This article is part of our “being smart with your salary” series, a series of articles created to provide simple and easily understood answers to many frequently asked questions about Salary Packaging. For a simplified discussion or quoting on Salary Packaging that is easier to comprehend, contact Motor Vehicle Solutions on (03) 9682 7580.
While Salary Packaging is one of the most cost effective ways to purchase a new or used vehicle, many customers misunderstand or have been misinformed about some aspects of Salary Packaging. These Salary Packaging myths can result in them not truly understanding the benefits available to them through Salary Packaging.
Below are some of the most common Salary Packaging myths or misunderstandings expressed by Salary Packaging customers.
I have to do a lot of kilometres or earn a lot of money for Salary Packaging to be worth it:
While over 5 years ago, the kilometre part may have been true, Salary Packaging can now be beneficial regardless of the number of kilometres you drive a year, or what your annual salary is.
Since the 2011/2012 Australian Federal Budget, all vehicles under a Novated Lease are charged fringe benefits tax (FBT) at a flat rate of 20%, regardless of kilometres travelled. This now means that regardless of the kilometres driven, all customers receive the same level of benefit from Salary Packaging.
Customers with a higher annual salary may receive a larger benefit from the income tax savings available through Salary Packaging, but all customers can still receive benefits from Salary Packaging regardless of their annual salary.
As you can still save on the GST from the vehicle purchase price and running costs, as well as further reduce your income tax, the savings are still evident for customers looking to maximise the benefit of their moderate annual salaries.
Salary Packaging is only for new cars/Salary Packaging is only worth it for new or expensive cars:
Utilising Salary Packaging and financing a new or used vehicle with a Novated Lease can still save customers a significant amount of money, regardless of if it is a used or moderately-priced car. You can still lower your income tax, while also not paying GST on the running costs of the vehicle. Salary Packaging can still result in customers spending less than they otherwise would by paying for the vehicle in another way.
A customer’s FBT contribution is based on the purchase price of the vehicle they purchase, so less expensive cars result in paying less FBT. This means those that Salary Package a used, less expensive car can still receive the benefits of paying less GST and income tax, while also having a lower FBT contribution.
Salary Packaging is only for business use:
Salary Packaging is available to any customer that is authorised to Salary Package by their employer, regardless of their occupation or ABN status. In a Novated Lease, the customer receives the benefits of being treated as though they are self-employed, such as not paying GST on the purchase price and receiving an input tax credit, without any of the negatives or administration work that comes with being self-employed.
There are no business use requirements for Salary Packaging, and no requirement to keep a logbook. You can even Salary Package a vehicle for another person. Customers will receive the same level of benefit regardless of if their vehicle is never used for business.
Under a Salary Packaging agreement, my employer owns the vehicle/my employer is the guarantor:
Under a Salary Packaging agreement, the customer is the sole owner of the vehicle, and with no guarantee or right to the vehicle held by the employer. If a customer ends employment with the employer they have their Salary Packaging agreement with, the customer retains ownership and responsibility of payment for the vehicle after the termination of their Salary Packaging agreement. This means that regardless of the customer’s employment future, they are the owner of their vehicle.
For customers that work in a government department or employer that change jobs but do not change employers, such as a teacher with the Department of Education moving to a different school, your Salary Packaging agreement is unaffected. As long as your employer does not change, then your Salary Packaging agreement will not be impacted.
These common Salary Packaging myths can result in customers not receiving the full potential benefit of their Salary Packaging agreement, or not undertaking Salary Packaging. By clarifying these misunderstandings customers can become fully informed and independently determine the benefits of Salary Packaging for them.
Are you being smart with your salary? For more un-complicated answers to your Salary Packaging and Novated Lease questions, call Motor Vehicle Solutions on (03) 9682 7580 or CLICK HERE to discuss how you can get the most out of your Salary Packaging agreement.