FBT vehicles driven from the field

It is the end of the days of the fringe benefits tax system. Photo: Glen McCurtayne max-newnham_127x127
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There has been much wailing and gnashing of teeth due to the final nail in the motor vehicle FBT coffin being hammered in. This is surprising, given previous income tax crackdowns have not caused a similar outpouring of grief. When the tax deduction for entertainment expenses was axed, which resulted in many restaurant failures, barely a whisper was heard.

The fringe benefits tax system was introduced in 1986 to tax salary taken as benefits. One of the most common benefits provided by employers has been the provision of motor vehicles used primarily for private purposes.

Employers have had a choice of two methods for calculating the taxable fringe benefit. The first is the operating cost method. Under this method, all costs for a motor vehicle are totalled. A private use percentage is established by keeping a log book for 12 weeks. The private use component is calculated by multiplying the total operating costs by the private use percentage.

The second is called the statutory method. The taxable fringe benefit is calculated by multiplying the cost of a motor vehicle by a percentage. Originally this percentage differed depending on the number of kilometres a car was driven in a year.

For cars driven less than 15,000 kilometres, the rate was 26 per cent. The rate decreased to 20 per cent for cars driven between 15,000 and 20,499 kilometres, 11 per cent for cars driven between 25,000 and 39,999 kilometres, with a lowest rate of 7 per cent for cars driven more than 40,000 kilometres a year.

Once the value of taxable fringe benefit is calculated, whether by the operating cost or statutory methods, it is grossed up to reflect the wages an employee would have earned before tax. For example, for a person to pay private car costs of $1000, at the top marginal tax rate, they would need to earn $1869 before tax. This taxable amount then has fringe benefits tax paid on it at 46.5 per cent.

Just as is the case with other tax savings schemes, many employees signed up for salary packaging of motor vehicles under the fringe benefits tax system and received no tax benefit. In most cases a benefit was only received for vehicles driven more than 25,000 kilometres a year, on cars costing less than $57,000. When the Labor government was finding it hard to balance the budget it focused on the leak in revenue due to the unfair tax advantages provided under the FBT system.

The first change to motor vehicle fringe benefits was announced in the 2011 budget. It involved the phasing out of the four-tiered statutory FBT method for vehicles. The change meant that by April 1, 2014, there would only be one rate of 20 per cent applying to motor vehicles.

This effectively meant that by having one high percentage to calculate the fringe benefit taxable value it would have not made it tax effective to salary package a vehicle.

It is interesting that this final change to the FBT treatment of vehicles was brought in as part of changes to the carbon tax system. There is an environmental argument for scrapping a tax advantage that increases the more a vehicle is driven. The decision to scrap the statutory method will mean employees provided with cars primarily used for private purposes will no longer get a tax benefit by packaging the vehicle.

The original release of this article first appeared on the website of Shanghai Night Net.


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Hardware’s a hard game for Woolies

Illustration: Kerrie Leishman.Since Woolworths announced it would take on the Bunnings juggernaut in 2010 by moving into the $42 billion home improvement sector, the company has taken a lot of stick.
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After Thursday’s long list of explanations for the ballooning losses to $157 million in its Masters home improvement business, it is likely to get a few more swings of the stick. The losses boiled down to misjudging the three essential parts of any retail business: sales forecasts, gross margins due to stocking the wrong product mix, and costs.

Given Masters chief Melinda Smith’s acknowledgement that five years ago, in preparation for Woolworths’ entry into this market, the company studied internationally renowned home improvement retailers, it didn’t inspire confidence to hear her comments: “We didn’t know a lot about this business when we set the budget for FY13.”

Her comments about the seasonal curve in relation to Masters joint-venture partner US-based Lowe’s also raised eyebrows. “We didn’t know a lot about the seasonal curve,” she said. “We’ve got a great joint-venture partner in America but when it’s Christmas time over there it’s also winter. Our Christmas time lines up with spring and Father’s Day, so it’s quite a different seasonal curve … we didn’t have the right stock in some instances.”

Against this backdrop, the company’s share price fell on a day when rival Wesfarmers, which owns the Bunnings hardware chain, and the broader market closed higher.

For more than a year investors have been trying to get information on how Woolworths’ home improvement business was doing, particularly after Merrill Lynch analyst David Errington started issuing reports questioning the strategy and potential drag on the overall business empire.

