CHange of FBT rates for salary packaged cars

[Ducati888]

It says in the Herald Sun today that the Greens are pushing for changes to the FBT rates on salary packaged cars.

They want to push for a flat rate of 20% FBT regardless of k's travelled.

I agree that the salary packaging of cars is counter productive in many cases, because it encourages people to drive more so that they can get to the target of 25,000 k's per annum so that FBT is 11% (and over 40,000K's it's 7% I think), and in doing so burn more packaged pre-tax fuel to get there.

I have the opportunity to package if I want to, but can't see how it's financially viable when I already have a good car that I only use for around 7 - 8K km per year.

But enough about me. What I'd really like to see, is the ability to package motorcycles & scooters because surely some incentive to get people out of 1 up commuting to the office would be a good idea? It would work out cheaper than public transport too.

For example, I have a Ducati 900SS which I own outright, commute twice a week 27km each way, it uses 5L per 100km, and I can park it anywhere. If I could package a bike, I'd buy a brand new MV Agusta F3, get similar fuel economy and still be able to park it anywhere, but would actually assist the bike industry in purchasing a brand new bike, something I've never done. I've owned a lot of bikes, but never a brand newy.

Surely any new system, particularly one driven by the Greens, should be geared to reduce the number of cars on the road as well as the fuel used.

I am not interested in commuting in traffic one up in a car. I find that to be completely futile and pointless, and I leave that for the rats.

[jpd80]

Novated leases for employees was a way around FBT, it's taken the government this long to wake up?
I have no problem with people getting a vehicle as part of their salary package but when it is
mostly used for private travel to and a residence, it should not be classified as a company vehicle.
I notice that ome of the questions on company forms ask how many days in the year the vehicle
was available for private use, could it be the tax department is now about to crack down on
the actual FBT percentage?
The other side of the coin is that nobody really wants to go back to log books and calculations...

So, maybe user choosers will start buying more non-FBT vehicles as a way of avoiding paying FBT

[F6_Ute]

interesting discussion ... I've just entered my 3rd novated lease (having the two previously for 6 & 4 years each) and given I do >25,000kms a year anyway I think the greens argument is futile ... it'll probably stop me leasing, but it's not going to stop me or the many thousands of other people from using their cars as they do normally and racking up those kms anyway

the thing with clocking up 25,000kms a year is it's nearly 70kms a day - each & every day of the year (or nearly 100kms a day Mon-Fri) ... and if ur not doing that then you need to have a close look at whether or not it's worth it

25,000kms a year is the sweet-spot, if you don't get over that the 11% FBT rate blows out to 20%* and this is the point where it's very much touch & go as to whether or not the cost benefits are actually worth it (another reason why the Greens proposal is flawed)
*ducati for your 7-8 thousand kms p.a. it would be 26%

...but if u do go over 25,000kms a year as Ducati said the FBT rate goes to 11% - this is the rate of tax you pay on all your car expenses incl. finance, fuel, services, rego, insurance etc (as opposed to your standard income tax rate where you would if you got say a bank loan or other finance, and had to pay for all your fuel, services, rego, insurance out of your post-tax pay packet/wallet) ... and this is where the savings & benefits to novated leasing are made.

as an idea on the level of benefits (note here everyone is different as there are many factors at play) on the BA the net benefit to me was around $4,000p.a. - on the F6 it's double that (of course the actual costs are increased at the same time) - but this is a real dollar value and it also reduces my taxable income which brings with it other benefits employers also stand to benefit as they get a cut of the action as well, but this post is too long already to get into those details

but one of the points Ducati was getting at (being able to use it on bikes to purchase a new one) is exactly the same for cars - I probably wouldn't have been able to get my last three cars new without novated leasing them, so not only am I buying new cars and refreshing them (which when multiplied by the many thousands of people who use novated leasing as a means of purchasing a new vehicle) the automotive industry would obviously take a hit if the Greens proposal went through ... just the same as the bike industry would get a nice boost if they were able to be leased in the same manner.

as for the commuting via bike vs car discussion, personally 3-4 days a week the missus & I usually commute together (she works 5kms from me) & in the ute that means I got a full car on the other days I ride my bike for fitness - I will admit tho it's a good feeling on the days when there's traffic issues & I'm riding past cars parked on the M4

