FBT changes rock car industry

Proposed changes to salary packaging of motor vehicles hit car industry

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 17, 2013 2:50 pm AEST

The car industry has slammed the federal government for not consulting with them, and say the industry faces severe damage from cuts to fringe benefits tax concessions.

Yesterday, the federal government has announced changes to the fringe benefits tax (FBT), in an effort to claw back around $1.8 billion a year. The changes were made as the federal government moved from the carbon tax to a floating carbon emissions trading scheme, which will hit revenues by $3.8 billion.

Car dealers, lease providers and manufacturers including Ford, Toyota and Holden have all expressed alarm at the changes and were angry that they weren't consulted. The FBT changes are designed to stop people from claiming a tax deduction for the private use of business cars, with all employees salary-packaging a car forced to keep log books to justify the business use from April 2014.

Salary packaging companies like Smartsalary and McMillan Shakespeare (ASX:MMS) have both suggested that the changes will have a significant effect on their businesses. Smartsalary's Simon Ellis went one further, stating that it will mean a very significant reduction in vehicle leases, if not the complete end.

Mr Ellis also lashed out at the government's claim that the new rules are targeted at high-income earners. More than a third of such car owners earn less than $80,000 a year, he said.

At least 25% of all new cars purchased in Australia were under leases or otherwise salary packaged according to Remunerator managing director Mathew Honan. That could have a significant impact on Australia's car manufacturing industry and could see Ford cease local manufacturing earlier than its planned 2016 finish. It could also see Holden and Toyota pushed to close down their local manufacturing operations, putting thousands of jobs at risk.

Not everyone was pessimistic about the proposed changes, with car retailer Automotive Holdings Group's (ASX:AHE) managing director Bronte Howson saying that the changes were unlikely to have a major or sustained impact on the group. Similarly, listed car dealer, AP Eagers (ASX:APE) said salary-sacrificed cars represent less than 5% of the company's new car sales volume.

Foolish takeaway

Investors appear to be expecting the worst, with McMillan Shakespeare's shares falling 8% before it went into a trading halt, and at this stage likely to fall much further when the shares resume trading. History has shown that the worst is unlikely to occur, and investors may have over-reacted.

In the market for high yielding ASX shares? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free! More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.