CHange of FBT rates for salary packaged cars

[pmacca]

I currently salary sacrifice 2 vehicles that are 100% private use, I catch a train to work so my wife drives one and my daughter the other.

Here are the budgeted figures for these vehicles to give an idea of how the system currently works.

Pajero VRX 2009
Estimated running costs (includes finance) $22,000
FBT (25,000k+ 11%) $6000
Total $28,000
Less company contribution ** $8,400
Total deducted from salary before tax $19,600
Residual after 3 years ~$25,000 (amount I can buy out vehicle)
** our company purchases vehicles rather than lease and can therefore claim 30% company tax as business expense

Estimated running costs (includes finance) $10,400
FBT (25,000k+ 11%) $4,800
Total $15,200
Less company contribution ** $4,560
Total deducted from salary before tax $10,640
Residual after 3 years ~$10,000 (amount I can buy out vehicle)

The change in FBT rules will impact my Pajero.

One other option is to get a vehicle that is FBT exempt, in the past this was typically utes. In the area I work there are at least 9 of my workmates that recently salary sacrificed the base model Pajero. The ATO has ruled that this vehicle is also exempt, something to do with the fact it is only a 5 seater and not 7 like mine. As you can see that takes a large chunk out of the package straight away. Even though they get the base model they are still able to option them up with all the bells and whistles you get on the up market model.

I personally will probably change to a ute as I want to tow a 5th wheel caravan, I will also avoid FBT altogether.

If it was not for the way we salary sacrifice there is no way I would have over $100,000 worth of cars sitting in the driveway.

Peter

[BrisVegas]

I didn't realise the base model Pajero was FBT exempt! Thanks for the tip.

[rods falcon]

Be careful using the fbt exempt vehicles, this provision only covers travel that is incidental to work ie travel to and from work. If you use an fbt exempt vehicle for any other private purpose then fbt will apply.

[Brazen]

Originally Posted by BrisVegas

I didn't realise the base model Pajero was FBT exempt! Thanks for the tip.

Ideally the provision is there for people who get allocated a work car, e.g. Telstra van full of tools and equipment and the employee uses it for work but is allowed to take it home at night. As its a commercial vehicle used for work and is travelling all day to job sites it is FBT exempt as the private use is incidental and minor, especially considering the vehicle is full of tools and sometimes workers drive straight to job-site in the morning rather than going first to the depot.

[blueoval]

Please excuse my lack of understanding on this, I may end up getting this wrong.

This is an interesting thread. Im in the throws of looking at the viability of salary sacrificing to get my first lease car. I currently do just over 25,000km with my private vehicle, which is a combination of private and business use. I use the log book method at the moment, and its about 50/50, not including driving to and from home to office.

Would you guru's be saying that for it to become any where near viable for a lease vehicle under the NEW FBT, I would need to prove my usage via a log book method anyway, and also look at ways of justifying the 'business' portion of the vehicle?

EDIT: I just got off the phone with my accountant and he has assured me, it wont affect my business or the lease of a vehicle all that much.

[TURBOTAXI]

I am currently in the 40,000k+ 7% bracket. My lease is 100% private, though I do use the car for work when it suits me at no cost to my employer. I hope the existing leases are grandfathered or my lease is going to go from being a great deal to a really bad deal.
New car sales will suffer, I dont think people will be as keen to pay for servicing and tyres through the nose either so there are a number of industries in the periphery that will take a hit. The near new car market will also take a hit. I would not be driving the FG F6 if it was a 100% out of pocket cost to me. So the $1900 in insurance I pay would be reduced to a far lower amount.
I will buy a hyundai I30 td if this happens.

[vztrt]

Tax breaks timing to skew car market: FCAI

http://www.goauto.com.au/mellor/mell...25788C000EE62F

Drought then spike in vehicle sales forecast for next year as tax breaks kick in

10 May 2011

By RON HAMMERTON

THE federal government’s newly announced tax depreciation breaks on car purchases for small business are likely to have little net effect on Australian car sales volumes but will skew the market next year when the new depreciation arrangements come into effect, according to the Federal Chamber of Automotive Industries (FCAI).

