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AUSTRALIA

A legal tax rort is still a rort

  • 22 July 2013

The decision to tighten fringe benefits tax (FBT) rules is causing grief for the Government, with struggling car manufacturers and more than 320,000 affected voters crying foul. To fund the bringing forward of the switch to an emissions trading scheme, those with salary packaged motor vehicles will need to log and declare the proportion of their driving that is for business. 

Contrary to the spirit of the tax system, many FBT claimants use their cars for mainly private purposes. The existing formula-based calculation gives them a significant financial advantage that amounts to a legal tax rort. They will lose under the new rules. On the other hand, those who use their cars almost exclusively for business will come out ahead. That is how it should be.

Currently Australians on high and middle incomes benefit from the fortuitous nature of the existing rules. Some relatively lower paid workers rely on the loophole to balance their family budgets. Smaller businesses could suffer under the change, with the logging requirement likely to prove a costly burden. But essentially the existing system is stacked against those who are struggling. The poor are subsidising an unintended tax concession for the better off, as they do with debatable but intended tax concessions such as superannuation incentives and the negative gearing of investment losses.

Much media attention has been given to the plight of workers in the salary packaging and car manufacturing industries, some of whom are already losing their jobs as the sectors are reported to be hit hard by the announcement of the new rules. It seems churlish to think of the prosperity these industries have enjoyed due the FBT legal loophole as 'ill gotten'. But there is an argument for that if we consider the spirit rather than the letter of the tax law. Perhaps it would be fairer to put it that they have operated under a business model that is based on profiting from a loophole that they should have anticipated might one day be closed, and that day has come.

The industries resented not being consulted about the change. But as treasurer Chris Bowen said very succinctly when he shrugged off the criticism: 'This is a matter of the integrity of the tax system.' A tax system that makes compromises with sectional interests is by definition corrupt and turning its back on the common good that it has been set up to serve.

Michael Mullins is

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