A common question asked by our clients is how to salary-package a car, and whether the tax benefits are truly as generous as many people believe.
The most common way to salary package a car is by of a way of novated lease. The novated lease allows the employee to buy a new or used car and have their employer meet the cost of lease repayments and often running costs. The employer makes repayments to the leasing company out of the employee’s pre-tax or gross income.
The result is that the employee has control of the car, and the employer agrees to make the lease repayments to the financer for that car under the condition of employment. Once an employee ceases employment, they either take over the lease commitment, or transfer the lease to a new employer.
However, such arrangements can also give rise to a car benefit under the fringe benefits tax (FBT) rules, and employers generally look to pass some or the entirety of this additional cost to employees. Because the current FBT rate is 47%, there may be little benefit in salary packaging a car unless you pay tax at the highest rate. This generally means employees earning in excess of $200,000 gross salary will benefit most.
In order to reduce FBT on the vehicle, employees can make post-tax contributions to their employer for the car’s running costs which reduces the FBT. This can enhance the value of the benefit for some employees on lower tax rates.
We can crunch the numbers for you and advise on the actual benefit of a salary-package car. We can also compare that to owning the car outright and claiming a deduction in your personal return.
Don’t hesitate to call our office and get the ball rolling on your new salary package.
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