CHange of FBT rates for salary packaged cars

[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.

[F6_Ute]

i do about 27,000kms p.a. - have been doing it consistantly for 10 years - that isn't gonna change just bcos the tax rate does :/

the idiotic thing is, for many people 25,000kms is the thresehold, below that & it's not worth leasing, whereas over 25,000kms & it is (not bcos of the kms, but because the FBT rate goes from 20% to 11% once you get over 25,000kms annually)

but moving everyone to a blanket 20% is going to make it less cost effective (or boarderline at best) for the vast majority & these things are contractual arrangements, it's ridiculous that they can make such a significant change with affects contracts which u can't get out of*

*without significant financial impact

[phillyc]

"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."

If it is being positioned as above then get rid of the diesel fuel / subsidy tax rebate for the mining companies etc then. That is several hundred million a year in money gifted to those conglomerates.

[Buttnekid]

It would depend on your contract really, this would come close to being considered as contract frustration - hell I would well and truly argue this if this comes in!

see for example the case of Krell v Henry HPH 736 which is, the court taking the most liberal view of the operation of the doctrine of frustration.

The contract was for the hire of a room overlooking the coronation route for the coronation of King Edward VII. The coronation was cancelled because of the King’s illness. This was held by the Court to be a frustrating event.

On the face of it this was just a contract to hire a room and the hiring party got what he bargained for - a room. But the Court accepted the argument of frustration with the result that he did not have to pay the balance supposedly owing under the contract. By circumstances extranous to the contracting parties, the hirer was deprived of the major benefit to be gained from the contract.

I cannot really see much a of a difference if you are relying on an 11% FBT and that suddenly changed to a blanket 20%. It will an interesting case to say the least and something I will most definitely argue!

[bobthebilda]

Originally Posted by Buttnekid

It would depend on your contract really, this would come close to being considered as contract frustration - hell I would well and truly argue this if this comes in!

see for example the case of Krell v Henry HPH 736 which is, the court taking the most liberal view of the operation of the doctrine of frustration.

The contract was for the hire of a room overlooking the coronation route for the coronation of King Edward VII. The coronation was cancelled because of the King’s illness. This was held by the Court to be a frustrating event.

On the face of it this was just a contract to hire a room and the hiring party got what he bargained for - a room. But the Court accepted the argument of frustration with the result that he did not have to pay the balance supposedly owing under the contract. By circumstances extranous to the contracting parties, the hirer was deprived of the major benefit to be gained from the contract.

I cannot really see much a of a difference if you are relying on an 11% FBT and that suddenly changed to a blanket 20%. It will an interesting case to say the least and something I will most definitely argue!

But what would be the benefit of getting out of a contract, that is saving money under a generous FBT arrangement, but will still save money (altho less), under less beneficial FBT arrangements.

The arguement the person would have to argue before the court is, they dont want to get a car pre tax (ie effectively before paying 40% Income tax), and then paying a 20% FBT tax on it, but would rather pay his 40% in Income tax, and then not paying any fringe benefits tax. The judge might allow it, but in his judgement he may call the person the biggest idiot in history.

[JutroXR8]

Originally Posted by Buttnekid

I cannot really see much a of a difference if you are relying on an 11% FBT and that suddenly changed to a blanket 20%. It will an interesting case to say the least and something I will most definitely argue!

there's a big difference. If you earn roughly $80k-$90k you pay approximately 25% tax. If you had an 11% FBT then your benefit is 14%. If you now take it up to 20%, your benefit is only 5%. Thats a massive impact on the lease!

(NB: this is just a very high level explanation Im aware that there are other things that affect the benefit).

[Buttnekid]

yeh mate haha if you re-read what I meant (although did not articulate well), I was saying there is not much of a difference between the two cases (ie both are deprived of a major intended benefit (not watching the king but still getting your room and not getting the 11% but still having a car).

hope that it explains it champ

[Buttnekid]

Originally Posted by bobthebilda

But what would be the benefit of getting out of a contract, that is saving money under a generous FBT arrangement, but will still save money (altho less), under less beneficial FBT arrangements.

