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June 26, 2014

What if I’m not doing Enough Kilometres on My Novated Lease

It used to be that, from an employee’s perspective, the intention to get higher kms on their odometer under novated lease was justified because it resulted in higher tax concession. However this is no longer the case. The earlier FBT tax method had each band (determined by number of kilometres travelled) assigned a lower tax rate. So a person logging 5000 kms was levied an FBT of 20%, while a person logging 45000 kms was levied an FBT of 10% of the taxable value of the car. However, the reforms brought to the Fringe Benefits Act stipulate that if the new contract was entered after May 11, 2011, 7:30 PM, then a flat rate of FBT will be applicable.

What this new change means for employees is that their FBT liability will no longer be determined by the number of kilometres travelled in an FBT year. So whether you drive 10,000 kms or 50,000 kms, a flat 20% FBT liability will be incurred by the employee. While this was phased in over a number of years, in 2014 it became standard for all usage levels, so you do not need to drive more to get a higher tax saving. Opting for novated lease means that employees can stop worrying about distance travelled in a year and still benefit from tax savings.

A note for employers – Get the best out of your novated lease by hiring a competent lease company. Such a company dealing extensively in novated lease will give you benefits from lower administrative charges, apt salary packaging and effective novated lease management. All these factors will help make novated lease more profitable for your company and a good tax saving component for your employees.

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