Blog & Updates

FBT announcement imminent?

Author: Jeffrey Morton / Published Date: 5 May 2011

Categories: Novated Leasing, Consultancy

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Amongst others, the Greens Leader Bob Brown is pushing for a cut in fringe benefits tax (FBT) concessions on company and salary packaged cars in the May budget.

Vehicle fringe benefits are currently calculated, when using the statutory method, on a sliding scale. The applicable tax rates reduce the more an individual drives. By abolishing the tiered brackets and applying a flat rate of 20% regardless of distance travelled, Treasury estimates it will save $1 billion over the next 4 years if implemented. The flattening of the rates is as per the recommendation of the recent Henry Tax Review.

"If the government is serious about reducing the economy's reliance on fossil fuels, reducing tax breaks that reward people for driving longer distances in company cars should be included in next month's budget,"Senator Brown, April 2011

But apart from being more friendly to the environment, what will this actually mean for employers who allow their employees to salary package cars with novated leases, and their employees who take advantage of the program? As discussed in the Winter 2010 edition of ‘The Autopian’, we believe this would be a very positive change.

  • Employees who drive less than 15,000kms pa will be taxed at 20% rather than 26%, delivering more savings than this band of drivers has ever been able to achieve previously.
  • Employees driving between 15,000kms and 24,999kms pa will not be impacted as their rate will remain the same.
  • Employees that drive more than 25,000kms pa will experience a reduction in the size of the tax benefit they achieve but despite the reduction, the benefits remain generous, and novated leasing for this market segment will still be an attractive option, especially for those with predominantly private vehicle usage.

If the cut in FBT concessions is implemented, more employees with more driving profiles will be able to benefit from salary packaging a car.

In summary, these recommendations would make wide-scale implementation of novated leasing for all levels of employees more attractive than ever before. With the risk of missing kilometre targets no longer an issue, more employees will novate their cars, and the businesses that promote the benefit will become more profitable.

We'll be responding to the budget, and any effects it may have on the vehicle salary packaging industry in a special edition of 'The Autopian' - our in-depth analysis of news & developments in the vehicle benefits industry.

If you'd like to receive our full commentary on the subject, sign up to receive 'The Autopian' by calling 02 8307 5555 and asking for Greg or Linda.

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