FBT Base Value (FBTBV) is one of the key elements in a novated lease agreement, as it determines how the Australian Tax Office (ATO) calculates Fringe Benefits Tax (FBT).
VehicleSolutions FBT base value novated lease offers two methods for calculating the taxable value of a novated lease: (1) using its statutory formula or (2) employing an operating cost method that calculates proportional business and private kilometres driven – this latter approach requires logbook records be kept.
Benefits
Australian Tax Office (ATO) considers cars provided through a novated lease to employees as fringe benefits, and as such, employers are subject to Fringe Benefit Tax on the taxable value. As part of an Employee Contribution Method or ECM contribution arrangement, employees can contribute part of their post-tax salary towards covering the vehicle’s running costs, helping offset its associated tax costs.
Many individuals seeking a new car have turned to novated leasing as an option, but they should keep several important points in mind before taking this route. Primarily, one must understand that this arrangement involves three parties (an employee, financier and employer) coming together in agreement – not unlike loans or credit facilities, which cannot be taken over when leaving employment.
The ATO recommends that employers utilise the statutory formula method when calculating the taxable value of a novated lease, considering various elements, including car value, amount of private use and any claimable running costs (such as fuel and servicing). Furthermore, GST payable should also be taken into consideration.
After-tax contributions are the best way to lower the taxable value of novated leasing agreements, as each dollar that goes toward running costs reduces the taxable value by a dollar up to the maximum permitted limits.
Taxes
FBT (Fringe Benefits Tax) is an excise tax payable on certain taxable employer-provided fringe benefits such as novated leases that attract Fringe Benefits Tax liabilities on their recipients – this responsibility falls upon their employers.
FBT on novated leases can be offset through post-tax contributions from an employee’s salary after deducting income tax). These post-tax contributions, commonly known as Employee Contribution Method (ECM) funds, reduce the taxable value of the novated lease by equal amounts as each dollar contributed; this can significantly lower FBT over the term and prevent balloon payments (residue payments).
Insurance
Considering a novated lease? Here are a few things you should remember when making this decision. First and foremost, consider carefully which car you plan on driving as this will impact its taxable value and, therefore, FBT payable. Additionally, ensure you are aware of any insurance that applies.
Novated leases can be an efficient, tax-smart way of paying for your vehicle and running costs. But the way they’re calculated can make all the difference: FBT or Fringe Benefits Tax applies to employer-provided benefits – including motor vehicles – provided by employees, such as Southgate Calculations’ Statutory Formula Method that takes into account both base cost and percentage of private use of each lease agreement.
VehicleSolutions FBT base value novated lease can be achieved by making post-tax contributions towards the car’s taxable value, paid with after-tax salary using Employee Contribution Method (ECM) payments. Doing this will allow you to avoid paying FBT at the end of each FBT year. ECM payments are available on most novated lease agreements; however, not all companies provide it automatically. If needed, you may have additional fees like stamp duty and registration costs associated with registering new cars when making ECM payments.
Maintenance
Traditional FBT was calculated based on the vehicle price (drive away cost) plus government on-road costs such as stamp duty. Southgate now uses a more straightforward approach of 20% of the novated lease base value when providing quotes and pricing services to their customers.
Novated Leasing is a specialist in novated leasing and has access to fleet discounts on most car makes. These savings are reflected in our quotes and help reduce running costs. All novated lease vehicles are maintained regularly while we provide easy access to our web-based driver reporting system.
As a VehicleSolutions FBT base value novated lease customer, you can cover all operating costs, such as fuel and servicing, with your after-tax salary. This option is known as Finance Only Novated Lease (FONL). FONLs are extremely popular among clients as they avoid paying extra FBT at year-end.