Brakes hit novated leasing industry but what about your current new car contract?
Novated leases have long appealed to budget conscious Australian corporates and families who were actively looking for a way to drive down their income tax obligations.
Until now, salary packaging or sacrificing your car repayments, fuel and maintenance with your pre-tax income has been a legal and smart way to operate your vehicle and save on car costs.
However, recent Government changes to the Novated Leasing scheme regarding the statutory Fringe Benefit Tax (FBT) have sideswiped the industry, with the statutory method for calculating FBT no longer currently available. The log book method, which accurately indicates actual business mileage will be the only available method for FBT purposes, should this legislation be passed through Parliament.
What if I leased my car before 16 July, 2013?
If you are already committed to a novated lease for your car, rest assured that your contract, its obligations and benefits remain intact for the remainder of your contract period, as it’s only new contracts that will not qualify.
Why have they changed the FBT on novated leases?
The statutory FBT benefit was designed to compensate car owners who were using their private vehicle for genuine business purposes. The flat rate enabled employees to claim the FBT without having to provide a log book to prove the business miles. The Government has currently removed the statutory rate benefit and wants a log book only benefit because it believes many employees are gaining the tax benefit of a novated leasing arrangement while using their car only for private purposes, rather than for any genuine business mileage for which the rate was created to compensate.
Who will be most affected?
Pro Bono Australia recently released a statement suggesting that over one quarter of all novated leases were charity workers, while other news sources suggest the majority of beneficiaries are everyday teachers, nurses, public service workers and Government department employees. In fact, many believe that it’s these types of employees that make up approximately 70% of the Salary Packaged Novated Lease market.
What if I was about to purchase a new car?
If you are on the verge of purchasing a new car and missed out on the opportunity to secure a novated lease prior to the 16th of July, rest assured that the Salary Packaging, Leasing and Car Manufacturing Industries have made this a hot election topic and their lobbying will likely result in further announcements and positive updates in the near future. The industries are collectively waiting on the Federal Election results to see if these changes will be passed through Parliament or if the new Government will revise the statutory FBT decisions.
There’s no doubt that the FBT changes have in the short term, negatively affected many would-be car buyers but there are still other finance options to consider if you need to buy a new or used car. Make sure you’re choosing the right finance method by exploring your options and having a chat to our friendly team today.
Do you have any questions about your novated leasing contract?