It wasn’t a pretty picture – and he won few friends at the company – but Woolworths kept silent and the speculation intensified that its Masters and Danks businesses were struggling and Lowe’s was ready to call it quits.

Woolworths finally updated the market on Thursday with revelations that the homeware business suffered losses of $139 million, 71 per cent higher than its budgeted loss of $81 million. This comprised a $157 million loss from its Masters business, compared with a forecast loss of $119 million, and a lower than expected profit from its Danks business of $18 million instead of an expected $38 million.

Earlier this week it emerged that Lowe’s had extended a put option to sell out of the partnership until October 2014. Woolworths’ chief financial officer, Tom Pocket, said Lowe’s had been very accommodating and was committed to the joint venture.

The challenge for Woolworths is convincing the market that the losses will stop. It said losses would not “exceed this year’s level” but that it would break even in 2016, which is in line with its original target. But given the size of the losses this year and next and the number and type of mistakes that were made, the market isn’t overflowing with confidence.

To put it into perspective, the $157 million loss doesn’t include allocated rental costs. The joint venture between Lowe’s and Woolworths owns most of the stores, so if the result was lease-adjusted it would blow the loss out to an estimated $200 million on revenue of $529 million. This is equivalent to losing more than 35¢ in the dollar, which is huge.

Woolworths has committed to opening 90 Masters stores by the end of 2016. To date it has 31.

The theory is the more stores, the greater the economies of scale and therefore the more profitable the business. But this isn’t necessarily the case. Several factors need to work to make a business profitable, including having stores in the right location. Indeed, some industry experts would argue that home improvement over the past two decades hasn’t been a scale game but a model game and some hardware chains have been able to make a profit by having the right product mix, product sourcing, labour and location.

In a report in April, Errington estimated it would lose $135 million on its hardware business in 2013, $195 million in 2014, $235 million in 2015 and $265 million in 2016.

It also renegotiated a deal with private equity group Anchorage, which bought Woolworths’ Dick Smith business in 2012 for $20 million, plus a promise to give Woolworths a proportion of any future profit growth.

Woolworths said it had “released” Anchorage from this obligation in exchange for $74 million, which consists of $50 million in June 2012 and $24 million in 2014.

Anchorage would no doubt be doing high fives on this new deal. When it bought the business last year it was generating more than $1.5 billion in revenue and a pre-tax profit of $24 million. The price included all assets and off-balance sheet leases.

At the time it was speculated that the inventory tallied up to $250 million.

The original release of this article first appeared on the website of Shanghai Night Net.


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Tigers will no longer move ‘home’ games

Richmond, closing in on finals, boasting record membership and soon to be free of debt, say they will never again relocate home games for money.
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After winning the last of three matches that the club agreed to move to Cairns, chief executive Brendon Gale has acknowledged that the lucrative deal he struck for a struggling side in 2010 created ”hostility and vitriol” in many fans. The Tigers were beaten in two of those matches by Gold Coast.

While maintaining the agreement that had Richmond lose a home-ground advantage but earn more than $1.5 million over three seasons was ”the right decision for the club”, Gale was adamant it would not be repeated – or replicated – while he remains in charge.

”Not on my watch,” he said. ”Why? Because we’ve stabilised. I’d be loath to do that [again] because we’re a football club, and a proud iconic football club, that has a national footprint but we play our home games at the MCG.”

Richmond’s financial turnaround coincides with a jump in membership from around 39,000 to 60,000 in three years.

Asked whether the Cairns deal that prioritised financial imperatives was popular with the Tigers faithful, Gale said: ”Absolutely not … supporters are very passionate, and particularly when you lose games they voice that. Absolutely when we lost those first two games they were very bumpy times.

”It was a difficult decision internally to work through … and when you lose games there’s a lot of hostility and vitriol.”

In contrast, Suns chief executive Travis Auld wants his team to continue playing at Cairns’ Cazaly’s Stadium – attended by 11,197 last Saturday – but now requires a new rival willing to move home games to Queensland. Even with the obvious financial incentives that is a less attractive prospect for opposition sides than it was three years ago given the Suns’ improvement.

