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.
One of the most common terms used by many of the large Salary Packaging companies to represent the cost of the vehicle being packaged is ‘FBT base price’. However many of these companies use the term ‘FBT base price’ to misrepresent the cost of the vehicle, and to make the customer believe the vehicle is less expensive than it really is.
This makes the Salary Packaging company appear to be offering a better deal than they are. It also makes their quotes look much better than they really are in comparison to a quote received at a local car dealership or from a car broker.
What is FBT base price?
The FBT base price is the price of the vehicle before any government on-road costs are added to the price. These costs are dependent on if the car is new or used and the state you live in, but can include:
– Registration
– Stamp Duty
– Compulsory Third Party insurance (e.g.: green slip)
The FBT base price is determined in order to calculate the fringe benefits tax contribution included in your Salary Packaging agreement. However as this is a lower price than the actual cost of the vehicle, it can be used to fool the misinformed customer for the benefit of the Salary Packaging company.
How is FBT base price used to the benefit of the Salary Packaging company:
Although the government on-road costs paid by the customer varies from state to state, it can easily add up to thousands of dollars, and these costs increase as the value of the vehicle being leased increases. This means that the uninformed customer could assume the FBT base price, being the only price shown on the quote that could be equivalent to the purchase price, is the actual cost of the vehicle. Therefore these customers can believe the vehicle costs thousands of dollars less than it actually does.
For example: on a new $35’000 passenger vehicle (sedan, hatchback, wagon etc.) purchased in Victoria, the stamp duty would be $1470 (4.2% of vehicle purchase price), while the new car registration would be roughly $840, totalling $2310 in government charges paid by the customer that would not be shown on a quote only listing the FBT base price.
Only quoting the FBT base price also makes it difficult for the customer to compare quotes to other vehicle providers. As local car dealerships and car brokers would quote with the government on-road charges included, this can make their quotes seem thousands of dollars more expensive in comparison to the quote from a Salary Packaging company.
Why is using FBT base price beneficial for the Salary Packaging company?
Only quoting the FBT base price allows the Salary Packaging company to misrepresent the price as lower than reality, which allows them to increase the profit they would otherwise make by quoting the full purchase price of the vehicle.
It can also make the quote supplied by the Salary Packaging company seem much more competitive than it really is, which can lead to misled and misinformed customers purchasing a vehicle that can cost thousands of dollars more, while believing they have received the lowest price available. This is because by quoting the FBT base price, the Salary Packaging company is not quoting the full purchase price of the vehicle.
By understanding terms used by Salary Packaging companies such as FBT base price, you can avoid being misinformed and taken advantage of by a Salary Packaging company, and allows you to maximise the benefit of your Salary Packaging agreement.
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.