FCAI chief executive Andrew McKellar told GoAuto that because the new system was timed to start on July 1 next year, it was likely to cause a drought among small-business car customers leading up to the start date and then a spike in sales immediately after it.

He said the main benefit would be to small business cash flows, as they get an instant depreciation of $5000 instead of the current $1000.

“Our initial assessment is that there is not a lot in it for the car industry,” he said today. “It is not likely to result in a significant additional volume impact in terms of sales in the market.

“The key issue we would have a concern about is that if you have a tax break that is not going to come into affect for another 12 months, then there is a risk that as we get closer to that point in time people will hold off purchases.

“All it does is cause a bit of a drought before the event and then a bit of a spike afterwards and then it goes back to normal.

“Basically, this is a reasonably small cash-flow measure for small business.”

In the new rules announced ahead of the federal budget, the Gillard government said it would provide small businesses with an instant tax write-off of the first $5000 of any motor vehicle purchased from 2012-13, up from the current $1000.

Treasurer Wayne Swan said a tradesman on a 30 per cent marginal tax rate who bought a new $33,960 ute would receive an extra tax benefit of $1275 in the year of vehicle purchase.

“The remainder of the purchase value can be transferred into the general small business depreciation pool, which is depreciated at 15 per cent in the first year and 30 per cent in later years.

“This measure is estimated to cost $350 million over the forward estimates and builds on the government’s existing tax reforms for small businesses to be introduced in 2012-13.”

Mr McKellar said the new, accelerated tax depreciation system differed from business tax breaks introduced as a temporary measure to boost the car industry and stimulate the economy in the global financial crisis in 2009.

Under those temporary arrangements, small businesses were allowed to claim extra tax deductions of up to 50 per cent on vehicles, with other businesses allowed up to claim an extra 30 per cent for a period before being scaled back to an extra 10 per cent. The program ended on December 31, 2009.

“That was put in place as a stimulus measure because that gave businesses the opportunity to depreciate an extra amount for the vehicle,” he said.

“This (2011) measure is much more a timing mechanism – you just get a slightly earlier write-down of the purchase price of the vehicle, but at the end of the day you can’t depreciate more than 100 per cent.”

The 2009 tax breaks were credited with holding the slide in 2009 light commercial vehicle sales to just 2.1 per cent as tradies, farmers and others bought up.

New measures governing fringe benefits tax claims on motor vehicles are also expected in the 2011 budget, with the main feature rumoured to be a flat rate 20 per cent statutory formula in place of the current system that has differing rates below and above 25,000km traveled in a year.

That system caused an aberration in which fleets paid less FBT if drivers exceeded 25,000km, effectively encouraging them to run up extra, unnecessary kilometres to achieve that point.

The latest switch with a 20 per cent flat rate – in line with a recommendation in the Henry Tax Review – is expected to gouge up to $1 billion out of vehicle fleets, mainly from high-kilometre drivers.

The Australiasian Fleet Managers Association says a flat rate system is welcome, but that a 20 per cent rate is a tax grab.

It says the government should introduce a revenue-neutral rate, which it estimates to be between 11 per cent and 16 per cent.

Mr McKellar said company car drivers traveling fewer than 25,000km a year are likely to be better off under the new system, but drivers over that mark are likely to pay more.

“The key issue that needs to be looked at in detail is, particularly for those people who are driving longer distances for legitimate business purposes, is whether the log book method is closed off,” he said.

“That would potentially place them at a serious disadvantage.

“If you are a stock and station agent or a traveling sales person, then you are doing all that travel for business purposes, so you are incurring the expense, but if you can’t then claim according to usage, using a log book, then you are going to end up paying a much higher effective tax rate you otherwise would have if you are allowed to use the log book method.

