Fringe Benefits Tax (FBT) is a tax that gets a few people worried when you start talking about salary packaging a car. But is the concern really necessary? Let’s take a look:
FBT is payable whenever your employer provides you with a non cash benefit as part of your employment and was designed to stop employers giving non-taxable ‘perks’ as part of people’s salaries. This extends to all sorts of ‘benefits’, such as meals and drinks, but is best known for its impact on cars.
If your employer provides you with a car then they have to pay FBT on the portion of the value of the car that is used for personal use (you are not taxed for business use). There are two ways this is calculated currently: either using the statutory method (which assumes you use the car for a set 20% personal use) or the operating cost method (where you specify, using a logbook, your actual usage).
FBT itself is taxed on the top marginal income tax rate (so fluctuates as the rates change) and, at the time of writing (FY 2015/2016), is 49% with the Medicare levy. It sounds scary, but keep in mind that this is levied only against the personal usage component, not the full value of the car.
So when you start talking about salary packaging a car, your novated lease provider should provide you with a breakdown showing how FBT will impact your salary in addition to the lease costs. It might sound like this would remove any benefit of doing a novated lease but keep in mind that all of the lease, running and FBT costs are being paid using pre-tax income so there still can be considerable benefit, depending on your own circumstances.
Here are a few extra things to consider:
- If you work for charity (PBI) you are allowed to package up to a certain amount each year without having to pay any FBT. This is why salary packaging is a large player in the not for profit sector. You can read more about this here.
- If you work for a hospital you also get additional FBT allowances like PBI’s (although the amounts are different).
- If you do have to pay FBT but are normally taxed below the top marginal tax bracket (currently 49% with Medicare levy) you can make post tax deductions through your employer to offset the FBT amount payable. What this basically means is that you are paying a tax that is levied at 49% using income that has been taxed at a lower amount. The net effect is that you can see even greater savings over a normal novated lease. This type of lease, with post tax contributions, is using the employee contribution method (ECM).
Have a look at our Novated Lease video which explains it in more detail:
Note sure what tax bracket you are in? Check 2015/2016 rates below:
|Taxable Income||Tax on the Income|
|$0 – $19,400||Nil|
|$19,401 – $37,000||19c for each $1 over $19,400|
|$37,001 – $80,000||$3,344 plus 33c for each $1 over $37,000|
|$80,001 – $180,000||$17,534 plus 37c for each $1 over $80,000|
|*$180,001 and over||$54,534 plus 47c * for each $1 over $180,000|
* including the Temporary Budget Repair Levy
Want the full picture? Read more about salary packaging your car with StreetFleet here. Alternatively you can contact our StreetFleet experts if you have any questions or if you would like a free no-obligation quote.