If you are considering taking out a novated lease, you need to know how much Fringe Benefits Tax you will have to pay. It is possible through novated lease FBT calculator. Previously, FBT was based on the vehicle's value and the number of kilometres driven yearly. However, this has changed, and now, FBT is based on 20% of the drive-away value minus government on-road costs. For example, if you take out a $20,000 vehicle, you would be paying $3,600 in FBT.
EV novated lease gives you taxable income of $6,000
If you are a new car owner, an EV novated lease can help you reduce your monthly income tax by $350 or $1,275. The first benefit of this lease is that it eliminates GST from the purchase price and running costs, reducing your taxable income by up to 45%. Aside from the tax savings, an EV-novated lease may also help you save even more money: the Electric Car Discount (EVD) will save you 5% on the cost of your new vehicle.
Another benefit is that you can claim a federal tax credit of up to $7,500 when you lease an EV. However, this credit is only valid for the year of purchase. In addition, this credit does not include any money back and can only be used for the tax liability you incurred in that year.
While EV adoption is still in its infancy, there are still barriers that may prevent larger numbers from making the switch. For example, the cost of a medium-sized EV can reach EUR33,300 or more, which is significantly higher than the average pre-tax price of a classic car. In addition, the cost of living crisis puts additional pressure on households, and a new car may seem out of reach. But with a few clever steps, you can get on the road without spending a fortune.
The federal tax credit for EVs is up to $7,500, depending on the vehicle's capacity. In addition to the federal credit, EVs with battery capacities greater than four kWh will qualify for additional credits of $417 per kWh. An EV with a seven-kWh battery will qualify for a minimum $2,500 credit, plus an additional $1,200 in additional credits. Your total taxable income of $6,000 will be around $27,000 if you claim these credits.
The EV tax credit program is in its infancy, so it's important to ensure you are aware of the latest IRS guidance. Those who earn more than $150K may not qualify for the full $7,500 credit. However, buyers can now benefit from the EV tax credit by taking advantage of the $4,000 upfront credit available at the point of sale until 2024. Moreover, commercial vehicles will qualify for a $4,000 credit starting in 2023.
Calculating Fringe Benefits Tax on a Novated Lease
When choosing a car finance arrangement, it's important to calculate the Fringe Benefits Tax (FBT) you'll owe. This tax applies to any taxable benefit given to you by your employer instead of a salary. For example, if you choose a novated lease, the taxable value is based on the cost of the car and the number of kilometres travelled by the vehicle. To avoid paying more than the amount of FBT you owe, it's a good idea to use a Salary Packaging company. Then, you'll pay far less FBT than you owe on a salary.
In most cases, FBT is not a problem if the employee pays for the taxable benefit directly. However, if you give a benefit to a family member, you must pay FBT on that expense. You may be able to offset the FBT cost by asking the employee to contribute toward the benefit-cost.
If you are an employee, you may be able to offset FBT by making post-tax contributions to your lease. These contributions can cover the cost of novated leases throughout the FBT year. This method can be particularly helpful if you're in the top marginal tax bracket. However, seeking independent financial advice is important before opting for this option.
The Australian Tax Office considers a novated lease arrangement as a fringe benefit. A fringe benefit is a benefit paid by an employee from their pre-tax salary. This measure was introduced to prevent employers from providing perks that are not taxable and to ensure that the ATO receives the right income tax amount from the employee.
Unlike wages, the value of transportation benefits provided by an employer is excluded from an employee's income if they are a "working condition fringe benefit." In addition, a cell phone's value is also excluded from employment tax if it is used by the employee exclusively for business purposes.
Statutory formula method
When calculating FBT on motor vehicles, you'll need to understand the new Statutory Formula method for novated leases. This method will change the way the ATO calculates FBT on motor vehicles. Previously, this method involved keeping logbooks for all business expenses, which could be time-consuming. But with the advent of electronic FBT logbooks, this process is much simpler and offers better accuracy.
A novated lease can help you save on income tax. The FBT payable on the vehicle is reduced by the post-tax funds, which are deducted from your salary after income tax. An online FBT calculator can show you how much of this post-tax amount you'll have to pay in FBT every year. A novated lease can save you significant income tax each year.
The FBT year runs from 1 April to 31 March. Therefore, the calculation of FBT on a novated lease will either be based on the Statutory Formula or the Operating Cost Method. The Statutory Formula Method is the most commonly used. It uses the car's base value to determine the taxable value and assumes that 20% of the car is used for private use. The Operating Cost Method, on the other hand, uses the total cost of using the car for a year based on the percentage of private use. Therefore, it can be a more cost-effective option for businesses and employees who use their cars primarily for business.
Operating cost method
There are two main methods to calculate the FBT on a novated lease: the statutory formula method and the operating cost method. The statutory formula method uses the car's base value as the basis for calculation. The total cost of the car is then multiplied by the statutory percentage. The reductions for employee contributions and days not used for private travel are also considered. The operating cost method considers a portion of the total cost of owning or leasing the vehicle, including repairs, maintenance, fuel, registration, insurance, interest, and depreciation.
The operating cost method relies on the log book record of the use of the vehicle by the employee and the business to calculate the business proportion of the motor vehicle expenses. The logbook must be kept for 12 weeks and represent the entire FBT year. The employer can also use the operating cost method for the year even if it does not keep logbooks. However, this method does not reduce the operating cost for business journeys.
The operating cost method is more complex. This method is also known as the logbook method. It requires the business to keep logbooks, and this method has been seen as cumbersome and time-consuming. However, electronic FBT Logbooks are available that make the process much easier and give a more accurate calculation.
The operating cost method of a novated lease is tax-effective for both businesses and employees. The employee pays up to 20 percent of the GST-inclusive cost of the vehicle each year to reduce the employer's FBT liability. Regardless of which method is used, the savings in income tax will always exceed the FBT incurred on the lease.
In addition to the operating cost method, a logbook is necessary to determine if a vehicle is used for business purposes. This logbook must be kept for at least 12 weeks and reflect the entire FBT year. Without a logbook, the operating cost method won't reduce the taxable value of business travel.