Novated Leases: 8 months on from the 2011/12 Federal Budget Changes

Hi Readers – Simon Ellis here guest posting about the 2011/2012 novated lease budget changes.

It’s been just over eight months since the 2011/12 budget changes were implemented and now that the dust has settled we thought it would be a good time to review the new landscape for salary packaged cars.

Following the budget changes there are now 2 types of packaged vehicles in Australia:

  1. Vehicles leased before the 2011/12 Budget; and
  2. Vehicles leased after the 2011/12 Budget.

All vehicles can still use the Statutory Formula FBT valuation method – where the tax payable on the car is calculated as a % of its purchase cost – however the Statutory Formula percentages are now different depending on whether the pre-Budget or post-Budget rules apply.

Each of the above vehicle types is examined in more detail below.

Vehicles leased before the 2011/12 Budget

Novated leases that commenced on or before 10 May 2011 are, in most cases, valued for FBT purposes using the ‘old’ Statutory Formula rates:

Kilometres Travelled

All Years

0 – 14,999km

26%

15,000 – 24,999km

20%

25,000 – 39,999km

11%

40,000km +

7%

Unsurprisingly, packaging activities for employees with a pre-Budget lease remain largely unchanged.  In particular, annual km targets are still relevant: low km drivers are penalised by a high (i.e. 26%) valuation rate, while high km drivers are still able to access very attractive low rates.

It is equally important to note that an exception applies to pre-budget cars for which a “commitment event” has occurred post-budget.  “Commitment events” result in a vehicle moving from the old Statutory Formula rates to the new rates (discussed in the next section below) as per the following table:

Commitment event

Application of ‘new’ rates

Lease is refinanced Post-budget rates will apply from 1 April following refinance date.
Employee changes employment Post-budget rates will apply from employment change date.

Most drivers holding a pre-Budget car are happy with the old FBT rates, but it is worth noting to those who see an advantage in the new rates that deliberately bringing about a Commitment Event could be seen as tax avoidance by the ATO.

Vehicles leased after the 2011/12 Budget

Novated leases that commenced after 10 May 2011 (or have had a post-Budget commitment event) are valued for FBT purposes using the ‘new’ Statutory Formula rates:

Kilometres Travelled

FBT Year Ending

31/3/2012

31/3/2013

31/3/2014

31/3/2015

0 – 24,999km

20%

20%

20%

20%

25,000 – 39,999km

14%

17%

20%

20%

40,000km +

10%

13%

17%

20%

While the new rates have seen high-km drivers lose a portion of their tax benefit, they’ve also delivered a big win to ordinary drivers who can now lock in great tax savings regardless of kilometres travelled.  Packaging employees are no longer penalised if annual kms fall below 15,000!

As predicted, this change has seen a big jump in vehicle packaging amongst ordinary Australian drivers: our leasing team has seen a 150% increase in the number of drivers with low annual kms taking up a novated lease!

To better understand this change we modeled the tax savings across different kilometre bands at two salary levels: $45,000 and $95,000.  Our modeling showed the following annual saving results for the 2012 year:

Annual Tax Savings at $45,000 Salary

Annual Kilometres Travelled

Pre-Budget

Post-Budget

% Change

14,500 km

$2,740

$3,356

22%

21,000 km

$3,583

$3,583

0%

30,000 km

$4,548

$4,331

-5%

Annual Tax Savings at $95,000 Salary

Annual Kilometres Travelled

Pre-Budget

Post-Budget

% Change

14,500 km

$3,248

$4,050

25%

21,000 km

$4,470

$4,470

0%

30,000 km

$6,254

$5,853

-6%

To summarise, under the new rules we have seen:

  • a 20-30% increase in the savings available to low-km drivers;
  • no change in the savings available to mid-km drivers; and
  • a 5-10% decrease in the tax savings currently* available to high-km drivers.

*Note that our modeling is for current-year packaging only.  Savings for high km drivers will decrease further over the next three years to be more in line with those available to mid-low km drivers.

So, overall there have been a lot more winners than losers from the Budget changes, with low-km drivers seeing a big increase in their tax savings while high-km drivers are seeing only a modest reduction in theirs.

And the most important result: thousands of dollars in tax savings remain available to everyone!

Remember – if you want to see what sort of savings you could achieve through a novated lease then visit our Smartleasing website and have a play around with the Novated lease Calculator.

