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FBT changes ring alarm bells for rural areas

Publication date: 10 Feb 97 | Source: THE TAX INSTITUTE

FBT changes ring alarm bells for rural areas

Measures to simplify the fringe benefits tax proposed in the Small Business Deregulation Taskforce Report would severely disadvantage rural and regional Australia, according to Taxation Institute of Australia, Technical Director, Ms Annamaria Carey.

In a recent letter to the National Party Leader and Deputy Prime Minister Mr Tim Fischer, Ms Carey stated that changes to the current rules on FBT for cars would significantly increase FBT for businesses in rural areas.

"If this proposal is accepted, it will mean that taxpayers which provide cars with high travel kilometres during a year will pay substancially more FBT," Ms Carey said.

"This is of great concern to employees in rural areas who must travel long distances every year in order to serve clients and run their businesses."

Current FBT arrangements allow taxpayers to elect to calculate their tax liability by the operating or actual cost method, under which a diary must be kept setting out the costs of running the car and establishing the business mileage travelled during the year.

If, however, a taxpayer decides not to use this method, a statutory formula applies, under which, the greater the total mileage, the lower the statutory percentage that applies to calculate the FBT payable on the car.

The Taskforce proposal is to scrap the operating cost method completely and replace the current variable statutory rate which ranges from 7 to 26 per cent with a flat 13 per cent which will apply regardless of the number of kilometres travelled.

"For example, an employer which provides a car which travels 45,000 kms in a year is currently paying FBT on a taxable value of $3150. Under the Taskforce's proposals, the taxable value will increase by 86 per cent to $5850. Quite a substantial difference," Ms Carey said.

"In addition, a taxpayer will no longer be able to elect to calculate FBT based on the operating cost method, which may actually reduce the FBT liability where the car is used substantially for business travel."

The Taxation Institute has received a number of calls from members in rural and regional areas concerned about the impact these proposed changes will have on their clients who are already struggling to maintain a living in these communities.

Taxation Institute, President, Mr Jonathan Ilbery said what is really required is a major overhaul of FBT policy. Fiddling around with the edges, merely creates additional compliance problems for taxpayers.

"The Institute supports efforts of government and the Small Business Deregulation Taskforce to minimise compliance costs for small business, however, this proposal merely shifts the burden to another sector of the community," Mr Ilbery said.

"Considering the Governments strong public commitment to sustaining the future of rural and regional Australia and boosting small business, the Taxation Institute urges the Government not to adopt this proposal," Mr Ilbery said.

The Taskforce report was released last November and the Government is committed to responding it by the end of this month.