|Submission No. 46||Back to full list of submissions|
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23 December 1998
CANBERRA, ACT 2600
The Federal Chamber of Automotive Industries representing the vehicle manufacturers and importers in Australia is pleased to comment on the discussion paper covering the review of Business Taxation.
As a member of the Business Coalition for Tax Reform (BCTR) the Federal Chamber is supportive of the general thrust of the BCTR submission. However, there are issues, some of which relate directly to the automotive industry, that we ask you to consider.
Fringe Benefits Tax (FBT)
Fringe Benefit Tax is presently at the same rate as the top marginal income tax rate, which applies to income above $50.001. It is at this income level and above that a significant number of taxpayers elect to package their salary to include a company car. Under the proposed new income tax rates, the marginal rate applying to incomes in the $50,000 - $75,000 bracket will fall to 40% (plus 1.5% medicare levy). If the FBT rate remains at 48.5% it will be uneconomic to package a salary to include a motor car. Noting the large number of cars purchased through salary packaging, the industry could expect a significant reduction in sales. This will also lead to a loss in revenue through lower tax collections.
To ensure a similar level of salary packaging of motor cars it is recommended that the FBT rate be reduced to 40% where it will match the income tax rate of the majority of Australians who receive fringe benefits for which FBT is paid. It should be noted that even at a rate of 40%, FBT would still be well above the 30% income tax rate that will apply to 81% of taxpayers. In addition, the gross up factor for FBT will need to be reduced to 1.88.
The depreciation limit applying to motor vehicles dates back to 1974 when it was considered that luxury cars being purchased by businesses, were receiving concessional tax treatment. However, the introduction of Fringe Benefits Tax in 1985 overcame the problem, and a combination of FBT and the depreciation limit amounts to double taxation on that value of a vehicle which has already been subject to a luxury car tax.
It is the very strong view of the automotive industry that the depreciation limit should be removed as part of tax reform.
Deferred Company Tax
The Government proposes to introduce a "deferred company tax" arrangement whereby, all company distributions of profits (ie dividends) will be fully franked irrespective of whether there are sufficient franking credits available in the company’s Franking Account. What this will mean is either that:
These proposed tax measures conflict with the Government’s declared policy of integrating the Australian automotive industry into the wider global automotive industry.
As this results in adverse financial implications, it is clearly unacceptable of the following reasons:
We believe that the adverse financial implications referred to above, will inhibit international competitiveness and will be therefore be a major disincentive of multi National companies to invest in Australia.