[Ducati888]

Originally Posted by F6_Ute

as for the commuting via bike vs car discussion, personally 3-4 days a week the missus & I usually commute together (she works 5kms from me) & in the ute that means I got a full car on the other days I ride my bike for fitness - I will admit tho it's a good feeling on the days when there's traffic issues & I'm riding past cars parked on the M4

Yep, F6_Ute, that's what I do on the three days per week when I don't take the motorbike - ride the bicycle. It's interesting that at my average 30k's per hour home along the Nepean Hwy, that I generally keep passing the same cars over and over again for about 8 or 9 k's along it.

I only use the car now for towing the trailer to motorbike races, going to the SES, or shopping. Motorbike & pushbike the rest of the time.

[trippytaka]

Thism place does older cars and boats etc I think. I see an old ZA Fairlane with the decals of this business on it every day, saying that they lease older cars

Fin Lease

[GT0132]

I was at a seminar on this topic a year or two ago and the greens were then pushing to reverse the usage statutory fraction percentages so that you effectively got the smallest tier percentage the less you travelled , i.e 7% for travelling less than 15,000, 11% for 15-25,000 kms and so on. That would have suited me fine given that I only use my car around 8,000 kms a year. I would have immediately sold it to a lease fianance provider and novated it to my employer to effectively get all my running costs paid pre tax. Looks like they've watered it down a little.

Just because your car lease is novated doesn't mean you escape FBT. Apart from the statutory fractions applied to the base value it then comes down to how much the employee contributed to the operating costs of the vehicle which is the way it is no matter how the car is financed

[flappist]

Originally Posted by Ducati888

It says in the Herald Sun today that the Greens are pushing for changes to the FBT rates on salary packaged cars.

They want to push for a flat rate of 20% FBT regardless of k's travelled.

I agree that the salary packaging of cars is counter productive in many cases, because it encourages people to drive more so that they can get to the target of 25,000 k's per annum so that FBT is 11% (and over 40,000K's it's 7% I think), and in doing so burn more packaged pre-tax fuel to get there.

I have the opportunity to package if I want to, but can't see how it's financially viable when I already have a good car that I only use for around 7 - 8K km per year.

But enough about me. What I'd really like to see, is the ability to package motorcycles & scooters because surely some incentive to get people out of 1 up commuting to the office would be a good idea? It would work out cheaper than public transport too.

For example, I have a Ducati 900SS which I own outright, commute twice a week 27km each way, it uses 5L per 100km, and I can park it anywhere. If I could package a bike, I'd buy a brand new MV Agusta F3, get similar fuel economy and still be able to park it anywhere, but would actually assist the bike industry in purchasing a brand new bike, something I've never done. I've owned a lot of bikes, but never a brand newy.

Surely any new system, particularly one driven by the Greens, should be geared to reduce the number of cars on the road as well as the fuel used.

I am not interested in commuting in traffic one up in a car. I find that to be completely futile and pointless, and I leave that for the rats.

The greens is the refuge for all the utopianist misanthropic fantasisers with a very loose grip on reality.

They only get support from a very small percentage of people who are of similar mind set which really demonstrates two things:

1) they will never be a problem unless they get the balance of power which will lead to them suffereng a similar fate as Democrats.

2) If you live in a greens seat be very afraid as you are surrounded by them and they don't like you........(or you are one and are just here trolling).

The 20% will not happen, it will upset too many quasi government employees with vested interests in driving nice cars at someone elses expense.

Although if it DOES happen, I will be off down to Brisbane Porsche Centre about 30 seconds later as I could really enjoy a 40% discount on a completely impractical car I only drive when I want to have a bit of fun.......

P.S. I will also transfer all of my old Falcons into the company name so I can claim them and just pay the FBT .

[Ducati888]

Trippytaka, you can't lease a car older than 8 years old.

jpd80, they are not company or tool of trade vehilcles, they are private. Employees who take out a lease are 100% responsible for them, not the companies that facilitate the lease.

Companies like the system because allowing employees to salary package takes the amount off pre tax. Companies pay payroll tax on gross after the deductions. It reduces the payroll tax they have to pay.