Leave a comment here.

Potential changes to the LAFHA benefit

Hello all – it’s Simon here, Senior Tax Advisor at Smartsalary…

The Federal Government has released its proposed changes to Living Away from Home Allowance benefits.

Should these be endorsed, the two points that will most notably impact salary packaging can be summarised as follows:

1. Eligibility: eligibility for the living-away-from-home (LAFH) status is going to be severely limited for temporary resident employees (i.e., those on 457 visas) – in fact, most will no longer be able to claim LAFH status.

2Substantiation: All LAFH benefits will now need to be substantiated, although food reimbursements won’t be, as long as they are paid at “reasonable” levels.

These changes will not apply until 1 July 2012; however we expect that the number of customers who will qualify to salary package LAFH benefits will drop significantly.

So if you’re a visiting foreign worker, or a business employing visiting foreign workers, you might want to start thinking about some of the other salary packaging opportunities available to employees who move from one location to another.

For example, relocation exemptions can offer significant opportunities for savings around direct relocation costs PLUS some temporary accommodation benefits for eligible employees.  Equally, if you’re relocated to a remote area there are very generous concessions available for household rent and utilities.

Smartsalary currently offers these benefits to any business that elects to add them to the menu of benefits, so if you’re interested and these benefits are not already available then you should ask your employer to add them today!

Leave a comment here.

‘Tis the season to save!

Salary packaging can help you save through the holidays. Here are some tips on how:

Go shopping with your Living Expenses Card!

Remember, if you’re salary packaging your tax-free cap, you have until 31 March to spend your funds in order to maximise your savings. Use your card over the holiday period to shop for groceries or even Christmas presents!

Use your Meal Entertainment Card at Christmas

Christmas is traditionally a time of excess, with plenty of good food on the table! So if you’re packaging meal entertainment, it’s a great opportunity to save!

If you’re headed out with family, friends or colleagues for a meal over the holiday period, you can use your Meal Entertainment Card. Depending on who you work for, a catered Christmas lunch could also be packaged (check your employer’s policy on our website).

But remember – take away meals don’t qualify as meal entertainment, so you have to be eating at a restaurant with a dine-in facility to meet the criteria defined by the ATO. One more thing – you or your spouse have to incur the cost of the meal, otherwise you can’t claim the cost as meal entertainment.

Drive your Novated Lease over the holidays

If you’re headed away for Christmas or for a summer holiday, we know many of you will probably drive your packaged car.  It’s a great way to save tax on your fuel and servicing costs – and of course, we encourage you to please take care on the roads!

If you have any questions about salary packaging over the holidays, feel free to leave them in the comments section and we’ll do our best to answer.

I’d like to wish you all a very happy holiday season and prosperous New Year!  Thanks so much for your incredible loyalty . . . we really do hope to be as good to you as you’ve been to us!

Leave a comment here.

Salary Packaging and HECS/HELP – what you need to know!


Hi Blog readers – Simon Ellis here guest posting about HECS/HELP and Salary Packaging.

Our customers often ask about how salary packaging impacts outstanding HECS/HELP debts. Let’s take a closer look.

Please bear in mind that the following analysis only relates to employees of Public Hospitals and not-for-profits who are able to access the threshold/cap benefit.

So what do you need to know?

Well, the fundamental message is as simple as this: salary packaging the threshold/cap benefit will save you money overall but will also increase your HECS repayments. This is best explained by example: the impact of packaging the $9,095 threshold by Public Hospital employees who have an outstanding HECS debt is summarised in the table below:

Taxable Salary Take-home pay without salary packaging Take-home pay with salary packaging Annual savings by
salary packaging
Increase in take-home pay Additional reduction in HECS/HELP loan balance Total savings
$35,000 $30,125 $31,626 $1,501 $0 $1,501
$40,000 $33,850 $33,885 $35 $1,915 $1,950
$45,000 $37,275 $37,595 $320 $2,381 $2,701
$50,000 $38,700 $40,960 $2,260 $606 $2,865
$55,000 $41,625 $43,530 $1,905 $985 $2,890
$60,000 $44,500 $46,336 $1,836 $1,075 $2,910
$65,000 $47,325 $49,072 $1,747 $1,164 $2,910
$70,000 $50,100 $51,757 $1,657 $1,253 $2,910

The above table shows two important things:

  1. that take-home pay increases as a result of threshold packaging activities at most salary levels even after the increased HECS payments are factored in, and
  2. that even where the HECS repayments ‘use up’ most of the salary packaging savings the packaging still means that HECS debts are being paid off faster using funds that otherwise would have gone to the taxman.

