On 10th May 2011, the 2011/12 Federal Budget was released with a focus on Fringe Benefits Tax (FBT) as it relates to motor vehicles. If you have a Novated Lease (NVL), or you are looking at getting one, then you are probably aware that a few changes have been made in regards to FBT. Our partner sgfleet have offered to answer a few frequently asked questions regarding the recent changes to FBT and how it affects NVL.
It is important to note that these changes simplify the treatment of FBT for the future. The new regime also makes salary packaging a motor vehicle more beneficial for drivers travelling low annual kilometres.
Q. Why have these changes been made?
A. These changes have been made by the Federal Government to simplify the treatment of FBT for the future, and remove the incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.
Q. I have an existing lease, how does this impact me?
A. There are no changes in respect of any vehicles that were delivered prior to 7:30pm on 10th May 2011. Accordingly, the previous FBT regime will continue to apply to existing novation arrangements, including those vehicles travelling less than 15,000 kilometres per annum.
If you transfer your existing novated lease to a new employer, or take out a new novated lease arrangement, the new FBT rules will apply as outlined below as we believe this to be a 'new contract'.
Q. Can I extend my existing lease?
A. Pending further clarification from the Government, an existing lease can have the term extended and the previous FBT rules will continue to apply because the original lease start date is the FBT start date and the original FBT base value remains unchanged for an extended lease.
If you transfer your existing novated lease to a new employer, or take out a new novated lease arrangement, the new FBT rules will apply as outlined below as both your FBT start date and FBT base value will be adjusted.
Q. What is a 'new contract'?
A. From the information currently released by the Federal Government it is not clear what constitutes a 'new contract'. It is expected that the Government will clarify this in due course at which time we will follow the guidance from the Government. Currently sgfleet are applying the vehicle delivery date to be the start date of the new contract as this is the FBT start date used for calculating the FBT liability.
Q. What are the new FBT rules?
A. The Government will replace the current rates with a single flat rate of 20 per cent that applies regardless of the distance travelled. This reform will only apply to new vehicle contracts entered into after 7:30pm (AEST) on 10th May 2011, and will be phased in over four years as shown below:
Source: Joint Media Release with The Hon Bill Shorten MP Assistant Treasurer Minister for Financial Services and Superannuation
Q. I have a vehicle on order how does this impact me?
A. If your vehicle has not yet been delivered and your FBT bracket is less than 15,000 kilometres you will receive a further tax benefit. If your vehicle falls within the 15,000 - 25,000 kilometres bracket you will not be affected by these changes.
Q. Why can't the date I signed my documents be used as the contract start date?
A. Pending further clarification from the Government, the delivery date of the vehicle is used as the FBT start date for calculating FBT liability, and as such we will be using delivery dates for the new contract start date.
Q. What rate of FBT will apply to my new vehicle quote?
A. For vehicles travelling under 25,000 kilometres per annum, the FBT rate of 20% will be applied to all new quotes.
For vehicles travelling over 25,000 kilometres per annum, we will be calculating the applicable FBT amount taking into account the increasing FBT rate outlined in the table above. The whole of life FBT will then be averaged over the lease term ensuring your monthly deductions remain constant throughout your lease.
Q. I am considering a novated lease, will this still be a viable option?
A. The new FBT regime continues to present an excellent opportunity for you to salary package your vehicle using a novated lease arrangement. Those drivers travelling less than 15,000 kilometres will be better off. There will be no change for drivers travelling between 15,000 and 25,000 kilometres. Those driving more than 25,000 kilometres will be subject to a sliding scale, and may have other FBT options available to them.
FBT options can be discussed with one of the sgfleet Novated Lease Sales Consultants on 1300 138 235.
Updates also available via the sgfleet website sg fleet is one of Entity Solutions’ partner.
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