Drive less and save more with a novated lease

Recent amendments to the fringe benefits tax (FBT) regime are having the intended effect of discouraging excessive driving according to statistics gathered by Smartsalary.

In the past, novated leases were subject to a sliding scale of taxation. If you drove less than 15,000 kilometres a year, you were taxed at 26%. Alternatively, if you racked up more than 40,000 kilometres a year – you were only taxed at 7%. This has the unwanted side-effect of people driving extra kilometres just to make an FBT bracket.

That changed in May 2011 when the Federal Government implemented a key recommendation of the Henry Review – a series of taxation changes proposed by Treasury Coordinator Ken Henry. Under the new rules, all drivers enjoy the same tax rate (20%) regardless of kilometres driven. This had an immediate impact on our statistics, changing the way customers use their vehicles.

Prior to May 2011, only 4% of drivers who packaged a novated lease with Smartsalary drove less than 15,000 kilometres a year (see chart above). That number quadrupled to 16% in August 2012. The changes also impacted other brackets. For example, the percentage of customers driving more than 25,000 kilometres a year has dropped significantly.

From these results we can infer that the taxation changes have not only discouraged excessive driving but have also broadened the appeal of salary packaging a novated lease to customers who drive shorter distances. This is great news for motorists and the environment.


Deven Billimoria
Chief Executive Officer
Smartgroup

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