If you’re thinking of taking out a novated lease for your vehicle, there are some things you need to keep in mind. Some key points to remember include how to readjust post-tax contributions, calculate the novated lease vehicle’s taxable value, and ensure that the lease meets all ATO requirements.
Salary packaging
Salary packaging reduces an employee’s salary by sacrificing a portion of their future pay. It can reduce the tax liability of employees. It is a popular business incentive.
The Australian Tax Office (ATO) recognises salary packaging as a fringe benefit. However, it can be tricky to understand how it works. Learn more information here https://vehiclesolutions.com.au/fbt-calculated-novated-lease/.
A novated lease is one of the most common forms of salary packaging. It involves an employer and a third-party supplier, and the employer deducts the lease payments from an employee’s pre-tax salary. In return, the employee receives the tax benefits of leasing a vehicle without an Australian Business Number (ABN).
As with any salary package, the actual costs can vary depending on the length of the lease. Generally, a three-to-five-year lease is the most common term.
For non-profit organisations, providing a non-cash benefit such as a novated lease can be more cost-effective than offering a salary. Therefore, non-profit organisations may be exempt from dollar limits on salary packages.
A salary package can also include items such as meals and venue hire. These are non-cash fringe benefits and tax-free if provided by an exempt employer.
Some employees may need clarification on the tax implications of salary packaging. That’s why it’s wise to seek professional advice.
An employee can also save on income tax by making additional contributions to a salary packaging agreement. However, this is only sometimes possible. For example, if the employee leaves their current employer before the end of the lease, they may have to make a residual payment.
While salary packaging can be confusing, it is a beneficial financial incentive. However, whether you choose to participate or not, it’s essential to understand its many details. Also, get a handle on the fringe benefits tax and the best way to minimise its impact. Check the benefits of a novated lease FBT calculator.
EVs and PHEVs are exempt from FBT.
The Australian government has announced a significant tax break for employees who use a novated lease to buy or lease an electric vehicle. This new Fringe Benefits Tax exemption could mean employee and employer savings.
Employees can save as much as $4700 annually when they opt for an EV. However, the exact amount depends on their income. High-income earners can expect to save up to 57%. Those with average or higher incomes can expect to save between 42% and 47%.
This new Fringe Benefits Tax exemption is designed to help more Australians opt for plug-in hybrid and electric vehicles. In addition, the government aims to attract more employees to these types of cars.
Electric and hybrid vehicles with a recommended retail price of less than $84,916 are eligible for the FBT exemption. The threshold is generous, meaning most EVs in Australia will qualify. It also means that any second-hand EV delivered before 1 July 2022 will not be affected.
In addition to the FBT exemption, the government will remove a five per cent customs duty on imports of eligible EVs from 1 July 2022. With this in place, the Nissan Leaf, for instance, would be around $2000 cheaper than it is currently.
While the Electric Car Discount Policy has already helped reduce emissions, this legislation will further cut the cost of owning an EV. Besides the significant savings for employees, EVs will be exempt from customs duty.
The new tax deal will also allow the credit to be applied at the point of sale. It will make EVs 100% FBT exempt. One caveat is that this change only applies to cars under the existing FBTAA. Depending on the method of calculation, the same benefit will depend on the number of miles an employee drives and the private use of the car.
Calculating the taxable value of a novated lease vehicle
To lease a car, you must understand how to calculate the taxable value. The tax isn’t calculated on the total selling price; instead, it’s based on a percentage of the car’s base cost plus any depreciation required. Also, consider your state’s tax treatment.
It varies by state, so you may need to contact your local government for details. Most states use a similar process to calculate sales tax on leases. But, again, it’s best to consult an accountant to ensure you’re on the right track.
A novated lease is a car leasing arrangement that bundles vehicle and running costs into a single payment. They’re popular because of the convenience they offer. In addition, they can save you money on insurance, petrol, and rego. Finally, negotiating a novated lease can get a few tax benefits.