Bicycle Network: Better Transport
First draft of Tax proposal
This was the first draft of our proposal on tax which went out for comment 13 February 2009.
We have been passing around a discussion document on tax that proposes that the tax rules be modified to give an advantage to people who ride to work. It is a 'minimalist' proposal that uses the template of two existing tax rules.
What do you think?
How to use tax incentives to cut congestion, public health costs and carbon for individuals and companies
We propose a salary sacrifice scheme for bicycles, parts and services. In our opinion the scheme must be:
Of high repute
- Attractive to many people
- Seen to be socially relevant by those who don’t or can’t use it
- Hard to rort
Easy to administer
- For the Tax Office
- for business
A simple concept for individuals and the bicycle industry to grasp.
Have a performance measurement system that highlights the impact of the scheme.
We suggest that the scheme could be analogous to existing schemes and use existing or familiar methods.
We considered proposing a scheme analogous to the salary sacrifice/FBT arrangements on an annual basis for motor vehicles. We rejected this as it is complex and features such as the statutory fraction of kilometres travelled don’t cross over to the bike world easily.
Individual scheme in summary
Employed people are permitted to salary sacrifice in a non-reportable FBT concession $1 500 of bicycle equipment and services from independent bicycle dealers one time in a two year period. In addition employees can add to this main benefit through packagable minor benefits.
To be eligible for the tax concession the person must make and maintain a record of their journeys for 12 weeks in each year. The journeys in each week must add up to at least 25km.
Individual scheme with commentary
Employed people are permitted to salary sacrifice
(We considered having a method of recording tax loss for unemployed people so that a tax loss could be carried forward. We don’t recommend it at the start.).
with a non-reportable FBT concession
(Similar to the rules for car parking)
$1 500 of bicycle equipment and services.
(This amount will allow people to buy a good reliable bike $700 – $1 000 for regular riding. The balance of the money would be taken up with:
- equipment such as lights, racks etc;
- clothing such as helmet, raincoat, gloves
- services such as a couple of prepaid $100 maintenance vouchers
- membership of association)
from independent bicycle dealers
(People can buy bikes and parts on the internet but we suggest that this be restricted to be from a bike shop which can provide full service for the bike including selection, service and warranty.)
(The UK tax free bike scheme cyclescheme.co.uk is restricted to bike shops. The UK scheme is a tangle of paperwork and obligations. We recommend NOT to copy this scheme. The US scheme also also too complex but in a different way.)
one time in a two year period.
(This is an adequate time. Once a year is too frequent.)
In addition employees can add to this main benefit through packagable minor benefits
(The packagable minor benefit rule says that each minor benefit must be less than $300 and irregular. One way to handle this would be to have certain types of bike expenditure classified as Minor Benefits and specifically be exempt. This could include bike services, parts and accessories. Alternatively $300 of bike bits and pieces could be exempt benefits each year. The minor benefit option would be supported by a formal ruling from the Tax Office.)
To be eligible for the tax concession the person must make and maintain a record of their journeys
(Same as the car system. We think it would be very exciting to have a on-line declaration registry in which people log their purchases and kms that the Tax Office allowed to be deemed to be the same as a log book. All personal information would be private but the electronic log could report on what people are buying, how much they are riding – how many kms are accumulating and then the benefits could be calculated and displayed: this many tonnes of carbon etc.)
for 12 weeks in each year.
(Same as motor vehicle system. We considered two 12-week periods but this seemed too burdensome. One period per year keeps the parallel with the motor vehicle scheme.)
The journeys in each week must add up to at least 25km.
(Based on someone living 3 – 10km from work and riding 1 – 4 times a week. People who live near work may need to do other trips to top it up. We don’t want a total km for the twelve weeks, such as 300km, as some people will go out and do it in one day.)
If the rider fails to keep a log book or accumulate enough kms they are not eligible for the tax concession.
We suggest a corporate tax break on retrofitting bike parking, showers and lockers.
This could be structured as extra depreciation (i.e. be allowed to depreciate 200% of the cost of the facilities). This has been used before to promote certain capital investments. Other options could be the immediate write off of capital works related to these facilities.
To enable tenants to undertake the work (where the building owner will not), the 200% deduction/depreciation rate could apply to the works as either building works or leasehold improvements.
The 200% method means the effective cost for the business (assuming paying 30% corporate tax rate) is 40% of the facilities as opposed to 70% it would currently cost if the organisation can only depreciate 100%.
The immediate write off method would be preferred by business as they get the deduction now and the administration is less.