They’re Back

On 16 July 2013 (during the first half of FY14), the Labor Government proposed changes to the Fringe Benefits Tax (FBT) treatment of novated leases, amid claims of “rorting”. These proposals shut down the car leasing and salary packaging industries. Even Ford blamed Kevin Rudd’s $1.8 billion FBT overhaul for halting production, forcing at least 750 workers to be stood down.

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Lease Peace

Having purchased McMillan Shakespeare (ASX: MMS) shares at $7.25 after Kevin Rudd’s comments, we’ve written extensively about the investment case (see here, here and here). Since then, we have also written about our expectations that changes to novated leasing are unlikely to feature in the coming budget. The market doesn’t seem to share our view, with the share price of McMillan Shakespeare reflecting material risk to the downside.

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Rumours….Or Fact?

We often see the market jumping at shadows. Take the recent weakness in the share price of McMillan Shakespeare (ASX: MMS).  Given the absolute and ‘in writing’ promise by both Abbott and Hockey that changes to fringe benefits tax for salary packaging were off the table, we have been miffed by the swirling rumours that there would be changes in the budget detrimental to MMS.

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Returning To Normal

When the Labor Government proposed changes to the Fringe Benefits Tax in July, it sent shock waves through the novated leasing industry. While the Coalition rejected the proposed changes when it was subsequently elected, companies like McMillan Shakespeare (ASX: MMS) experienced a sharp decline in business activity during this period. It now seems however that conditions are returning to normal.

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Overwhelming Relief At McMillan Shakespeare

The federal election is over and leasing and salary packaging consultant, McMillan Shakespeare (MMS), is breathing a sigh of relief. The former Labor government had intended to take the razor to the fringe benefits scheme, which would have substantially affected individual salary packaging and novated leasing. These items form a large part of McMillan Shakespeare’s business. There was a rush to downgrade the stock among analysts. Then, as the Labor government increasingly looked a lost cause, the views started to improve. The incoming Coalition had stated those changes to the Fringe Benefits Tax would not be made.

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MMS – Citi rates the stock as Buy

After a conference call by the company in the wake of the federal election and change of government, Citi thinks FY14 will remain quite volatile for McMillan Shakespeare. Now that there is regulatory visibility, new sales need to be made and customers need to be appraised again of the benefits associated with individual (novated) and corporate car leases.

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FBT: Fairly Badly Trampled?

Readers will be well aware of the controversy surrounding the Federal Labor government’s proposed changes to FBT legislation and the potential impact of these changes to businesses linked to car leasing and salary packaging. As owners of one of the businesses most directly in the firing line for these changes – McMillan Shakespeare – we have been following the debate with particular interest.

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