FBT On a Novated Lease – Use it to your Advantage and Save
FBT on a Novated Lease is not as big and scary as most people make out. FBT is just a tax the same as any other. The difference is most of us never come into contact with it. FBT stands for Fringe Benefits Tax. This tax can be used to your advantage through a Novated Lease.
Essentially the tax was designed to close the loophole created when an employer paid an employee a “non-cash” income or what the ATO term a benefit or “Fringe Benefit”. For example; Bob has 2 children at private school and says to his boss, “rather than paying me $100,000 per year pay me $90,000 per year and pay $10,000 to the school direct”. This means Bob now only gets taxed on $90,000 and the ATO misses out. The ATO introduced FBT which now means Bob’s boss has to pay FBT (47%) on the $10,000 he pays on behalf of Bob. This means there is no benefit for Bob to do this, and certainly no incentive for Bob’s boss to offer it.
So Where’s the Benefit
When it comes to FBT on a Novated Lease, cars are deemed to be a concessionally taxed item when it comes to FBT. This simply means that the FBT rate of 47% is only applied to a smaller (concessional) percentage of the vehicle’s value. So there is a huge incentive for employees and employers to take up this workplace reward. There is now NO KM requirements on any driver when it comes to the FBT. The government have done away with the old system and now charges a fixed 20% no matter how many km’s you do. FBT is assessed on an annual basis, with the FBT year running from 1 April to 31 March. While FBT is payable by the employer, the cost is passed on to the employee. Salary Packaging companies work this out for you and build the cost into your payroll deductions so you do not have to worry about meeting the expense at the end of each FBT year.
It is the salary packaging company’s job to ensure the FBT on a Novated Lease is less than the income tax you would have paid, thus creating a saving in every pay. There are also a number of employers that have FBT exempt dollar limits on salary packaging. This simply means you are able to salary package anything even rent, mortgages or shopping up to a limit without paying any FBT therefore completely tax-free. These employers are Public Hospitals and charitable organisations.
Use our Novated Lease calculator, it’s free and we don’t ask for your personal details. This means you can do as many quotes as you like on as many different car prices and salary levels you need.
For more information and to get the most competitive quote in the market please call us on 1300 990 880 or email us on firstname.lastname@example.org.