The arguement the person would have to argue before the court is, they dont want to get a car pre tax (ie effectively before paying 40% Income tax), and then paying a 20% FBT tax on it, but would rather pay his 40% in Income tax, and then not paying any fringe benefits tax. The judge might allow it, but in his judgement he may call the person the biggest idiot in history.

No you are looking at it too black and white. Depending on the price of the car and the guys income, that extra 9% tax on the capital cost of the year each year for the term of the loan could mean the car owner is actually worse off from a take home point of view that had he been by buying and operating the car using post tax cash (I did some sums - basically high car cost, low income and it will flogg you most definitely)

[BIGJB]

This truely sucks. We have been looking at the Mrs salary sacrificing on a new xr5, may have to take a long hard look
at this now as I think we would be worse off if the sums I have just worked out are correct.

[jpd80]

Originally Posted by bobthebilda

But what would be the benefit of getting out of a contract, that is saving money under a generous FBT arrangement, but will still save money (altho less), under less beneficial FBT arrangements.

The arguement the person would have to argue before the court is, they dont want to get a car pre tax (ie effectively before paying 40% Income tax), and then paying a 20% FBT tax on it, but would rather pay his 40% in Income tax, and then not paying any fringe benefits tax. The judge might allow it, but in his judgement he may call the person the biggest idiot in history.

And then the judge might then ask what is your actual business percentage.....
That's where a lot of novated leases would fall over because the burden of proof lies with the
one claiming deductions, be they pre tax or post tax....

[Buttnekid]

no there seems to be a fundimental misunderstanding on this forum at times.

There are two perfrectly legal ways of a a company self-assessing the FBT value of a car provided to an employee.

The statutory method (which is by far the easiest) which is dependant upon total kilometres travelled by the car irrespective of whether they are business or private. You ascertain the tax base cost of the car (which does not change for the entire term the car is kept - ie no depreciation), work out kilometres, this gives the FBT bracket and a corresponding percentrage. Take off any after tax payments the employee has made, gross it up (multiply the residual by 2.015864.. then multiply that by 46.5% and hey presto you have the FBT payable each year.

The other method which is not dependant upon total kilometres travelled but rather the proportion of business travel as to total kilometres travelled is the Operating Cost method (or log book method).

This has its benefits and is what I have just decided to use. You have to keep a logbook for 12 weeks of each year to work out business use as a percentage of total use.

In year 1 you take the base cost of car (car cost including dealer delivery (exlcuding rego/stamp/insurance etc), plus GST plus LCT if applicable) and apply the depreciation allowance (18.05% I think) to get a depreciation cost.

[eg $10k car, depreciation cost if $1,805].

Then you apply the statutory interest factor (7.85%) to the deprciation cost to get the deemed interest and add that to the depreciation cost.

[on above example, 7.85% x $1,805 = $141.69]

Then you add running costs - fuel, insurance, rego etc incurred during the year.



This gives you a total.

You then multiply it by the percentage ofbusiness use, minus any employee after tax expenditure on the vehicle, gross it up (multiply it by the 2.015....) multiply it by 46.5% and this gives you the FBT value for the year.

This is the best way of doing it when you use a company supplied vehicle for business travel but dont do a lot of kilometers. This method will NOT be affected by the changes the Government is making to the other statutory method.

In the next year it gets better because the starting base cost of the car is the original starting cost LESS the depreciation value left over from last year(ie inthe above example $10,000 less $1,805 or $8,195) , from which you then use to obtained deemed depreciation (multiply the depreciated value x statutory allowance (ie multiply $8,195 x 18.05% = $1,479), then get the deemed interest ($1,479 x 7.85%) etc

so each year the FBT gets lower.

[vztrt]

http://www.caradvice.com.au/117706/a...of-lease-cars/

Australian Government to revise taxation of lease cars
By Brett Davis | May 6th, 2011

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.

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.

[DMXR6T]

More taxes to be wasted by these fools in Canberra. Had enough of federal and state taxes long ago. Moved my business (and jobs) to Singapore. No silly FBT, very low company and personal tax, 7% GST, etc. A heap of bureaucrats running around in Canberra chasing all sorts of taxes rather than doing anything productive. Miss my XR6T though so I might ship it over!

