised to any extent in an effort to improve FBT compliance.

Submission

On this basis, we submit that the proposed options for reform should not be introduced. The present FBT regime has provided employees with the incentive to salary sacrifice motor vehicles in their remuneration packages. This has provided the Australian motor vehicle industry with an advantage in the form of increased car sales. The implementation of the proposed changes will deplete some of that advantage gained.

Therefore, based on the above considerations, we would suggest that the current statutory formula method of valuing car benefit be retained.

We would be happy to discuss our submission in further detail with either you or your officials. To that end, please do not hesitate to contact Michael Wachtel on (03) 9286 8620.

Yours faithfully