Salary Sacrifice Reinstated Across Automotive Industry

Article Written By John Cadogan

John CadoganThe local car industry and associated specialist finance professionals are breathing a collective sigh of relief this week, after the Tony Abbott-led Federal Government honoured one of its key pre-election promises.

Mr Abbott’s government has reversed former Prime Minister Kevin Rudd’s eleventh-hour decision to abolish FBT concessions on vehicle purchases. Effectively, the Coalition has reinstated the 27-year-old system Mr Rudd hastily dismantled in the flawed attempt to plug a $1.8-billion-dollar hole in the budget, just seven weeks before the Federal Election.

The consequences of Mr Rudd’s decision were far-reaching in the extreme. Almost immediately, 300 specialist finance professionals lost their jobs, and 3000 more related jobs were under a cloud. Demand for new cars nosedived – with both Holden and Ford (the two most embattled local car makers) experiencing profound sales reductions in August, putting their sales near 20-year lows.

With the FBT concessions reinstated, post-election, the industry is predicting a healthy rebound in September.

“We’re thrilled the Coalition has made good on its pre-election commitment to the industry,” said Bill Baker from “Everyone is a winner here. The move stimulates the car industry by boosting demand. Economic turnover increases, which is a boon for the economy. Employers benefit because they can once again incentivize employees without penalizing themselves, and employees themselves can enjoy increased spending power in the market as a result of freeing up some pre-tax income to help with the purchase.”

Basically, thanks to the mechanism known variously as ‘salary sacrifice’ or ‘novated leasing’ an FBT concession is once again available on the purchase of a vehicle – regardless of whether the vehicle is used for wholly personal use, or a combination of business and personal. Importantly, under this so-called ‘statutory’ method, no arduous log book record keeping is required.

The concession means that FBT is payable on just 20 per cent of the vehicle’s use, regardless of the actual proportion of personal use. (Essentially, it’s assumed the personal use proportion is 20 per cent – and FBT is charged on that.) The remaining 80 per cent is once again FBT-free.

With just days before the Federal Election, Tony Abbott and Joe Hockey sent an open letter to financiers and the car industry in which they urged a return to business as usual. They said: “We encourage all stakeholders, including employers and employees engaged in salary sacrifice programs, to urgently and immediately return to normal trading activity in order to repair the damage done by this ill-considered Labor announcement.”

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