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Novated Lease

Discussion in 'Accounting, Tax & Legal' started by DaveA, 6th Apr, 2008.

  1. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
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    Sydney, NSW
    Just having a look at novated leases and how they reduce your taxable income. However my question comes, does the reduced taxable income count towards a reportable fbt benefit. Your paying an after tax portion to avoid fbt so i think it could not be a reportable fbt but im really not sure.

    If anyone who has a novated lease could give me an idea on how it is treated on your annual payment summary that would be fantastic...
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi DaveA,

    The reduced taxable income is your benefit, not the reportable FBT benefit.

    Cheers,

    Dan

    PS Speak to your tax agent before making a taxation decision.
     
  3. Rob G.

    Rob G. Well-Known Member

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    Melbourne, VIC
    I think you are confusing two different issues.

    Any fringe benefit received is not counted as assessable income to you.

    To the extent there is a taxable value for the benefit (i.e. it is not exempt, or is valued by some formula which may still be less than the physical value received) then the employer is liable for FBT.

    If the benefit is a reportable benefit (and has a taxable value) then it appears grossed-up on your payment summary for Centrelink, Medicare, maintenance etc. if it exceeds a certain threshold.

    The taxable value can be reduced by an employee contribution from their after-tax income - which is particularly useful if your marginal tax rate is less than 46.5% (the FBT rate).

    Cheers,

    Rob
     
  4. DaveA

    DaveA Well-Known Member

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    Location:
    Sydney, NSW
    Thanks for the input guys.... I think i might not explained it very clearly but from your answers i think it might be ok.

    If your salary is 50k and you go get a novated lease for $300 per week, your taxable income will be reduced to ~$35k. Say you had to make $4000 using the employer contribution method and you taxable income is $39k.

    Im gathering the 11k reduction in taxable income is not a reportable fbt benefit (as there is no fbt tax payable). Therefore if you had to be under a 40k threshold you would be deemed as having a 39k taxable income as there is no reportable thresholds.

    Rob- i know you talked about this in another thread where the person trying to avoid the threshold could get their employer to pay interest costs on their investment property as the salary sacrific part is not going to be counted when the "add" back on rental losses when determining your income for thresholds. Just wondering if this approach (with a novated car lease) provides the same sort of outcome
     
  5. Rob G.

    Rob G. Well-Known Member

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    I'm still not sure what you are asking.

    If you novate a $300 pw lease to your employer, the taxable value is the cost to the employer, i.e. $15,600 (ignoring GST input credits).

    In addition, your employer is liable for FBT of (ignoring GST):

    FBT = $15,600 x 1.8692 x 46.5% = $13,559.

    Total cost to employer = $15,600 + $13,559 = $29,159

    Unless your employer is feeling generous, he will want to reduce your GROSS SALARY or expect a contribution from your AFTER-TAX SALARY.

    If your marginal tax rate is below the FBT rate (46.5%) then it is generally better to contribute from after-tax salary.

    Cheers,

    Rob
     
  6. Rob G.

    Rob G. Well-Known Member

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    So either sacrifice $29,159 of assessable income or ...

    Take the income, pay the tax $13,559 (at 46.5%) and then pay your employer the $15,600 it cost to take the lease so there is no longer a taxable value and the FBT is nil, the overall cost is still $29,159.

    If you were on 31.5% MTR then if you take the salary and pay $9,185 tax plus contribute $15,600 to your employer's costs to make the taxable value of the benefit zero, the total cost to you is now $24,785.

    Cheers,

    Rob