Lessors want law change to stop bleeding

A LEADING fleet industry spokesperson says the federal government should review the method for determining the value of vehicles under finance leases, as the current Australian Tax Office regulations are leading to the overvaluation of vehicles at lease-end.

This, in turn, is leaving fleet operators with negative equity – losses – when they acquire the asset at the end of the lease, according to Toyota Fleet Management (TFM) general manager Ed Stanistreet.

“We’ve found that the residual value settings on finance leases in today’s environment mean that the value of assets is generally significantly lower than the safe harbour guidelines issued by the ATO,” Mr Stanistreet said, speaking with GoAuto after the launch of TFM’s new phone-based driver app for fleet drivers.

According to Mr Stanistreet, the problem stems from an ATO regulation that extended the deemed useful life of vehicles under various categories.

This meant that, under a finance lease over the same term, the residual value of a vehicle would be higher than either an operating lease residual or the vehicle’s market value.

“So we think there is merit in ensuring that finance lease products reflect the genuine end of contract value to avoid negative equity,” he said.

“We think there’s a disconnect between the value of the assets and the ATO’s safe harbour setting and we are arguing that they should review that.”

Mr Stanistreet was speaking as chairman of the Australian Fleet Lessors Association (AFLA) and was outlining the recommendations the association will make to the government when it conducts its review of the nation’s tax structure.

The examination will be guided by the Tax White Paper, which was released on March 15 this year.

Mr Stanistreet said the AFLA was comfortable with the current policy settings on the fringe benefits tax and the government’s decision to maintain the statutory return method for calculating FBT liability.

The previous Labor government ran into some vigorous opposition before the last election when it proposed only retaining the operating cost method, which brings significant complexity.

Opponents argued that it would deal a severe blow to the local car industry, many of whose cars were sold to people and companies claiming exemption from the FBT.

“As an industry, we all agree that the FBT treatment of motor vehicles is an important issue and we would argue that the decision by the Abbott government to continue with the statutory return method for evaluating FBT is still relevant.

“The statutory return method is less complex and more efficient to administer.”

Mr Stanistreet said the tax foregone under the FBT system applied to vehicles is not among the top 25 largest tax expenditures in the budget.

“We don’t think there’s evidence that the tax take would be anywhere near as significant as (Labor) expected and we believe there is justification for keeping it relatively uncomplicated.”

Mr Stanistreet said the AFLA was also keen to see the luxury-car tax abolished, particularly in light of the support assistant minister for infrastructure Jamie Briggs has given to the idea of relaxing the rules around the personal importing of new cars.

“Luxury cars are the only asset with this type of tax levied on them. It’s narrow based and it’s complex because you have the LCT, depreciation limitations and input tax credit limits, as well as the conversion of a lease into a hire purchase contract.

“We would say that, with the proposed relaxation of regulations for the importation of new individual luxury vehicles, we are going to have an uneven playing field if privately imported luxury vehicles are treated differently to retail vehicles under the current LCT regime.

“Luxury vehicles are more expensive in Australia compared to other markets substantially because of the LCT regulations.”

The new TFM fleet driver app, DriverDirect, allows the driver to keep track of all relevant data required for fleet operation. Apart from basics like fuel purchased and miles covered, the app also alerts the driver about other events, such as when the vehicle is due for servicing.

“All the information is collected in the core app and the fleet manager is sent either online or electronic reports,” Mr Stanistreet said.

“So, we’re still servicing the fleet manager but we are now serving the driver in a better way and the fleet manager can become more strategic rather than being operational.

“The manager is the one that goes to the driver and says ‘You haven’t serviced your car’.

“And we also produce exception reports because there are always drivers who don’t do what they are meant to do with their car.

“Now they are in a position where they can see what’s happening more readily and therefore take action to correct the gaps.

“But they don’t get a tombstone of a report into which they have to drill down, car by car, to see where there are exceptions to be managed.”