This year’s budget change relating to Novated Lease FBT rates on company vehicles has been much talked about since the release of the budget information last week. On our blog this week we wanted to outline these changes for our readers whilst addressing the most common questions relating to the new system.
The overhaul will, over a four year time frame, end the lower rates of FBT liability for those who drive in excess of 24,999 kilometres per year. The change to those over this kilometre rate will be significant as the rate of FBT will increase from 11% (users who clock between 25,000km and 40,000km) and 7% (users who clock over 40,000km) to a flat rate of 20% across all kilometre ranges. There is no change to the operating cost method so this action may cause an increase in the use of logbooks along with a migration (by some) to the operating cost method.
The most interesting element of the table above is that while it is true that those driving anything over 24,999 will be liable for higher rates of FBT in the coming years, it is also true that those below 14,999 will see a reduction in liability. At the same time it must be noted that the increase towards 20% for those driving 40,000km or more is significant and will have knock on effects in the way some use their company cars and vehicles.
This new approach seems in line with current government policy in the area of climate change and was on the cards from as early as the publication of the Henry Tax System Review at around this time last year.
For drivers who would otherwise increase their travelled kilometres to achieve the 11% rate, the reduced usage kilometres will result in an improved vehicle resale value and savings on maintenance and fuel.
The new approach is a setback for drivers who live far from their workplace or require a vehicle to cover vast distances for various reasons. This segment will see its FBT bill increase incrementally over the next 4 years.
The alteration in this area was widely expected and very few column inches or editorials will be dedicated to debating its merits. This said, it is a significant change which will deliver close to $1 billion in savings to the Australian Federal Government. While some may see their savings reduced, the main point to takeaway should be that the initiative will see novated leases becoming much more prominant amongst drivers who cover less than 15,000 kilometers per year.
What do you think of these new changes?
For more info on fringe benefit tax management check out our page.
Find out more about logbooks and the operating cost method.
Calculate how much a new novated lease will now cost under the new FBT system with our updated novated lease calculator?