Budget update | Currently driving more than 40,000 kms pa? - Case Study
The 2011-2012 Federal Budget alterations to novated leases only affects new novated leases entered into after 7:30pm on 10th May 2011.
If you previously drove over 40,000kms pa, you would have been taxed at 7% and your next novated lease will eventually be taxed at 20%*. The increase is being phased in over a four year period, and with your next lease you'll experience a reduction in the size of your tax benefit.
Salary packaging a car does however remain the most tax effective way of owning a car.
Here's a worked example of the changes you could expect to see.
Salary and vehicle details |
|
|
Car |
2011 Honda Jazz |
|
Base value of car |
$20,763 |
|
Salary |
$60,000 + super |
|
Term |
3 year lease |
|
Annual kilometres |
40,000kms p/a |
Given the car and salary details above, the table below displays the difference before and after the budget changes.
Annual payroll effect
|
No salary packaging |
Leases entered into before 7:30pm 10th May 2011 |
Leases entered into after |
|
Statutory % |
NA |
7% |
20%* |
|
Gross salary |
$60,000 |
$60,000 |
$60,000 |
|
Salary sacrifice |
$0 |
-$13,399 |
-$10,945 |
|
Super |
-$4,954 |
-$4,954 |
-$4,954 |
|
Taxable income |
$55,046 |
$41,647 |
$44,101 |
|
Income tax |
-$10,889 |
-$6,668 |
-$7,442 |
|
Employee contribution |
$0 |
-$1,453 |
-$4,153 |
|
Take home pay |
$44,157 |
$33,525 |
$32,506 |
|
Cost of car |
-$16,192 |
$0 |
$0 |
|
Disposable income |
$27,965 |
$33,525 |
$32,506 |
*The change to the statutory rate is being phased in over 4 years and will change from 10% effective 10 May 2011, to 13% effective 1 April 2012, to 17% effective 1 April 2013, to 20% effective 1 April 2014 and beyond.
The above example illustrates a worst case scenario as it utilises the tax effect of the full 20% statutory rate and does not take into consideration the gradual increase in rate which would actually reduce costs and increase disposable income.
As you can see, after the full 20% change comes into affect in April 2014, the savings for this particular driver segment will decrease by $1,019.
A novated lease is still however, the most tax efficient way to own a car, and the savings when compared to not salary packaging in this particular instance is $4,541.
Summary
Salary |
Vehicle |
Savings
|
|
$60K |
Honda Jazz |
$4,541 |
All of the above costs include GST