Novated lease packages where an employee provides a trade in or cash contribution to reduce amount
Before entering into a car leasing arrangement such as a novated lease with an employee, an employer should first understand the fringe benefits tax (FBT) implications.
FBT implications differ depending on whether the car leasing arrangement is a bona fide lease or a non-bona fide lease.
If an employee provides a trade-in vehicle or cash contribution towards the purchase of the car, it must not reduce the lease payments or residual value. The ATO now considers this type of novated lease is not a bona fide lease for income tax purposes, nor FBT purposes, hence the ATO still treats the novated lease package as a fringe benefit, but not a car fringe benefit. This means the employee is unable to apply either the ‘operating cost’ or ‘statutory’ methods to reduce the taxable value of the benefit and the impact of the FBT!
Whether the novated lease package is a property or residual fringe benefit, the full impact of the 47% tax will be the unfortunate outcome in these circumstances.
There is a limited exclusion if, for example, the cash contribution simply covers the “on road” costs.
CONTACT US today to learn more!