What are Fringe Benefits?

Any items provided by your employer which are not in the form of your normal salary or wage are known as fringe benefits. Fringe Benefits Tax (FBT) is the tax payable on non-monetary benefits offered by your employer.

Does a novated car lease attract FBT?

A novated lease is classified as a car fringe benefit, so some tax will be payable. However through smartleasing, you won’t pay fringe benefits tax. Instead we set up your lease in the most tax effective way.

How much tax will I pay on my novated lease?

The amount of Fringe Benefits Tax (FBT) you’ll get charged for your car will depend on:

• the distance travelled each FBT year
• its base value – this is its purchase price excluding the cost of stamp duty, registration and compulsory third party insurance. The value should include the cost of any fitted accessories and be inclusive of GST.

To manage your FBT, Smartsalary uses a special method called the Employee Contribution Method. This method involves collecting the car's lease and running costs from a mix of pre and post tax salary. In general, the more you drive, the more you can pay with pre-tax dollars and the more you will save. This method maximises your tax savings regardless of what salary bracket you’re in.

Calculating the post-tax part of your lease and running costs

Part of your lease must be paid with post tax dollars – this is known as the “Employee Contribution” and is a percentage of the base value of the car. The percentage is known as the statutory percentage and ranges from 10% to 20% depending on the FBT year and the distance you travel in that year. See the table below to determine what bracket you fall into.

You’ll need to estimate how many kilometres you expect to travel at the beginning of the FBT year. The FBT year begins 1 April and ends 31 March.

Note: The government is currently phasing out the use of Statutory Percentages based on travel, and a flat rate of 20% will apply from 1 April 2014 regardless of the distance travelled.

Calculating the taxable value of your novated lease - an example

If the base value of your car is $25,000 and you estimate to travel 20,000 kilometres in the FBT year, the taxable value of the vehicle is

$25,000 (base value) x 20% (statutory percentage) = $5,000

Calculating the pre-tax component of your lease and running costs

Let’s say that a $25,000 vehicle on a 3 year lease will cost you $12,000 per annum ($7,200 for lease payments, $3,000 for fuel, $1,080 for comprehensive insurance, $600 for service & maintenance, and $120 for car wash/car care products).

Lease Payments and All Running Costs: $12,000

Minus Taxable Value: $5,000 (amount comes out of your after-tax salary)

Pre-Tax: $7,000 (amount comes out of your pre-tax salary)

The bottom line is that you’ll be paying tax on $5,000 at your marginal tax rate - the remaining $7,000 are tax free! And that’s how tax savings are achieved through a novated lease!

To find out more about the tax savings use the calculator on this page.