The Federal Government is planning to save up to $950 million over the next four years by implementing a recommendation from the 2009 Henry tax review which aims to stop lease-type salary-sacrificed car owners from clocking up extra kilometres towards the end of the financial year to pay less tax.

Lease car

With the current system, salary-sacrificed owners are taxed based on 26 percent of the purchase price of the vehicle if they drive up to 15,000km per year. Those who drive between 15,000km and 25,000km are taxed on only 20 percent of the purchase price, between 25,000km and 40,000km it's 11 percent, while those who travel over 40,000km are taxed based on just seven percent of the purchase price.

The new system will be applied to those using the statutory formula which is for anyone attracting car fringe benefits. The system will place a flat rate 20 percent tax for anyone who travels under 25,000km. Those who drive more than that will have to provide a log book for every kilometre they drive, and they'll have to separate personal and work use of their car.

The government says it won't touch the alternative to the statutory formula, whereby drivers must use a log to enter every journey made, regardless of how many kilometres are travelled.

It seems like a good plan, as the old system inadvertently encouraged motorists to burn extra fuel for no reason other than to receive tax benefits. Those who do genuinely drive loads of kilometres per year, however, will be bothered by the mandatory log book system they'll have to adopt.

The new plan is set to be introduced at next Tuesday's Federal Budget.