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Novated Leases - Over Exposed - And Over Rated ?

The Salary Packaging Gurus fully maintained associate lease, when in around 60% of the situations, the employee has a suitable associate, the SPG fully maintained associate lease will usually produce a far superior salary package gain than a novated lease.
 
 Section 136 (1) of the FBTAA, states the " recipient " is " the person to whom the benefit is provided."
 
The ATO confirmed in the NTLG FBT Sub-Committee minutes, that under a fully maintained associate lease agreement, the car benefit is provided to both the employee and associate, both as recipients, which is quite obviously the case.
 
The taxable value of a car fringe benefit is thus reduced, or eliminated, by non reimbursed and non tax deductible car operating costs, paid by the associate, as a recipient's payment, during the holding period, subject of course to the documentary evidence required under sub section 9 (1) of the FBTAA.
 
A new zero business use car costing GST inclusive $42,188 on the road, with a $39,996 ( say $40k) base FBT value, was quoted with a low interest rate bank novated lease quote, and a non bank funded consumer loan, for the employee's non GST registered, $10k p.a.income associate, for the SPG fully maintained associate lease salary sacrifice alternative.
 
The nil deposit consumer loan balloon payment, and the GST inclusive novated lease residual value, were identical amounts at the end of the 36 month finance terms, for " apples with apples " comparison purposes.
 
The annual operating costs with 28,000 annual kilometres travelled were $10,200 GST inclusive, and $9,350 GST exclusive, and with 18,000 annual kilometres travelled, were $6,800 GST inclusive and $6,240 GST exclusive. The start date of the 28,000 annual kilometre package example is assumed at April 1st 2013 or later, for the pending 20% Statutory fraction from that date, for cars travelling 25,000 to 40,000 annual kiolometres.
 
The employee salaries used were $65k, $105k, and $205k to cover the three highest marginal tax rates. The employer FBT status was non concessional. i.e. not a PBI nor FBT rebatable.
 
The associate paid all of the $6,800 operating costs, with 18k annual kilometres, as a non refundable, non deductible recipient's payment, from the fully maintained taxable associate lease rentals received, leaving $1,200 taxable value remaining, to be eliminated by an employee recipient's payment of $1,200, or a type 2 FBT debit. The surplus annual cashflow left for the associate from the operating lease rental component received was $2,489 after paying the car consumer loan repayments.
 
With no salary package the annual costs were $6,800 running costs + $10,258 loan costs, or $17,058.
 
The associate paid $8,000 of the $10,200 operating costs, with 28,000 annual kilometres, as a non deductible, non refundable recipient's payment, from the fully maintained associate lease rentals received, leaving a zero taxable value remaining for the employee.The annual cashflow surplus was again $2,489.
 
With no salary package, the annual costs were $10,200 running costs + $10,258 loan costs, or $20,458.
 
The employee salary sacrifices pretax for the total $22,947 annual fully maintained associate lease rentals. There is no need for an after tax recipient's payment for the $65k and $105k employees, nor is there a type 2 FBT debit for the $205k employee, as the associate's non deductible, and non reimbursed $8,000 annual operating costs, being quite rightly used as a recipient's payment, have eliminated the car's taxable value.
 
18,000 Annual Kilometres  -  After Tax Costs Of Novated Lease Per Annum
 
$65k   salary $13,864 cost with an $8,000 after tax recipient's payment.
$105k salary $13,591 cost with an $8,000 after tax recipient's payment.
$205k salary $12,864 cost with a $7,680-68 type 1 FBT pretax package debit.
 
18,000 Annual Kilometres  -  After Tax Costs Of Fully Maintained SPG Associate Lease P.A.
 
$65k  salary $10,615 cost ( down $3,249 p.a.) with a $1,200 after tax recipient's payment.
$105k salary $10,061 cost ( down $3,530 p.a.) with a $1,200 after tax recipients payment.
$205k salary $ 8,527  cost ( down $4,337 p.a.) with a $1,043-01 type 2 FBT pretax debit.
 
28,000 Annual Kilometres  -  After Tax Costs Of Novated Lease Per Annum
 
$65k  salary $15,870 cost with an $8,000 after tax recipient's payment.
$105k salary $15,504 cost with an $8,000 after tax recipients payment.
$205k salary $14,528 cost with a  $7,680 -68 type 1 FBT pretax package debit.
 
28,000 Annual Kilometres  -  After tax Costs Of Fully Maintained SPG Associate Lease P.A.
 
$65k  salary $12,312 cost ( down $3,558 p.a. ) with no employee recipient's payment.
$105k salary $11,623 cost ( down $3,881 p.a. ) with no employee recipient's payment.
$205k salary $ 9,788  cost ( down $4,740 p.a. ) with no employee type 2 FBT package debit.
 
The above novated lease interest rates were direct from a bank, and so, salary package / novated lease outsourcers, would usually be more expensive again, than the above quoted novated lease after tax figures, due to their fees and usual brokerage add ons.
 
The average 36 month after tax savings created by the Salary Packaging Gurus fully maintained associate lease product, compared to a low interest rate bank funded novated lease, is $11,747, over the three employee tax brackets.
 
The 18k kilometre p.a.average SPG fully maintained associate lease gain, over no salary packaging, is $7,324 p.a. which has offset all of the $8,356 car loan interest, + 24 months of the 36 months $6,800 p.a. running costs.
 
The 28k kilometre p.a. average SPG fully maintained associate lease gain, over no salary packaging, is $9,217 p.a. which has again offset all of the $8,356 car loan interest + 23 months of the 36 months $10,200 p.a. running costs.
 
Please contact Salary Packaging Gurus  if you have any questions about this exciting new product, which could well make novate leases obsolete, when the employee has a suitable associate, via a family member, partner or spouse.
 
 

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