The Suns do not want to relocate any of their home games from the Gold Coast for several reasons, chiefly their agreement with Metricon Stadium. This leaves the AFL, which wants Cairns to continue to host matches for premiership points, looking for another club.

The Western Bulldogs and Melbourne, playing one home game each in Darwin this season, and Port Adelaide are considered the sides most likely to be lured into sacrificing true home-ground advantage in exchange for handsome compensation from the AFL.

Bulldogs chief executive Simon Garlick has previously indicated that negotiations had commenced with the Northern Territory government to have the Dogs extend their deal in the Top End beyond 2013, but he told Fairfax Media on Thursday the club was now open on the matter of location.

Hawthorn, North Melbourne and St Kilda are the three clubs that have ongoing arrangements to play ”home” games on foreign turf.

The original release of this article first appeared on the website of Shanghai Night Net.


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Swans, Eagles enjoying the Kennedy years

Number one: The Swans’ Josh Kennedy celebrates last year’s premiership triumph over Hawthorn. Photo: Paul RovereIf you could have one name playing for your club it would likely be Josh Kennedy.
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Even before Josh Kennedy headed home the winning goal that sent the Socceroos to the World Cup, his AFL namesakes had already gone a long way to ensuring 2013 would be a memorable year for the name with their efforts for their respective clubs.

Sunday’s clash between their teams is shaping as an occupational hazard for broadcasters as they are likely to spend much of the game having to differentiate between the pair.

Both are integral members of their teams and will have major, but very different, roles to play.

Sydney’s Kennedy will be in the engine room winning the hard ball for the Swans’ band of runners while the Eagles’ Kennedy will be catching the eye in the forward 50, not least for his comical, yet effective, goal-kicking technique.

The Swan is one of the leading possession-winners in the competition while the Eagle is sharing the lead in the Coleman Medal race. But which Josh Kennedy would you rather have at your club?

Both players are on track for All Australian selection this year. Should it happen it would be the first time since a pair of Jack Clarkes from Essendon and East Fremantle achieved such an honour in 1958.

Former Geelong premiership captain Tom Harley is a fan of both Kennedys but would happily take the Swans No.12.

Based in Sydney through his role with AFL NSW, Harley has seen the Swans play more often than the Eagles but it’s what the Kennedy wearing red and white does in big games that pushes him over the line. Not only did Kennedy star in Sydney’s September campaign last year, he was a runaway best-and-fairest winner in a premiership season.

”There are so many individual awards in the AFL, whether it’s media, Brownlows or MVPs, but if you want a true gauge on how good an individual year is I think best and fairest in a premiership year is about as good as it gets,” Harley said.

”Given it’s a premiership year you’ve played in a lot of big games and more often than not contributed significantly. On that basis I’d say [that I’d take] Josh from the Swans again.”

He rates the Eagles’ Kennedy highly and believes he is well placed to collect his first All Australian jumper at the end of the season but stops short of describing him as a ”dominant key forward” just yet.

”That’s not downplaying his influence on the comp but I think Josh Kennedy from the Swans can mount a case he’s in the top half a dozen players in the comp and top two, three or four midfielders in the competition,” Harley said.

What Harley admires most about Kennedy is his consistency – a trait upon which Swans coach John Longmire recently remarked.

The Sydney ball magnet leads the league for contested possessions, is second for clearances, averages 27 disposals a game this year and has had fewer than 20 possessions in just two of his past 43 games.

”If you put his form line on a graph it would be flat line with the occasional earthquake tremor heading north but he’s been a phenomenal player,” Harley said.

”He never loses his feet. He’s a classic big-bodied midfielder who a lot of clubs would love. Sure key forwards are a point of difference but how many clubs have a six-foot-three, 94-kilogram midfielder who can run all day, use the ball well and move forward and kick goals?

”I put him in the class of Jobe Watson, Ryan Griffen. Once you throw out those names it reinforces his standing in the game.”

Harley can remember playing on West Coast’s Kennedy before he was traded to the Eagles in the deal that netted Carlton Chris Judd and it did not take long for him to identify the then Blue as a player worth keeping an eye on.

”He had unbelievable athletic ability,” he said.

”You think people would be foolish to judge Josh Kennedy and make comment on him purely on his goal-kicking technique because it’s become a bit of a comedy. But he’s deadly accurate and takes contested marks and kicks goals. When I played on him you got the sense of his athletic ability but didn’t get the sense of the fact he’d dominate the competition or be an extremely good key forward in the competition because he was so young.”