[fg_nitro]

They seem to line the their own pockets yet cut the guys out of everyone else. What happened to putting people in charge who had an idea how to run a country? Lucky my lease finished a while back. I would be seeking legal advise if I still had a lease.

[jpd80]

Well, it looks like this debate isn't going to go away, while it could save up to $1 billion over four years,
removal of FBT concessions on vehicles could have unintended consequences for people who genuinely do
lots of kilometres that are work related, will we see those people and tradesman pushed back into standard
vehicle claims based on mileage and actual business use calculations?

Fringe benefits tax curbs 'will cripple business'

Matthew Franklin, Chief political correspondent
From: The Australian
May 07, 2011 12:00AM



JULIA Gillard's plan to save $1 billion by scrapping fringe-benefits tax concessions on company cars could cripple small businesspeople and independent contractors, the opposition has warned.

And Coalition Treasury spokesman Joe Hockey has accused Labor of adopting the move as a "political sop" to the Greens, who have backed it as a win for the environment.

The comments came yesterday as the Prime Minister renewed her warnings of a tough budget on Tuesday, but guaranteed it would prioritise education and training.

It is expected the budget will scrap FBT concessions that allow company car users to minimise their tax exposure by maximising their travel in the vehicles.

The measure is expected to save as much as $1bn over four years. But as Greens deputy leader Christine Milne applauded the move yesterday, Mr Hockey warned that it would have unintended consequences. He said tradespeople and small businesspeople who legitimately travelled long distances to get to work would be penalised.

"We will look very carefully at the detail to ensure than tradespeople and general motorists, particularly small businesspeople and contractors, are not adversely affected," Mr Hockey told The Weekend Australian.

"These are the same people who won't be getting any compensation under the carbon tax."

Mr Hockey said Labor had adopted the measure under pressure from the Greens, whose support it relies upon to control the parliament.

"It's a sop to the Greens," Mr Hockey said. "They are now writing budget policies."

However, Senator Milne said the existing system encouraged excessive vehicle use when governments should be promoting less car use.

"Overhauling the fringe benefits tax concession would be a $1bn victory for common sense and a big first step in removing the perverse fossil fuel subsidies that see billions of taxpayers' dollars actually encouraging pollution," Senator Milne said.

She said the Greens wanted more reforms, including the abolition of the diesel fuel rebate for the mining industry and the linking of subsidies to carmakers to be tied to higher standards of fuel efficiency.

In Adelaide, the Prime Minister guaranteed that the government would retain completion bonuses given to apprentices.

In line with an election promise, Ms Gillard lifted bonuses this year so an apprentice would receive a total of $5500 over the course of their training.

Her promise yesterday to retain the benefits followed a week of budget leaks on measures designed to support students and families, including extra Family Tax Benefit to encourage teenagers to complete school and pay rises for the nation's best teachers.

"We value Australians having opportunity," Ms Gillard said.

"That means we value education and skills and we will be investing in education and skills as we bring the budget back into the black, back into surplus, as promised."

Also yesterday, independent MP Andrew Wilkie accused Labor of "demonising" welfare recipients and warned Ms Gillard against using the budget to "steamroll through" controversial and unexpected budget measures.

[devilcv8]

Great....... I do 1000km a week commute on a novated lease. This change will have a negative effect on my take home. 29 months left on the lease.

[Buttnekid]

Change to log book method now

[Magna]

is anyone on the employee contribution method? all i know is i keep paying money into my lease and it comes back to me for spending as my fbt is reduced to 0. does that mean there will be no change except i have to contribute more? im on the 25,000km backet atm thanks.

[OzJavelin]

Still confused as this is the first ive heard (listened) about this. Wifes ute is leased through work. We easily do over 25,000 but this is including personal use .. Without it the figure would be more like 19,000-20,000. We'll need to discuss with the leasing company after the budget.

[Bucknaked]

Originally Posted by Ducati888

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.

A guy I used to work with Salary packaged one of those big BMW bikes. The same as what was on the long way down. His company leased this.

I'm waiting for the day as well. Would love to lease a bike. But as a Public Servant, bikes are out unfortunatley.