“In principle, any business usage should be deductible.”

[jpd80]

Originally Posted by Brazen

Ideally the provision is there for people who get allocated a work car, e.g. Telstra van full of tools and equipment and the employee uses it for work but is allowed to take it home at night. As its a commercial vehicle used for work and is travelling all day to job sites it is FBT exempt as the private use is incidental and minor, especially considering the vehicle is full of tools and sometimes workers drive straight to job-site in the morning rather than going first to the depot.

That's me and the FG Ute, everyday I thank my boss for going that way instead of novated lease...

[Magna]

Originally Posted by 2008WhiteSR

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.

i dont mind contributing a little more post tax as the maintenance/insurance is gst free. i thought the money you contribute that cancels out the fbt goes back into the kitty for spending anyway?

[devilcv8]

Originally Posted by TURBOTAXI

I am currently in the 40,000k+ 7% bracket. My lease is 100% private, though I do use the car for work when it suits me at no cost to my employer. I hope the existing leases are grandfathered or my lease is going to go from being a great deal to a really bad deal.
New car sales will suffer, I dont think people will be as keen to pay for servicing and tyres through the nose either so there are a number of industries in the periphery that will take a hit. The near new car market will also take a hit. I would not be driving the FG F6 if it was a 100% out of pocket cost to me. So the $1900 in insurance I pay would be reduced to a far lower amount.
I will buy a hyundai I30 td if this happens.

could nearly writer exactly the same. 45000km a year, existing leases are not impacted and next commute will more than likely be the i30 turbo diesel..

[devilcv8]

Originally Posted by Magna

i dont mind contributing a little more post tax as the maintenance/insurance is gst free. i thought the money you contribute that cancels out the fbt goes back into the kitty for spending anyway?

Any post tax contribution to the running costs of the vehicle offsets the fbt.

[Trendseeker]

Originally Posted by Magna

i dont mind contributing a little more post tax as the maintenance/insurance is gst free. i thought the money you contribute that cancels out the fbt goes back into the kitty for spending anyway?

You're correct that the post tax payment covers the FBT and the pre tax payments cover the lease, maintenance and fuel etc. If your income is less than $180k per year (top tax bracket) you are beter off using the Employee Contribution Method rather than the Statutory formula. And as announced in tonight's federal budget, the new flat FBT rate will apply to all new lease contracts signed from 7.30pm today, so existing contracts can run their course under the stepped FBT rates.

[Magna]

thanks 2008WhiteSR and devilcv8, i'm locked in for another 2 years and don't earn anywhere near 180K. i'll really have to think hard if its worth getting another car after the end of the lease, maybe i'll go back to a nice e series

[vztrt]

Car FBT 20 per cent flat rate ‘a tax grab’

http://www.goauto.com.au/mellor/mell...25788D00135972

New flat-rate fringe benefit tax rules for cars to be phased in over four years

11 May 2011

By RON HAMMERTON

A NEW flat-rate system for calculating car fringe benefits tax, which was announced last night in the federal budget, will be phased in over four years to gradually standardise the current statutory kilometre-based formula to a flat 20 per cent in a move that will cost industry an extra $953 million.

Motor industry and fleet association leaders have described the 20 per cent rate as a tax grab, saying the government should have adopted a lower percentage to make the move revenue neutral.

The Federal Chamber of Automotive Industries (FCAI) says the government should either cut the tax rate to reduce the FBT windfall or offset it with some other tax reform, such as abolishing the luxury car tax, to reduce the burden on industry and motorists.

However, the FCAI and the Australasian Fleet Managers Association (AFMA) have both welcomed the flat rate system in principle, saying it is consistent with lowering greenhouse emissions by encouraging drivers to curb their kilometres.

Announcing the revised system, federal treasurer Wayne Swan said it would remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.