[GT0132]

Originally Posted by Ducati888

Trippytaka, you can't lease a car older than 8 years old.

jpd80, they are not company or tool of trade vehilcles, they are private. Employees who take out a lease are 100% responsible for them, not the companies that facilitate the lease.

Companies like the system because allowing employees to salary package takes the amount off pre tax. Companies pay payroll tax on gross after the deductions. It reduces the payroll tax they have to pay.

In NSW the "grossed up" taxable value of fringe benefits is taken into account for payroll tax assessement purposes, so the benefit available for companies is the amount by which the salary sacrificed amount exceeds the FBT grossed up taxable value

In my organisation we took on a lease by novation on a 1969 Mercedes and provided it to an employee who worke dwith us , so not sure where that 8 year rule comes from. Admittedly that was about 6 years ago so the rules may have changed.

[Ducati888]

Originally Posted by GT0132

In NSW the "grossed up" taxable value of fringe benefits is taken into account for payroll tax assessement purposes, so the benefit available for companies is the amount by which the salary sacrificed amount exceeds the FBT grossed up taxable value

In my organisation we took on a lease by novation on a 1969 Mercedes and provided it to an employee who worke dwith us , so not sure where that 8 year rule comes from. Admittedly that was about 6 years ago so the rules may have changed.

I don't know if the 8 year rule applies everywhere, but I took out an "associate lease" on my Verada about 4 years ago, and the fleet company handling it at the time told me before I bought the car that I couldn't lease a car older than 8 years because that's the maximum time to depreciate. Maybe you can though if you don't want to claim depreciation as well.

[Thornie]

Originally Posted by Ducati888

I don't know if the 8 year rule applies everywhere, but I took out an "associate lease" on my Verada about 4 years ago, and the fleet company handling it at the time told me before I bought the car that I couldn't lease a car older than 8 years because that's the maximum time to depreciate. Maybe you can though if you don't want to claim depreciation as well.

I'm guessing it goes by the leasing company as the place my work goes through won't do cars over 5 years old.

[doktoravalanche]

Am alternative way of looking at a novated lease is thinking of it as an interest free loan, as if you do the maths it's kinda similar! If you want a new(ish) car and you need a loan, then novate if you can!

[jpd80]

Originally Posted by Ducati888

Trippytaka, you can't lease a car older than 8 years old.

jpd80, they are not company or tool of trade vehicles, they are private. Employees who take out a lease are 100% responsible for them, not the companies that facilitate the lease.

That's the rub, they are treated as company vehicles for tax purposes
people are avoiding paying tax on the grounds that these vehicles are
mostly used for business but in truth a lot are just for commuting.


I'm not siding with the greens here just trying to understand why the government allowed
the set up novated leases when they know exactly what is going on, are they tired of chasing
down FBT % and just want a process that gives them the perception of tax compliance?

I think so and the greens are trying to upset that balance, maybe the cost of pursuing higher FBT
comes as less vehicle sales and more under handed vehicle set ups that makes compliance harder to gauge....

Maybe in the end, it's just easier and more effective to leave things alone...

[flappist]

Originally Posted by jpd80

That's the rub, they are treated as company vehicles for tax purposes
people are avoiding paying tax on the grounds that these vehicles are
mostly used for business but in truth a lot are just for commuting.


I'm not siding with the greens here just trying to understand why the government allowed
the set up novated leases when they know exactly what is going on, are they tired of chasing
down FBT % and just want a process that gives them the perception of tax compliance?

I think so and the greens are trying to upset that balance, maybe the cost of pursuing higher FBT
comes as less vehicle sales and more under handed vehicle set ups that makes compliance harder to gauge....

Maybe in the end, it's just easier and more effective to leave things alone...

And if it wasn't for this sales of V8 utes would bite the dust in a BIG way.......

[Luke Plaizier]

Wow. Someone has been pooped on by the Greens.

There's nothing that says balanced and well thought out debate better than name calling.


Lukeyson

[dylancox]

Sorry, what is FBT? being self-employed, it's all gobbledygook to me. So if someone manages to clock 40,000 a year, he pays 7% additional income tax, but if he only clocks 25,000 its 11%?