[SteveJH]

Originally Posted by Bucknaked

I'm waiting for the day as well. Would love to lease a bike. But as a Public Servant, bikes are out unfortunatley.

I would have thought they'd encourage it. Use less fuel, cause less congestion on the road, need less car parking.

[Trendseeker]

If they do change the FBT to a flat rate of 20% watch the number of new cars sold in the first year fall for the first time in quite a few years. It will hurt the car industry.

[Trendseeker]

Originally Posted by Magna

is anyone on the employee contribution method? all i know is i keep paying money into my lease and it comes back to me for spending as my fbt is reduced to 0. does that mean there will be no change except i have to contribute more? im on the 25,000km backet atm thanks.

That option has only become available to me starting from this month. It involves pre- and post-tax deductions. If you're doing more than 25,000km per year the proposed flat rate will cost you more regardless of whether you're paying the statutory or employee contribution method.

[vanman_75]

Originally Posted by 2008WhiteSR

If they do change the FBT to a flat rate of 20% watch the number of new cars sold in the first year fall for the first time in quite a few years. It will hurt the car industry.

This , is my thought. We have been getting rumours that our lease cars will be gone after this ea , I have had two lease cars now and am half way through the current one , lease is the only way I can justify buying new , if the benefits go I will return to my old ways of buying second hand , I do 50 plus a year all for getting to my job and home , I am in the highest tax bracket so its logical to lease .


these perks were put in place for big companies , as sweeteners for business. for those paying huge tax , and employing hundreds . not sure how many stabs the government thinks they can take at these big companies before the business case is not justified, and they shut shop , along with the wealth they create for the country .

seems like our government has a spendingproblem

car sales will plummet without question

[Buttnekid]

I don't understand,if you genuinely use your car for business travel then JUST CHANGE TO LOGBOOK METHOD!

As long as your business v private is more it will still work. The more business the better, if you can get to approx 70 percent business that is roughly equal to 11% (or 25,000 to 40000km bracket). I painstakingly set out the workings earlier in this thread and it is on the ato site too. Let's not panic just yet however if you lease and do no business kilometers but drove heaps privately and were in the 25,000 plus bracket then leasing MAY longer work for you if going from 11% to 20% FBT bracket negates the benefit of leasing for you.

Best advice is take 10 mins and work it through.

[vanman_75]

Hey mate dont yell , I don't use my car for work , that's just to get there , all private .I work with around 500 people ,who all lease .take away the benefit or ability to lease and I'm sure new car sales will drop dramatically.another kick in the but for the high tax payer ,

[Buttnekid]

understand that mate but to be fair, this was never the intention of the legislation. Private usage should not be a tax deduction which is effectively what is claimed if there is no business use.

In saying that, surely there is somewhere that is work related close to where you live that you can go to before carrying onto your main place of work

[Brazen]

Originally Posted by Buttnekid

understand that mate but to be fair, this was never the intention of the legislation. Private usage should not be a tax deduction which is effectively what is claimed if there is no business use.

Well the legislation exists because its a Fringe Benefit, hence people are paying Fringe Benefits tax - if the vehicle was 100% business use it wouldnt be a fringe benefit.

It has nothing to do with the intention of the legislation. There is nothing wrong or illegal with a 100% private use novated lease. Tax Office employees are able to lease cars through work for purely private use.

I came very close to leasing my car, I would be quite annoyed if I had and they made this change. I assume they will grandfather the current leases out, so it only applies to new leases started after July 1?

[vanman_75]

Originally Posted by Buttnekid

understand that mate but to be fair, this was never the intention of the legislation. Private usage should not be a tax deduction which is effectively what is claimed if there is no business use.

In saying that, surely there is somewhere that is work related close to where you live that you can go to before carrying onto your main place of work

Lol that is with my supplied work house close to work , 20 thou from that house to work a year ,and 30 plus to get to my home residence .

I need a km burner , most of the mining industry does . I'm actually 1 of the lower km people I work with , many with 1000 k 1 way trips .its only a perk cause I get a tax break , a car I really don't need if I moved back to normal job / town . these companies do deals with the government jobs in return for tax breaks . the employee gets to share some benefits which are not that big really