“Phasing out the current car fringe benefit treatment is a sensible reform from both a taxation and an environmental perspective,” he said.

While company car drivers who cover up to 15,000km a year will be better off under the new system, those who drive 25,000km or more will be slugged harder than previously, carrying the extra burden of the higher percentage.

The new system will apply to new contracts signed after 7.30pm on May 10 – Budget night – and does not apply to existing contracts.

Fleet drivers will also be able to retain the log-book method of calculating FBT, which some people feared might be given the chop in the budget.

Under the new statutory system – where the rate is multiplied by the cost of the car to determine a person’s car fringe benefit – drivers on new contracts who drive up to 25,000km will be immediately standardised on 20 per cent.

Drivers covering between 25,000km and 40,000km will move up from 11 per cent to 14 per cent immediately, and then to 17 per cent at the start of the new FBT year on April 1, 2012, before reaching 20 per cent on April 1, 2013.

Long-distance drivers covering more than 40,000km will move up from seven per cent to 10 per cent immediately if they start a new contract, before sliding up each year to 13 per cent, 17 per cent and finally 20 per cent on April 1, 2014.

FCAI chief executive Andrew McKellar said his organisation – the peak body for motor vehicle manufacturers and importers – acknowledged that the previous approach to FBT, using a kilometre-based threshold, was out of date and inconsistent with the goal of reducing carbon emissions for motor vehicles.

“Broadly speaking, industry would expect this reform to be implemented on a revenue neutral basis," he said.

"Accordingly, we will be looking to make an assessment about whether the proposed new FBT rate should be lower.

“Industry will be concerned to ensure that those people who legitimately need to use their vehicle for business purposes are not faced with an unnecessary tax hike as a consequence of this measure.

“Just because you live a bit further from the city, or in a country town and need to cover longer distances, doesn’t mean you should pay more tax on the car you drive.

“Industry also remains firmly of the view that the Government should not lose sight of the need to reform other aspects of motor vehicle taxation, including the luxury car tax.

"The luxury car tax is a punitive tax on advanced safety and environmental technologies and should be abolished or substantially re-worked."

AFMA executive director Marja Thompson said that while the previous system needed reform to encourage greener driving, the 20 per cent statutory rate was too high, and as evidenced by the extra $953 million the government was to earn, clearly a tax grab.

[F6_Ute]

good news - this would've been disasterous had I been slugged to 20% now with 3years 10months left to go on my contract

the only bad news for me is because of this change this will probably be my last lease ... oh well, at least I'm planning for this one to be a keeper

[blueoval]

So if I went and got a lease car NOW, would I be under the new laws of 20% if I did less than 25,000km?

[SpoolMan]

Sent to me by a company called Prosperion

The 2011 Federal Budget was released last night with one announcement of particular interest to us and our clients.

What’s changed?

The Statutory Method for calculating FBT on cars will change to a flat Statutory Rate of 20%, regardless of how many kilometres you travel.

Previously the further you travelled, the more you received in tax benefits.

When does it take effect?

These changes only apply if you sign up for a new novated lease after 7:30pm (AEST) on 10 May 2011, the old rules will continue to apply to your existing novated lease.

The changes will be phased in over the next four years, but our system will automatically smooth the introduction into one set of deductions that will apply for the duration of your novated lease.

Is the Operating Cost (Log Book) Method affected?

The Operating Cost Method (commonly known as the Log Book Method) remains unchanged.

Will novated leasing still be worthwhile?

There will still be significant tax benefits from novated leasing, but for some situations the tax benefits may reduce or even increase depending on how many kilometres you travel per annum:

Less than 15,000 km: Increased tax benefits

More than 15,000 km: Same tax benefits

More than 25,000 km: Reduced tax benefits

Operating Cost (Log Book) Method: Same tax benefits

For Example: someone driving 25,000 km per annum in a $30,000 car could have previously saved $5,900 but will still save over $4,600 each year under the proposed 20% flat Statutory Rate.