[Ducati888]

Originally Posted by dylancox

Sorry, what is FBT? being self-employed, it's all gobbledygook to me. So if someone manages to clock 40,000 a year, he pays 7% additional income tax, but if he only clocks 25,000 its 11%?

Not quite.

You buy a car using finance. Say $50K. You make your payments through your work's payroll from PRE TAX gross wage, you pay for your fuel, rego, running costs & insurance PRE TAX, and after those payments have been deducted from your gross wage, you pay normal income tax on what's left.

You have therefore effectively used tax free money to run your car and make your payments, from the top end of the tax bracket where you may be.

You also claim depreciation on the lease.

Instead of paying $0.38 per dollar tax, you are paying zero tax to run your car.

FBT is the tax you do pay if you utilise this system. If you do over 44000k's per year you pay 7% ($0.07 per dollar) at the end of the year, which is better than paying $0.38. If you do between 25,000k's & 44,000k's you pay 11% FBT, and so on. The more K's you do, the less tax you pay.

It's kind of a false economy if you earn less than about $80K per annum.

[jpd80]

Originally Posted by Ducati888

It's kind of a false economy if you earn less than about $80K per annum.

A novated lease works if you were intending to buy a vehicle anyway but also gives the
added benefit of not having to struggle with vehicle claims at tax time and possible audits.

[F6_Ute]

Originally Posted by Ducati888

It's kind of a false economy if you earn less than about $80K per annum.

how is it different if u earn over $80K?

[Mr Hardware]

Originally Posted by F6_Ute

how is it different if u earn over $80K?

Over $80k and you're 37c in the dollar in tax. The extra 7c in the dollar can mean the difference between making it worthwhile and not so worthwhile

[jpd80]

Originally Posted by Mr Hardware

Over $80k and you're 37c in the dollar in tax. The extra 7c in the dollar can mean the difference between making it worthwhile and not so worthwhile

If you were going to buy yourself a new vehicle anyway, it is always going to better to do it via salary sacrifice as everything is worked out in pre tax dollars.

[gtfpv]

Originally Posted by Ducati888

Not quite.

You buy a car using finance. Say $50K. You make your payments through your work's payroll from PRE TAX gross wage, you pay for your fuel, rego, running costs & insurance PRE TAX, and after those payments have been deducted from your gross wage, you pay normal income tax on what's left.

You have therefore effectively used tax free money to run your car and make your payments, from the top end of the tax bracket where you may be.

You also claim depreciation on the lease.

Instead of paying $0.38 per dollar tax, you are paying zero tax to run your car.

FBT is the tax you do pay if you utilise this system. If you do over 44000k's per year you pay 7% ($0.07 per dollar) at the end of the year, which is better than paying $0.38. If you do between 25,000k's & 44,000k's you pay 11% FBT, and so on. The more K's you do, the less tax you pay.

It's kind of a false economy if you earn less than about $80K per annum.

yes but you have left out the interest being applied ontop of the tax . usually around 12% ontop of the FBT . .

[SB.1]

Even if it is 12%, your lease payments are coming out of your pre-tax, so after tax (assume 40% marginal rate) you will actually be wearing only about 7.2%, which is pretty close to what most people would be paying on their homes right now.

[TURBOTAXI]

My F6 is on a novated lease. I do 40,000 plus per annum so I have also reduced the balloon payment to 20%. so I use pre tax $ to pay off the car and pay for the fuel, oils, tyres, rego etc... and they buy my F6 in a little over three years for $7500.
A thing to remember is that an invoice marked repair is claimable and an invoice that is a capital improvement is not. So "repairs to intercooler" are claimable and "fitment of new intercooler" is not.

These are a good thing if you do the miles and you would otherwise pay a bunch of tax as well.

The other thing to consider is super contributions. You only pay 15% tax on them through salary sacrifice.

[HLC]

My company car is classed as a 'tool of the trade'. so no FBT for me. Joke's on The Greens.

[Buttnekid]

there really are some basic errors in this thread.

The FBT is worked out only on the capital value of the car, not the running costs.

So if you buy a $10k car and you are int he 25,000 to 40000 km bracket (ie you travel between those distances each year) your EMPLOYER is liable to pay FBT at 11%, or $1,100 on the benefit they are giving you by allowing the car purchase price and running expenses to be paid out of your pre-tax salary.

