Car Leasing Policy to Impact on NFPs

The Federal Government’s change in policy on car leasing and FBT will have a significant impact on the Not for Profit sector and will be an imposition on all charities that salary package vehicles, according to the Community Council of Australia CEO David Crosbie.

It’s understood that charity workers make up around one quarter of all novated car leases (part of the individual’s package) in Australia.

“The policy will mean extra work in compliance and less cars will be leased by charity workers as part of their package,” David Crosbie warned after Prime Minister Kevin Rudd announced the new policy late last week.

He says the changes also mean there will be more paperwork and compliance costs for NFPs to work out the FBT component of any package involving a car.

“Basically it will mean that all charity workers taking a car as part of their package will have to provide a log book to justify the level of work related driving,” he said.

Currently it is assumed that if you have a novated lease around 20% is private (so you pay FBT on that or that is the component include as part of your FBT benefit) and the rest is company expenses and non-taxable for the individual.  

“Not for Profits with FBT exemption will be less likely to package a car unless there is a significant work component – they will take their FBT exemption benefits in other ways, Crosbie said.

“Whether or not this translates into good policy really depends on how the savings are to be used.  The FBT on cars had been generous (assuming 80% work related driving), but addressing some of the issues with car leasing probably needed to be done within a broader policy context,” he said.  

“We need to think about how we can strengthen the NFP sector and structure the tax concessions (including FBT concessions) so that they are effective, efficient and offer real benefits to those working in the charity sector.  

“We know concessions are often important in attracting and retaining good staff, so any changes to the benefits available through concessions needs to be carefully considered and closely monitored.  

“Of course this also raises the questions – when will the government release the report of the NFP Sector Tax Concessions Working Group?”

However, Treasurer Chris Bowen defended the policy change saying it only applies to new contracts.

“We put in place a transition until April next year, so that people have some time to adjust.

“If people are claiming some tax relief on the basis that their car is being used partially for business use, we just need a little bit of evidence to that.

“We've asked for three months of records, which will then get a tax deduction for five full years – without the records needing to be kept for those five years.

“We took this tough decision to partially fund our decision to go to a floating carbon price, to provide cost of living relief to businesses and families,” Bowen said.

The policy has been criticised for immediately damaging the car industry and the leasing industry.

Neil Campbell, the Managing Director car leasing companyy, inNovated Leasing Australia says the impost on the Not for Profit sector which is 8% of the Australian workforce would be enormous.

He says the sector is the third largest group using novated car leasing as part of their salary packaging after government departments like the ATO and hospitals.

“The Rudd Government announcement of removing the FBT concession has consequences well beyond a Treasury money grab and is likely to be seen as a significant blunder by Kevin Rudd.”

The CEO of welfare peak body, ACOSS,  Dr Cassandra Goldie however has supported the changes.

"While there is clearly concern about the implications of this policy reform in terms of jobs within the affected industries, we can't lose sight of the fact that this reform was directed at poor practices through the tax system," Dr Goldie said.

“In particular, there was concern that people were benefiting through a tax break far in excess of their legitimate use.

“The reform simply provides a way to track appropriately the extent of professional use of cars and to ensure people are not receiving undue personal benefit,” she said.

“The community sector has a strong interest in progressive reform to achieve a fairer tax system. We are very aware that we have a major challenge in raise a sustainable revenue base for priorities in government spending now, and into the future.  

“With over 2 million people living in poverty – and one in six children – savings found through such reforms as this one should be carefully targeted to those in need. This is one of the reasons we have always proposed that the compensation package for households associated with carbon pricing be reviewed with the transition to an ETS, to make sure that income support is going to those who need it the most.

“A clear priority should be to increase the single rate of the unemployment payment, which is widely considered to be the single most immediate action we could take to reduce the rate of poverty in Australia,” she said.