Tax plan puts purchase of new trucks at risk

Recommendation to increase statutory effective life caps on trucks and trailers will hinder transport operators from upgrading fleets, ATA says

Tax plan puts purchase of new trucks at risk
Tax plan puts purchase of new trucks at risk
By Brad Gardner | September 26, 2012

A recommendation to increase the statutory effective life caps on trucks and trailers will hinder transport operators from upgrading their fleets, the Australian Trucking Association (ATA) claims.

The Business Tax Working Group (BTWG) wants to alter depreciation arrangements as part of a suite of measures aimed at offsetting the cost of reducing the company tax rate from 30 to 25 percent.

Under the BTWG’s plan, businesses which do not self-assess the effective lives of their vehicles will be required to depreciate trucks over 15 years instead of the current cap of 7.5 years, and 15 years for trailers instead of 10 years.

But in a written submission to the BTWG, the ATA says the plan will impose a cash flow burden on businesses compared to the existing set-up, making it harder to update older trucks with safer and more environmentally friendly models.

"The cash flow gap would be $4,163 per year for each typical prime mover. This cash flow gap would reduce operators’ ability to purchase new trucks and renew their fleets with the latest equipment," the submission says.

The ATA says the gap for a rigid truck will be $1,665 per year. The submission points out the BTWG’s proposal will only deliver 0.8 percent ($205 million over four years) in savings needed to offset the company tax cut.

Prior to lodging its submission, the ATA questioned a number of trucking operators about the BTWG’s recommendation.

A livestock transport business based in New South Wales told the ATA the plan would "cripple" a young growing business, while another company told the association it preferred retaining the effective life caps over a lower company tax rate.

Another business told the ATA it would need to reduce its capital expenditure if the life caps were increased, with a national line-haul operator saying the plan would "greatly impact" its cash flow.

"It is likely that we would buy less equipment and try to stretch the life of the equipment we have further. This will impact manufacturers and mean more carbon efficient vehicles are not being purchased," the business says.

The ATA has questioned if operators will be able to raise their freight rates to cover the expected shortfall in cash flow.

"In reality, this would not be an option for most trucking businesses: the industry is hypercompetitive and mainly consists of small to medium businesses with a limited ability to raise their prices," the submission says.

It goes on to say the majority of small to medium trucking operators, which make up the bulk of the transport sector, do not have the resources or accounting expertise to self-assess the effective lives of their vehicles.

The ATA says operators typically sell prime movers after four to 10 years of service, while rigid trucks are sold after 10 years.

Treasurer Wayne Swan established the BTWG to look at tax reforms to increase productivity and assist businesses. The group's membership includes representatives from the Australian Industry Group, the Business Council of Australia and the Australian Council of Trade Unions (ACTU).

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