FBT is not the whole car expenses story

Federal Labor might regret its decision to axe certain work-related car expenses that are subject to fringe benefits tax, not just because they affect thousands of low-income workers and potentially the car industry, but also because the question might be asked, ‘Why stop there?’

Treasurer Chris Bowen claims 320,000 people will be affected by the move to raise $1.8 billion to offset the early termination of the carbon tax in favour of an emissions trading scheme.

Mr Bowen reckons they are mainly high-income employees (his colleague, deputy Prime Minister Anthony Albanese said they were BMW drivers) who are fiddling their tax deductions at the expense of the hard-toiling masses.

Opposition treasury spokesman Joe Hockey disputes that and reckons far more low-income workers will lose out.

While the tax system typically skews this benefit to high-income earners, many not-for-profit organisations offer cars as part of their low-income salary packages, because they receive more generous provisions than companies when it comes to FBT.

To my mind the big question is, who suggested this area for federal government savings and do they have a bigger target in mind?

Mr Bowen might be right when he says many people claiming work-related car expenses are using their cars less than the statutory method, dubbed the 20 per cent rule, provides. It is a tick-a-box tax deduction applied to reducing the FBT payable on cars provided by an employer.

But logically, if he is so dismissive of people’s claims about work-related car use when the company provides the vehicle, should he not also look at how much people claim against tax for cars they own themselves? Believe me, that’s much more fertile ground for a government seeking ‘savings’.

What a can of worms the treasurer might have opened there – or was it a bureaucrat from federal Treasury who saw a chance to cauterise a big drain on the public purse by slipping a nasty little saving in front of a new treasurer?

In 2010-11, according to the latest publically available tax statistics, nearly 2.6 million taxpayers claimed in their personal tax returns (nothing to do with FBT) almost $4.59 billion in work-related car expenses under the set rate per kilometre method.

Arguably, that method is the closest approximation of the statutory FBT 20 per cent method because, similarly, no logbook is required.

That is a massive amount that could be ‘saved’ by Treasury, especially if, as Mr Bowen reasons, people have been just estimating the amount that they can claim without having actually driven the required number of working kilometres.

The vast bulk of claimants under the set rate per kilometre method for work-related expenses – about 2.2 million – are people earning less than $80,000 in occupations that would typify the ‘working’ side of the class war Mr Bowen and his mates like to fuel – in this case its BMW-driving yuppies.

Most claimants would appear to be people in Labor heartland who have little use for a car during their working day.

Nurses, clerks, teachers, sales assistants, motor mechanics, storemen, aged and disabled carers and even receptionists dominate the top 30 occupations for the use of work-related car expenses, and most of these tax payers earn $80,000 or less. How many of these people need a car once they are at work?

Mr Bowen thinks those who really use a car should use a logbook. But that is not what most claimants are doing. For example, there are more than 53,000 nurses paid $80,000 or less who claimed such work-related car expenses – amounting to a combined total of around $58 million, or about $1,100 each. In the same year, by contrast, just 1,405 nurses used the logbook method, claiming a combined total of around $8.2 million, or about $5,800 each.

The average successful claim per taxpayer for this kind of work-related car expense was $1,765 in 2010-11.

Many of these taxpayers are in occupations that are vital to the community, such as health, teaching and aged care, yet the low incomes have proved such a disincentive to work that employers have been prompted to offer additional ways to attract employees.

In many cases, $1,000 a year makes a difference.

Mr Hockey suggests that the same is the case in the FBT world of vehicle expenses.

It is hard not to imagine the tax system (with its at-times perverse incentives) works similarly across the spectrum of employee benefits covered by FBT and private claims of deductibility, albeit that the choice is made by a corporate accountant rather than an individual taxpayer who may have a different view on the value of the effort involved in making such a claim.

Of the top 25 work-related, car-expense-using occupations (by income bracket) only two sit in the taxable income range between $80,001 and $180,000, according the Australian Taxation Offices figures broken down by occupation, sex and taxable income for the 2010-11 income year.

They are the better-paid cohorts of advertising and sales managers and general managers. With these higher-paid claimants, a vast majority of their overall car-related expense deductions come from the logbook method, suggesting these people do more driving for work as a cohort than those in nursing or teaching.    

The ATO numbers do not provide any information about the cars they drive, whether it is prestige BMWs from Munich or fair dinkum Holdens from Adelaide.

And here is the breakdown by income level: there were 746,810 people earning $37,000 or less who claimed $1.21 billion; nearly 1.4 million earning between $37,001 and $80,000 who claimed more than $2.42 billion; 442,330 earning between $80,001 and $180,000 who claimed $867.6 million in 2010-11; and a mere 38,790 earning $180,001 or more who claimed almost $83.2 million.

The magical income divider of $100,000 was not provided in the ATO numbers.

So with a government looking to take the high moral ground as it embarks on finding ways to pay for its carbon tax climb-down, it will be intriguing to see if it is prepared to delve deeper into the can of worms it has opened.