Have you got any tips to maximise the tax benefits I can get moving forward?

It’s time to look at the cars in your family that you didn’t think were “worth” putting on a novated lease.

It is quite likely that by putting another family member’s car on a novated lease under your name as well, you will more than recover any tax benefits that you’ve lost as a result of the changes.

Remember that there is no requirement for you to be the one who actually drives the car.

Should I use the Operating Cost Method instead for a new novated lease?

If you are getting a new novated lease (remember your current novated lease is not affected by the changes) and you travel more than 25,000 km per annum you may want to consider the Operating Cost Method.

If you can substantiate more than 40% business use with a log book kept over 12 weeks, then this may provide more tax benefits.

Please contact one of our Client Service Seniors to put together some estimates for you comparing the two methods.

What if I just keep extending my existing novated lease?

Our understanding at this time is that the new rules will apply to any existing novated leases that are extended after 7:30pm (AEST) on 10 May 2011, as it is effectively signing a new finance lease.

Will recalculations of the running cost budgets or kilometres travelled on my existing novated lease be affected?

So far it seems that these will not be affected as these situations are only changing the deductions from your salary or the amounts set aside for your running cost budgets. The actual novation agreement and finance lease remain the same.

What if I transfer my existing novated lease to a new employer?

The new rules will apply because you will be signing a new novation agreement, even though the original underlying finance lease is still in place.

So in summary, what’s the good news?

There’s no longer any minimum kilometre requirement for new novated leases.

For cars travelling less than 15,000 km per annum, they will get more tax benefits. Look at other cars in your family that you can put on a novated lease as well.

For cars travelling between 15,000 and 25,000 km per annum, they will get the same tax benefits.

The Operating Cost (Log Book) Method remains unchanged and may benefit some people travelling more than 25,000 km per annum.

It is important to note that this is our understanding at this time and we are yet to see the proposed legislation itself. Given our current minority government, there is even a chance that it may not get enough support to become law.

We will keep you posted as to any further developments as more information becomes available.

How can I find out more?

If you have any further queries or would like to see some payroll estimates on how the proposed changes may affect your personal situation, please don’t hesitate to contact us on (02) 8905 5100 and speak with one of our Client Service Seniors.

Best regards


Team Leader – Client Services

[blueoval]

Thanks Mark. That explains my questions pretty much.

Under my circumstances, looks like it won't affect me greatly regardless if I was on the old or new system. In fact I think it will be better off for me now.

I currently do between 20,000-25,000km now as it is. So if I get a lease car under $30k worth, I will be under the 20% FBT bracket on the new system as opposed to 26% on the old system. As I understand it, it means I don't need to flog the km's on the car to try and reach a lower FBT bracket. I would be better off doing the same km's as Im doing now.

[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.

[mondo_broady]

started reading with interest, but my attention span is such that after about 40 posts i was meh...

if these changes are as i read in the first few posts, then my current novated lease car will be my last brand new car for a while. i suspect i am not alone in that thought, so where does that leave the car industry??

[FoxtrotGolfXray 5.0]

I think I know the answer to this, but thought somone more in the know than me could positively answer it.

All the documentation on the change in FBT rate that I have seen refers to Novated leases. Does this change also affect Associate leases?

Thanx

Craig H

[vztrt]

http://theage.drive.com.au/motor-new...513-1ekys.html

Motorists in tax headlights
Stephen Ottley
May 14, 2011

Australia's peak car-industry group has slammed both the Greens and the federal government for targeting motorists in a bid to cut emissions and raise taxes.

This week's federal budget includes cuts to the fringe benefits tax (FBT) for company vehicles. However, the chief executive of the Federal Chamber of Automotive Industries, Andrew McKellar, says the fact that Treasury's costing for the FBT changes were released via the website of Greens leader Senator Bob Brown and not by the government itself is a grave worry for motorists.

