Novated leasing is a contract between an employer and employee to purchase a car for personal use at no cost to either. Under some conditions, fringe benefits tax (FBT) is charged on these arrangements by the government.
Employees can make novated lease FBT calculator contributions to reduce the taxable value of their novated lease vehicle, using pre-tax salary contributions instead. This money can then be used for running costs associated with maintaining it.
Taxable value of a vehicle
Novated lease arrangements are agreements among employees, their employers and financiers for financing of vehicles. Employees benefit from reduced tax payments while having access to a vehicle; there may also be other advantages such as fleet discounts or online access to drivers reporting systems.
A novated vehicle’s taxable value is calculated based on its purchase price plus road costs, stamp duty and registration costs. You can also calculate it using the operating cost method that considers running costs as well as how often it’s being used for business travel vs personal use (recorded via logbooks). Employers can reduce this taxable value further by making post-tax contributions toward car expenses from employee salaries that have had income tax taken off prior to leasing an agreement.
LeasePlan recommends seeking independent financial and taxation advice before entering any novated lease arrangement.
Number of days you’ll drive the vehicle
If you plan on terminating an early novated lease agreement, be aware of the costly penalties attached. These could easily reach thousands in charges depending on both car value and mileage; be sure to track both accurately and don’t go beyond your allowance!
Opting for a novated lease FBT calculator can help save both on vehicle purchase prices and operating costs, with budgeted expenses included in your lease payment that help manage spending fluctuations over time. Most commonly, employers take payments out of pre-tax salaries in exchange for leasing repayments that cover both purchase price plus admin/finance fees in one lump sum payment.
Some employers allow employees to salary package up to an FBT exempt dollar limit without incurring FBT, so salary packaging companies are there to assist you with selecting an ideal vehicle and ensure it complies with FBT rules.
Fringe benefits tax (FBT)
FBT (Fringe Benefit Tax) is an Australian Taxation Office (ATO) tax assessed against employers for extra benefits that supplement an employee’s salary, such as car leasing. Employers must pay FBT on any novated lease vehicles provided through an arrangement and incur penalties under Australian Tax Law for such arrangements.
There are ways to minimise FBT liability by contributing post-tax amounts towards running costs of your vehicle using what’s known as Employee Contribution Method (ECM). ECM allows employees to optimise the tax effectiveness of their novated lease agreement.
ECMs are especially helpful for novated leases with heavy private usage since they help avoid paying FBT on its taxable value. However, this arrangement may be less tax-effective for businesses with lower private usage or high operating costs – therefore before choosing your novated lease package it is advisable to consult with a tax expert who can explain how a novated lease works and help identify which vehicle best meets your requirements.
Post-tax contributions
Novated lease FBT calculator offer an effective solution for purchasing a vehicle without incurring additional out-of-pocket expenses. As tax-efficient ways of purchasing both new and used cars, they can help save on registration, GST, tyre and fuel costs – yet still offer great flexibility in managing take-home money. One major drawback that must be considered when considering this route to car ownership is post-tax contributions from after-tax income that reduce the taxable value of the car and minimise any FBT liability at year’s end.
The statutory formula method is used to calculate the taxable value of a novated lease; however, you can make after-tax contributions that reduce its taxable value dollar for dollar up to its maximum amount – potentially saving thousands annually! Whenever entering into any such arrangement, it is prudent to seek independent financial and taxation advice before entering into one.