Take a deep breath, because we are going to go a little bit deeper into taxation issues. The Australian Taxation office, or ATO, implements what is known as fringe benefits tax (FBT) on non-cash benefits an employee gets from their employer, such as entertainment, living-away-from-home expenses, and the private use of a company-owned car.
Under a novated lease, the employer is deemed to be the owner of the vehicle, even though an employee chose the car and considers it to be theirs.
The ATO’s website spells outs why FBT is payable on a novated lease.
Simply put, it says that a car benefit arises under the Fringe Benefits Tax Assessment Act 1986 where the employer is the lessee of a car that is provided for the private use of the employee, or an associate of the employee. Remember, a novated lease is one where the employer has taken over from the employee the obligation to pay vehicle finances, with other various and certain conditions.
Further, the ATO, considers that a car is taken to be available for the private use of an employee on any day that they or their associates use it for private purposes, or are allowed to use it for private purposes.
If a car is garaged at or near your employee’s home, even if only for security reasons, it is taken to be available for their private use regardless of whether or not they have permission to use the car privately. Similarly, where the place of employment and residence are the same, the car is taken to be available for the private use of the employee.
Fringe benefit tax will apply to 20 percent of the value of the vehicle, with the rate varying depending on the employee’s income. It is set at 47 percent, equal to the highest rate payable on income up to $180,000 a year (45 percent marginal rate plus the 2 percent Medicare levy). It is 49 percent for those on incomes of more than $180,000.
Some employers, however, are FBT exempt, or rebateable.
Exempt organisations include so-called not-for-profit organisations, such as health promotion charities, public hospitals and public ambulance services.
However, there are caps on the exempt amount of value of benefits accrued by an employee in these types of organisations. And, to make it more complicated, they vary depending on the type of organisation. For example, the FBT exemption applies to the first $31,177 accrued per employee of a public benevolent institution or health promotion charity. It only applies to the first $17,667 of fringe benefits accrued by an employee of a public ambulance service.
Rebateable employers include private and public schools, certain charities, trade unions, employer associations, not-for-profit organisations that promote the arts, sports, agriculture, information technology, and tourism. The rebateable amount is currently set at 49 percent and is also capped.
Click here to see the ATO’s tax ruling on fringe benefit tax and how it applies to motor vehicle lease novation arrangements.