''It raises the concern that this element has been driven by the Greens … not by the government,'' McKellar says.
Advertisement: Story continues below

The changes are the latest in a series of government cutbacks that hurt the car industry, which have included the axing of both the Green Car Innovation Fund and the proposed cash-for-clunkers scheme earlier this year.

McKellar says the industry's relationship with the government remains largely positive but the lack of consultation on the recent cuts has been most disappointing.

The new FBT scheme will implement a flat rate for its method of calculating a car's fringe benefit, regardless of the kilometres covered. It will replace the old model that uses a sliding scale based on the distance driven, with higher rates of travel attracting a lower tax rate.

Senator Brown has slammed the old model, saying it encourages people to drive more, increasing emissions.

According to Treasury data, three in five motorists subject to the tax drive more than 25,000 kilometres a year, which means they are likely to pay more.

[tupperware]

With my FBT increasing by 285% (I do over 40,000klm), I sure as hell wont be supporting the new car industry after this lease. A little saving grace is that with current leases, they may stay under the old FBT brackets if they are extended as they remain an old lease contract.
I see a lot of people moving to FBT free utes to get out of the latest tax grab.

[jimmyxr6t04]

Apologies for taking this slightly off topic, but i didn't want to start a whole new thread when this one has so much info! Can one of you lads with more experience with leasing give me some insight... I'm considering taking up a lease for a new FPV GS sedan, and as i'll only do about 20,000km i figured the new changes won't affect me too much.

I'm just wondering if some one can tell me if i have these figures correct, or if i'm way off the mark.

At present, my net weekly pay is about $1500 (approx 105k PA). The lease looks like it'll cost me about $1800-1900 per month pre tax. Am i correct to assume that it'll therefore bring my taxable income down to about 84k? Having looked at some income tax calculators, this means my weekly net pay will be just shy of $1300, so in effect the lease is costing me about $200 of my net pay per week, or about $800-1000 per month. Is this correct? or am i missing something?

I think i might be getting confused with how much it brings my taxable income down, especially if i opt for the ECM method? It almost seems too good? As repayments alone on a 50k car are about $1000 per month without any running costs!

So, how far off the mark am i?

Cheers,

Jimmy

[Dave3911]

Originally Posted by jimmyxr6t04

At present, my net weekly pay is about $1500 (approx 105k PA). The lease looks like it'll cost me about $1800-1900 per month pre tax. Am i correct to assume that it'll therefore bring my taxable income down to about 84k? Having looked at some income tax calculators, this means my weekly net pay will be just shy of $1300, so in effect the lease is costing me about $200 of my net pay per week, or about $800-1000 per month. Is this correct? or am i missing something?

Yeah, you seem to be missing any FBT in your calculations at all.

Assuming an FBT cost base of 50k, you'll be up for an extra 10k in FBT per year - this comes out of your pay after income tax. So, assuming your tax figures are correct) you'll be hit 192.31 per week. So your net pay will be closer to 1100. Around a 21k per year cost.

[jimmyxr6t04]

Originally Posted by Dave3911

Yeah, you seem to be missing any FBT in your calculations at all.

Assuming an FBT cost base of 50k, you'll be up for an extra 10k in FBT per year - this comes out of your pay after income tax. So, assuming your tax figures are correct) you'll be hit 192.31 per week. So your net pay will be closer to 1100. Around a 21k per year cost.

Ah ok... I think i see where i went wrong... According to the orix novated lease calculator, i won't be up for FBT. I will however be up for about 10k using the ECM, which comes out post tax. So realistically, my gross pay only drops to about 93k... So based on that, my weekly pay will be about $1350, and i'm guessing i'll need to contribute about $200 per week extra.

So in a round about way, your figures are correct are correct Dave. So in real figures, my net pay will drop from about $1500 to about $1100 per week...

That doesn't sound quite as appealing anymore! Might still go see a professional and get some advice though.