The Swans, with their depth of tall stocks being tested, would dearly love a forward of Kennedy’s calibre but not at the expense of their reigning club champion.

”I’m happy with ours but I like the other bloke, too. Can I have two?” Longmire said. ”I’m sure both coaches are happy with their Josh Kennedys.”

The original release of this article first appeared on the website of Shanghai Night Net.


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Politis backs Pearce

Roosters supremo Nick Politis has hit back at critics of Mitchell Pearce and urged NSW powerbrokers not to put a line through his name for future Origin matches.
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The biggest talking point after the Blues’ eighth straight series loss – excepting perhaps Wati Holmwood’s streak across ANZ Stadium – is whether Pearce should be given another chance in NSW sky blue.

With yet another series on the line, the Roosters halfback failed to seize the initiative in what many are predicting will be his last interstate game. His performance and place in the team have been dissected across social media and talkback radio since full-time, with most pundits calling for his head.

However, long-serving Roosters chairman Politis, who also serves on the NSWRL board, said Pearce was an easy target and should not be ruled out of future Origin campaigns.

”He’s a champion,” Politis said. ”We’re 100 per cent behind him. He’s a great player and a great bloke. I’m sure he will be there next year. At the end of the day it’s a very close game and it’s not fair to blame ‘Pearcey’.

”They lost by two points. You can go through the whole game and find 20 ‘what ifs’ – what if this player did this or that. It’s not like they were killed. They had plenty of opportunities to take a penalty. If they did, then it could have been different.”

Before Origin III, Pearce conceded he was almost certain to be blacklisted if the Blues did not end Queensland’s winning streak.

”He’s very honest and that honesty is coming back at him,” Politis said. ”As expected, if they lost, he was going to be the one to cop it because of what he said before.”

Former Blues halfback Greg Alexander suspected those pre-game comments played on Pearce’s mind when the game was there to be won.

”He put a lot of pressure on himself by saying that if he doesn’t aim up in this one it would be the end of the section,” Alexander said.

”I thought it showed. You don’t like to criticise someone because they all gave their guts, all of them. But I thought he lost his nerve in the last 15 minutes after he turned that ball over on the grubber when they were only 10 [metres out] out.

”A couple of his decisions after that, and his execution, were off. Maybe what he said before the game got into the back of his head. He tried hard but he put a little bit too much pressure on himself with that statement.”

Roosters legend Brad Fittler, a member of the NSW coaching staff and Pearce’s former club coach, said there was no need for selectors to declare their hand given the next Origin series was almost 11 months away.

”I think Mitchell realises the situation he was in, that things didn’t go his way,” Fittler said. ”He tried hard.

”There’s a few things he’d wished he’d done better.”

Asked if the criticism of the 24-year-old was warranted, Fittler said: ”It depends on how he takes it. And who is giving it. I’m not going to sit here and bag him. He knows he didn’t have his best game

and that his position is under threat. Simple as that.”

On his Phil Gould Show – which is available in full on smh上海夜生活m.au – NSW’s most successful coach said he believed there was ”something frantic” in Pearce’s decision-making.

While Gould praised Pearce’s courage and commitment – and said he would not be surprised if the Blues hierarchy persevered with him – he said it was time for Pearce to show the control his Queensland counterparts displayed.

”There were a few occasions where he got the ball and you could see that he had half a dozen things on his mind – usually, if he gets the right one, it’s a fluke,” Gould said. ”Whether he can gather that at this stage of his career, I don’t know. I’m sure it will come with age. He’s had 12 Origin games now – you would have thought that the penny would have dropped.”

Pearce is NSW’s most capped halfback after making his 12th appearance on Wednesday night. His Maroons counterpart, Cooper Cronk, again outplayed him, and after the match the Storm star offered some kind words.

”I’m not aware of the specifics that have happened, the criticism and things like that, but Origin football is the toughest arena to play,” Cronk said.

”He’s a very good player, he’s been a part of NSW for a long time and good players are a part of Origin. It was a tough night for everyone out there.

”He’s a good player and he’ll continue on.”

The original release of this article first appeared on the website of Shanghai Night Net.


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