FBT Making the Tough Decisions

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FBT Making the Tough Decisions

• Neil Donaldson
• Tax Specialist Commonwealth Taxes Unit

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Topics for Discussion

• Making the Tough Decisions
• Cars
• Expenses
• Salary Sacrifice

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Making the Tough Decisions

• Is it making a Tough Decision or is it simply
  applying Government Policy?

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HARD Facts for Cars
Cars that Travel lt 10,000km annualised

• 2,464 owned cars across government
• 1,936 QG Cars
• Communities Child Safety have 30 of their
  fleets travel lt10,000km (annualised)
• Average FBT paid per car - 1,194
• Some as high as 15,520
• Top 50 averaged 11,048 per car
• 38 - Health
• 32 - JAG
• DEIR Communities 8 each
• Average availability for private use 120 days
• 652 available for private use for the full year
  across 27 agencies
• Avg tax - 2,277

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Cars Travelling lt 10,000km

• Large majority (1,411) are Not Shared 57
• Account for 68 of the FBT liability
• Health, DSQ, Communities and Child Safety account
  for 50 of total
• 794 travelled less that 5,000km (annualised)
  incl. 630 QG cars
• Held, on average, for 196 days
• 68 were Not Shared
• Health, DSQ, Communities and Child Safety DES
  account for 60 of total

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QG Cars Business Use lt30

• 257 cars tax payable of 934K
• 149 cars with NIL business use
• 154 Shared Benefit NO
• Avg days available for private use was 220 days
• Avg actual distance 12,053km

Why do we keep cars with such low business use?
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What Can We Learn?What Can Be Done?

• 13.7M paid as FBT on cars
• How much can be saved?
• Improved management of car fleet operations
• Using the cars for their designated business
  purpose
• Insist that annual and ongoing log book records
  are maintained
• Low business use cars are critically evaluated
  annually

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Making the Call

• Raising the issue with Management
• WHY
• Management must manage public moneys responsibly
• Management or senior staff are the recipients of
  certain car benefits that may be queried on the
  extent of their usage
• Options to consider
• Make greater use of the car as part of a pool
• Reduced need for other dedicated pool cars
• Park the car at work if overseas on leave
• 4 weeks leave will cost the employer and
  ultimately the SES officer (approx) 800

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Support for the Call

• What support do you have to raise the issue?
• SES Motor vehicle policy Dated 1 Dec 2008
• An executives government owned motor vehicle
  must generally be available for departmental use
  during normal business hours, except when the
  executive is on leave (emphasis added)
• The officer is required to pay for the FBT
  component out of their package
• Increased use results in decreased FBT more
  money for the officer
• Home garaging of Non-SES cars creates a Double
  Whammy
• FBT on car and car parking

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Tough Questions to Precede Tough Decisions

• Question the need for some of these cars
• It is not only the FBT cost
• There are the leasing and general operating costs
  of the vehicles that can exceed tax costs
• More efficient use of the fleet
• Periodically review vehicle usage data
• Maintain logbooks to identify usage
• Who uses it, where does it travel, how often is
  it used, how many cars operate from the same
  locality, consistent business usage, extent of
  home garaging
• More cost effective usage of asset review ALL
  options including disposal, taxis, vehicle hire,
  etc.
• Can a demonstrated need be proven?

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More Hard Facts on Cars

• Home Garaging of non SES cars
• Government fleet policy is
• Government owned motor vehicles are not to be
  used for private purposes. In cases where
  approval for garaging of official vehicles at
  private residences has been given, journeys to
  and from work which include short detours where
  considered reasonable, may be allowed subject to
  the approval of the chief executive
• Approval for the garaging of government owned
  motor vehicles at private residences is not be
  given unless
• improved operational effectiveness for the agency
  can be demonstrated
• How is it established?
• Requests for government owned motor vehicles to
  be garaged at private residences are to be
  submitted to the chief executive for approval and
  are to be subject to periodic reviews (at least
  every 12 months).
• Is this applied??

http//www.psc.qld.gov.au/library/document/policy/
official-motor-vehicles-use-and-private-parking-po
licy.pdf
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What does Home Garaging Cost?
Assume a car with a value of 30,439 that
travelled 21,900km

• Home Garaging
• Car FBT Cost 5,845
• Car Park FBT - 2,947
• Fuel (private use) - 1,200
• Total FBT Cost for private use
• 9,992

• Business Use Only
• Car FBT - Nil
• Car Parking (110 days) - 1,470
• Total FBT Cost for private usage
• 1,470

Annual FBT saving per car - 8,500
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Expense

• HECS/HELP reimbursements
• Communications
• O/S travel
• Spouse guidelines
• Holidays with O/S travel
• Salary Sacrifice Arrangements

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Hard Facts for Expenses

• HECS/HELP
• Current reimbursements - 1,048,670
• Current FBT paid - 913,088
• TOTAL Cost - 1,961,758
• Review the methodology
• Current process invokes tax at 46.5
• Only applies when employees earn more than
  180,000
• Most employees receiving assistance would be in
  the 34,000 - 80,000 range (31.5 tax rate)
• Change to allowance based incentive
• Could save approx. 500,000 pa

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Hard Facts for Expenses

• Home Telephone Reimbursements
• Actual reimbursement - 294,693
• Tax Payable - 282,608
• TOTAL Cost - 577,301
• Home telephone reimbursement appear based on the
  society of pre-mobile phones
• Employees often receive a mobile phone if they
  are required to be contacted or make contact
  after hours for official purposes
• Limited business use attached to the vast
  majority of these expenses
• Evidenced by declarations (or a lack thereof)
• Install dedicated phone line if necessary

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Hard Facts for Expenses

• Overseas Travel
• When incorporating private travel at the
  beginning or end of official travel
• Need to be conscious of tax implications
• Extended private travel is likely to give rise to
  tax liability on airfares (and other possible
  shared costs) in proportion to official/private
  days
• Be conscious of recreation leave taken with
  official overseas travel
• Liaison between several areas within the agencies

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Salary Sacrifice Arrangements

• How tough is it to make a decision to save money?
• Compulsory super seems a no brainer
• Assume AO6 PayPoint 2
• 5 compulsory 144 per fortnight
• 5.88 pretax contribution 169
• Take home pay increases by 29 per f/n
• Or increase super by 43 for neutral outcome
• Extra 49,000 in Super over 20 years at 7
  interest

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Taxation Advice

• Making the Tough Call

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Departments to seek independent tax advice

• CTU has been asked on several occasions by
  departments to provide advice on land
  transactions involving GST
• Departments seeking advice on the final day of
  the transaction for a contract that was signed in
  2003
• Departments relying on the purchaser providing
  the tax advice
• Departments signing contracts involving GST
  without knowing the tax outcomes
• Departments liable for the GST
• CTU is not an in-house legal service

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Seeking Independent Tax Advice

• It is hard for government agencies to spend money
  on tax advice
• Its expensive,
• You generally dont get much
• Its a parachute for advice
• If you dont get advice
• millions at risk in some situations
• Often the agreement is signed and then the advice
  is sought
• Too late to manage the process

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Tough Decisions - Quotes

• You will either step forward into growth or you
  will step back into safety.Abraham Maslow
• Again and again, the impossible problem is solved
  when we see that the problem is only a tough
  decision waiting to be made. Robert H. Schuller

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The Challenge
You can continue to be part of a problem OR you
can identify the problem and rise up to a
solution.
The Tough Decision is YOURS.
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Questions