It’s win-win. Money that otherwise would have gone to the ATO as tax is instead used to pay down your HECS debt, and even after this there are still extra tax savings left over for most employees.

However it’s not all smooth sailing because the additional HECS amount is generally not collected from your salary during the year but is billed by the ATO as a lump-sum at tax year-end. This can put a serious dent in your bank balance unless you have prepared for it by setting money aside during the year.

If this sounds like something you can handle then get in touch with Smartsalary ASAP because tax savings wait for no one. Also, please keep in mind that the above information is general advice only.

Leave a comment here.

Happy Birthday Smartsalary!

This year, we at Smartsalary celebrated our 10th year in business. A lot has happened in that time . . .

As a company, we’re always looking forward – which is one of the reasons for our success. We’re constantly motivated to improve, expand and most importantly, stay innovative within the industry.

We sometimes forget to celebrate the present. However, if there was ever the time to do that, it was for our 10 year birthday.

So we broke with our “on with business tradition” and had a little party . . . what a fantastic night it was. It was great to be able to thank our team for their hard work and dedication.

And we’d be remiss not to thank you, our incredibly loyal customers. Without your support through our 10-year long journey, clearly none of this would have been possible.

It’s been a whirlwind and wonderful decade – here’s to the coming decade – may we be as good to our customers as they have been to us!

Leave a comment here.

Smartsalary Wins Customer Service Award


Above: Smartsalary team members celebrate our Award!

Last week we attended the Customer Service Institute of Australia (CSIA) Service Excellence Awards, which recognises outstanding achievement in customer service. We were thrilled to win the NSW State Award for best Medium Business. In addition, we were highly commended (2nd place) for the National Award.

You see, we were first accredited by the CSIA in 2008, and have since worked hard to continually improve our service to customers . . . culminating in our first customer service award this year. While it’s nice to win an award, we realise that what really matters to you, our customers, is tangible enhancements in our service delivery.

We hope you’ve seen some benefits over the years, but do appreciate that there are many things we can do better. As always, we welcome your feedback and any suggestions for improvement.

Leave a comment here.

Voluntary offsetting of your novated lease carbon emissions


As many of our novated lease customers will know, Smartsalary partnered with Greenfleet just over a couple of years ago to create Purple Meets Green – a program that helps offset carbon emissions generated by vehicles leased through Smartleasing.

Through the simple act of making a small pre-tax donation each month, our novated lease customers help Greenfleet work towards planting native trees in areas that need regeneration. In fact, for every $3 donated by our leasing customers, Greenfleet plants 1 native tree – which will reduce their carbon emissions by an average of 5.6 tonnes a year!

We were recently thrilled to find out that after 2 years of working with Greenfleet, we are now their #1 supporter! With our customers having donated over half a million dollars towards the program, they’ve been able to plant 157,699 trees on our behalf.

The trees that are planted not only help reduce our carbon footprint – they also create natural habitats for Australian wildlife and improve water quality by reducing soil erosion and salinity.

So thanks to our customers who support the Purple Meets Green program, we’ve been able to play a small part in minimising the damage caused by carbon emissions to the environment.

Leave a comment here.

The National Tax Forum and Salary Packaging

Hi Blog Readers – Simon Ellis here guest posting on the recent Tax Forum.

Well the National Tax Forum has wrapped up in Canberra, and Australia’s stockpile of tax policy ideas has now been officially replenished.  Influential thinkers from around Australia – from politicians to tax professionals to ordinary Australians – have had an opportunity to express their views on the direction in which Australia’s tax policy ought to head.

So “what about salary packaging?” I hear you ask.  Are there any serious Forum suggestions with the potential to impact it?  Well I’m glad you asked:

1.  Taxing benefits in employee hands

Parts of the business community have eagerly seized a Henry Review recommendation to move the burden of benefit taxation from employers to employees.   These advocates want to make benefits (especially cars) taxable ‘in your hands, rather than your employers’.

It’s not exactly a ‘winner’ from a political or social perspective and it’s doubtful we’ll hear much more about it in the near future.