If you spend contribute $1,100 out of your POST TAX (or take home) to the running costs (eg fuel, rego etc) then the FBT will be reduced to zero (ie FBT liability is reduced to zero dollar for dollar that you contribute out of your take home (after tax) pay.

You will find that most employers will lump in the FBT into your total salary deduction if you are not paying anything towards the salary sacrificed vehicle.

The other mistake is was turbo taxi, 'They' will not pay you $7,500 for the car at the end of the lease. The employee (you) will be responsible for paying the balloon payment at the end of the lease at which time title to the vehicle will be transferred from your employer to you.

Another mistake is the reference to log books etc - there is NO requirement for log books on a novated lease or a salary sacrificed vehicle. A log book is only required when you do not salary sacrifice or novate lease and you use your privately owned vehicle for work - in this instance, you work out how many kilometres you use your privately owned vehicle for income making purposes and you are then entitled to a per kilometre tax deduction (the Income Tax Act regulations specify cents per kilometre to cover depreciation and running costs depending on type of vehicle (engine capacity etc)

Finally, there is no such thing as an interest free loan. For a novated lease, you need to you an independant financing company to provide you with a lease on the capital cost of the vehicle. Typically this lease will include a higher interest rate than a usual principal and interest loan arrangement. A salary sacrificed arrangement direct with your employer maybe more akin to a principal and interest loan arrangement but I highly doubt the employer would give you an interest free loan.

A basic example.

Car purchased for $10,000 by Employer (not novated lease).
Company agrees to give interest free loan (if they charge interest, just use a calculator to work out what the repayment would be) over 5 years with 20% residual. $10k down to $2k over 5 years = $1,600 per year.

Employee travels 25k per year - FBT is 11%, or $1,100 per year.

Fuel costs - $5,000 per year

Tyres - $2k per year

Servicing/maintenance - $2k per year

Rego and insurance $1.5 k per year

Total costs of above = $13,200 per year.

Your gross salary will be reduced by $13,200 per year.

This means you will not be payaing any tax on the $13,200 from the top of your salary. It works best when you are in the top tax bracket because you essentially save $0.465 x $13,200 or $6,138 in tax and you get a car!

[SpoolMan]

Some of you need forget about the politics and discuss the tax issue..

[vztrt]

http://www.theage.com.au/national/co...505-1eag8.html

Company car crackdown
Michelle Grattan
May 6, 2011

PEOPLE who drive company cars for private use face a crackdown in next Tuesday's federal budget, with changes set to save the government about $950 million over four years.

Fringe benefit rules that currently reward people for running up extra kilometres on vehicles financed by salary sacrifice will be toughened. In future there will be no incentive to maximise the distance driven.

The change - which was recommended in the Henry tax review - could be sold by the government as one to conserve fuel and save taxpayer dollars.
Advertisement: Story continues below

The crackdown is a response to evidence that many people have been manipulating the system to achieve higher benefits.

At present, there are four levels of fringe benefits tax applied to cars bought on salary sacrifice, ranging from 26 per cent of the car's purchase price for those driving fewer than 15,000 kilometres a year, down to only 7 per cent tax when the kilometres exceed 40,000.

The figures show spikes at each threshold, suggesting people are deliberately exceeding them to save on tax.

Under the budget changes, the different tax rates will be replaced by a single 20 per cent fringe benefits tax rate, so that all taxpayers get the same level of concession regardless of their mileage.

The effect will be to increase the concession for people driving fewer than 15,000 kilometres a year, maintain the current concession for those travelling between 15,000 and 25,000, and cut it for over 25,000 a year.

Official figures show there are 570,000 cars operating under the statutory formula.

While fringe benefits tax is paid by the employer, it is usually recouped from the employee who receives the benefit. About half those affected by the budget change are likely to be worse off.

[F6_Ute]

Originally Posted by vztrt

http://www.theage.com.au/national/co...505-1eag8.html

.... and this comes two months after I entered a new 4 year lease ... **** me ... existing agreements should be allowed to run their course IMHO (yeah right, wishful thinking I know!)

[Hally]

How many km's a year do you do?

As stated in the article, if you are doing under 25,000 km's you will not be impacted.