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Could the Carbon tax reform hurt the Australian car industry?

Jul 19, 2013

Tax changes announced by the government could have an impact on Australian car production, warn industry insiders. Prime Minister Kevin Rudd confirmed that the existing carbon tax would be removed; replaced with a separate missions trading scheme. This would reduce the current carbon tax from $25 a tonne to only $6 per tonne. To make up for the $4 billion in revenue lost by the cut in the carbon tax, Rudd's government proposes to reform an existing 20% fringe benefits tax for cars. It's expected that this could have a serious impact on new car sales as a result.

According to the Federal Chamber of Automotive Industries, the new changes could affect as much as a third of the new car market in Australia, totally 363,000 cars. In their report published in Go Auto News, the FCAI warned that doing away with the fringe benefits tax incentives would have a serious impact on the country's 1.1 million new vehicle sales. Toyota Australia has also chimed in on the debate, stating that these revisions could potentially hurt their business if pushed forward. At the moment, Toyota produces models like the Camry locally.

The tax reform could also have an impact at the consumer level. With the loss of the fringe benefits tax incentive, drivers who use company cars could pay as much as an extra $1400 per year. However, the government maintains that this change will not hurt any drivers who were already making legal claims for their work vehicles. In the past, 20% of a company car's use was assumed to be personal, and the fringe benefits tax was charged on this amount. However, the reform will require businesses to keep a more detailed record of a car's use, and log exactly how it is split between work and personal time. This will result in significantly more paperwork for businesses using company car fleets, including car hire companies and taxis.

Companies like Toyota, Holden, and other local producers worry that this will have an impact on the new car market, particularly when it comes to fleet sales. The danger is that if businesses were planning on purchasing new Kia cars at Carsales or a fleet of Toyota Camry cars directly from the manufacturers for company use, they may now cut back due to the tax reform. This could trickle down into other new cars produced locally, cutting into the family car market and affecting Opel Astra sales or other popular new consumer vehicles. Toyota claims that because the company relies heavily on sales to business and government fleets, if they lost these sales they may not be able to continue producing locally built cars. This could also lead to extensive job loss in the sector.


However, the government maintains that dropping the carbon tax will help ease rising living costs both at home and for small businesses, leaving the average family $380 better off through 2015. It remains to be seen what effect this reform will have on the local auto industry.

Tags: Accountant SydneyCompany taxEmployeesEmployersFBT

Author: Piotr Ozmina

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