Archive for May, 2011

Video update: 2011 Federal Budget

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January 2012 update: For the latest information about the 2011/12 novated lease budget changes, please click here.

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Earlier today we filmed an interview with Simon Ellis, our Senior Tax Advisor. In this video, he outlines his thoughts on the recently announced changes in the 2011 Federal Budget and how they will impact salary packaging. A written summary can also be found here.

Changes to Novated Leasing – 2011 Federal budget

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January 2012 update: For the latest information about the 2011/12 novated lease budget changes, please click here.

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The 2011-12 Federal Budget has been handed down and there are important changes in play for vehicle packaging. Simon Ellis, our Senior Tax Advisor, gives us a run-down of these changes and how they are likely to impact those of you salary packaging a novated car lease or thinking about packaging one.

Following a significant amount of media coverage last week we were expecting changes to the way new leases are taxed for Fringe Benefit Tax (FBT) purposes. And in fact, that’s what we got.

From tonight all new novated leases will be subject to a new FBT valuation regime that will, after four years, result in all salary packaged cars being valued for tax purposes at 20% of their initial cost regardless of the kilometres they travel. These changes are consistent with the Henry Tax Review recommendations presented in May last year. For more information have a look at Smartsalary’s coverage of last year’s Henry Tax Review.

The budget papers are a bit light on detail, but the Treasurer’s home page does provide detailed information on the implementation of the new rules.

The key points from the perspective of employers and employees are as follows:

  • The new rules do not apply to existing novated leases. All current packaging arrangements remain unchanged.
  • New leases will, from today, use a transitional set of statutory rates that will gradually phase out the 7% and 11% valuation options over the next four years (see the table in the Treasury link above). This means that the savings achievable for employees driving more than 25,000 kilometres per annum will be lower and that, at least for the time being, some employees will still need to meet kilometre targets in order to get the most out of their packaging arrangements.
  • The new rules will now open up novated car leasing to employees currently not packaging a vehicle and driving less than 15,000km per year. Previously employees driving less than 15,000 kms were required to value their cars for tax purposes using the 26% rate, but now the 20% rate is immediately available. Since the average Australian car travels less than 15,000km per annum it’s likely that a significant number of employees who previously couldn’t achieve good savings will now benefit from a salary packaged car.

A number of questions remain unanswered- for example, “will those currently packaging a car on a 26% rate be locked in to that rate for the term of their lease or will they be able to elect to apply the new transitional rates? and “how will these rules apply to employees who are currently mid-settlement on a novated lease?” At the moment Smartsalary is investigating these and other issues. We’ll let you know more as we find out.

We’ll be issuing more detailed instructions to our customers over the coming days, and will be posting a video presentation here shortly explaining our views in more depth. Stay tuned.

Well that’s a lot to consider and I’m sure there will be plenty more to come. In the meantime feel free to provide your thoughts on this change in the comments section.


Deven Billimoria
Chief Executive Officer
Smartgroup

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