 2.  Removing the tax-free ‘cap’ benefit

Once again, commercial hospitals have voiced their longstanding complaint that the tax-free ‘cap’ benefit is unfair to them.  The cap does make it much harder for them to use their extra cash to poach valuable staff from Public Hospitals and Charities, but then that’s exactly what the cap was meant to do so I’m not sure what their point is.

It’s fair to say that if their policy suggestion becomes seriously considered they can expect a hell of a fight from the Charity Sector (and Smartsalary for that matter), just like they got a year ago when the Henry Review considered the same complaint.  The Rudd government had no appetite for the fight back then and it is unlikely that the current government has much appetite for it now.

 3.  Shutting down “loopholes”

One of the more interesting things to come from the Forum has been a general commitment from our Treasurer to close “tax loopholes”, which he seems to believe includes the living-away-from-home allowance.

Aside from the fact that the LAFHA is not actually a loophole, his general sentiment is probably one with which most people would agree and some policy initiative is probably likely in this area.  I don’t think that they’ll find it easy to tamper with LAFHA, since it’s a benefit that many businesses legitimately rely on to move talented staff across their enterprise, but it looks like they’ll give it a go.

That’s about all from a salary packaging perspective.  It was a wide ranging review so we wouldn’t expect to see benefit taxation taking centre stage but, even so, it didn’t seem like there was a groundswell of support for significant benefit reform.  The recent changes to car packaging rules, which made vehicle packaging more attractive for low kilometre employees, seem very likely to remain intact.

The echoes from these sorts of events can continue to bounce around the public debate for a long time to come – in fact the government’s announcement that it will now create a business tax reform working group, a think tank on tax reform plus an independent tax advisory board for the ATO practically guarantees that they will.

We’ll be keeping a close eye on the tax reform agenda going forward and we will, of course, keep you posted.

Volunteering with Foodbank

For a few years now, we’ve wanted to roll out a staff volunteer program.

You see, as a salary packaging company, we’ve got lots of clients that are charities, so naturally we thought that it would make sense to work with one of those organisations!  As it happens, however, the organisations we contacted thought it would be troublesome to have a dozen people show up on short notice wanting to help . . . we learned that this could be quite disruptive for our clients.

Then we discovered Foodbank. It’s a national, not-for-profit organisation that distributes food to welfare agencies which feed the hungry. In fact, it’s the largest hunger-relief organisation in Australia.

Foodbank relies heavily on volunteers to prepare orders and pack food, so it was the perfect solution for us.  As you know from my last post, we have staff right across the country – and Foodbank also have locations nationwide. They’re able to take volunteers anytime and on any day . . . just what we were looking for!

To kick the program off, a few of us headed to Foodbank’s Sydney distribution centre . . . as you can see below!

If your organisation is looking for a worthy cause, you can find out more about Foodbank on their website: http://www.foodbank.com.au/.  In addition to making a valuable contribution to a fantastic charity, I personally also found it to be a good team building event, as we bagged oranges and collected food orders!

And if any of our clients DO have volunteer programs that we can be a part of, please let us know – we’d love to help where we can!


Leave a comment here.

Information sessions, right around the country . . . Available now!

Want to:

  • Sign up for salary packaging?
  • Learn more about how much you’ll save?
  • Learn more about novated leases or other items you can package?
  • Get help with the sign-up process?

Fantastic!

We have 23 consultants in 15 locations throughout the country ready to teach you about salary packaging and help you get started.

Here are the services we offer:

Onsite group presentations
Get general information about salary packaging.

Interactive workshops
Specific information to see how much you could save.

One-on-one consultations
Personal consultation to discuss your estimated savings and get assistance signing up.

Take a look at where our consultants are based on the below map!


If you’re in one of these locations and want to make an appointment now, simply:

  1. Register online at www.smartsalary.com.au
  2. Once you’ve registered, make an appointment via our online appointment booking system or call us on 1300 476 278 and one of our friendly Customer Service Consultants will book one for you.

We want to make sure we’re based in the right places. If we’re not close by, we’ll organise a road show to make sure we’re reaching you and your colleagues.

To help us understand where we need to be, please take this quick poll:

Please feel free to comment and let us know where else you’d like our consultants to visit!

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Deven Billimoria
Chief Executive Officer
SmartSalary

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