Administrative arrangements for tax deduction rates mean that taxpayers will have to wait a full twelve months to get some tax relief from surging petrol prices. The release of the 2008 Tax Pack has drawn attention to the Government’s failure to increase the rate for vehicle-related expense deductions.
The cents per kilometre rate at which taxpayers can claim car-related deductions will remain at 2007 levels for small, medium and large cars, despite huge increases in the price of petrol in recent months. The levels, drawn to our attention by a Crikey reader, mean that taxpayers will be unable to claim deductions for the significant rise in fuel costs this financial year. The failure to increase the rate will particularly affect taxpayers whose work-related travel is less than 5000 kilometres.
The rates have increased each year since 2003, most significantly between 2005 and 2007 when rates increased 3-4c per business kilometre, reflecting rising petrol costs. They are set by regulation by the Assistant Treasurer but, as the Explanatory Statement for the most recent regulation indicates, it is the Department of Employment, Education and Workplace Relations that actually calculates the rate, based on the “private motoring” component of the CPI.
DEEWR advised us that the rate – which it develops for internal Commonwealth agency use – was determined in December based on the September quarter CPI data. In the year to September, in fact, petrol costs had fallen slightly. It is the ATO’s decision to use the rate for the purposes of calculating deductions, DEEWR says.
Peter Khoury from the NRMA noted that temporary falls in petrol prices in 2006 and 2007 meant that the rate wasn’t going to rise. Khoury said the NRMA urged the Government to ensure that when the rate is set next year, it reflects the rise in motoring costs, meaning it could go up by something like 7c per business kilometre.
For this year, however, people who use motor vehicles for work are stuck with wearing the higher costs. The ATO may want to consider a more up-to-date system of calculating deductions than using one quarter’s data as a proxy for the entire year.
Although somewhat unrelated, this is a common Government ploy.
In 2001 the Howard government introduced the Commonwealth Seniors Health Card giving self funded retirees access to pharmaceuticals at the same price as pensioners etc. There was an income test applied of $80,000 for couples and $50,000 for singles. This income limit has remained the same for seven years and many self funded retirees (who do not receive a pension saving the government at least $25,000 a year for couples) have lost access to the Card because of rising incomes.
My wife and I have just “fallen” off the perch and it hurts!!!!
The rates — 58, 69 and 70 cents — are still generous. If one uses proper life-cycle costing, a real opportunity cost of funds (rather than finance company nominal rates), and a realistic assumption about vehicle life (300,000 km), does not assume the vehicle is over-insured, and does not double-count interest and depreciation (as the motoring clubs do), then 50 cents is reasonable for most medium sized cars, even with high gasoline prices.