Salary packaging is something our clients ask us about a lot. Especially for motor vehicles.
Salary packaging can be a great way to minimise tax burden and to provide a win-win situation for both employer and employee.
It can also be a way to end up paying excess Fringe Benefit Tax (FBT) if you are an employer, so you need to do it right.
Salary sacrificing is highly personalised – and the Australian tax code is notoriously complex – so we recommend speaking to your accountant and getting professional advice as it pertains to your situation. It’s not worth potentially paying excess Fringe Benefit Tax by getting it wrong.
There is no cookie cutter approach to salary sacrificing for motor vehicles in Australia.
That being said, below is general advice we give out regarding salary sacraficing for motor vehicles.
Step one is establishing what the vehicle is going to be used for.
All vehicles have different uses and this may affect the type of salary sacrificing package which is appropriate for you. For example, uses between industries may differ – salary sacrificing arrangements for motor vehicles are typically different between a law firm or a construction company where vehicles are used daily, for example.
Step two is establishing who is going to own the vehicle.
Establishing who the actual owner of the vehicle is is important for a number of reasons. It may have significant tax implications, for example.
Step three is determining how the vehicle is going to be paid for.
Who is going to be responsible for making the repayments on the vehicle? There are many financing options when you are looking at financing a car. Will you go to the bank? Will it be paid for in cash from the employee or employer?
A popular option for financing may be a novated lease which has been common for our clients. However there are other options such as a standard lease, chattel mortgage, going to the bank and more.
Step four is establishing who is going to be paying for the running costs of the vehicle.
Cars are expensive to maintain – with annual costs including line items such as tyres, cleaning, fuel, registration, insurance and servicing. This will typically amount to thousands of dollars.
Establishing whether the employer or employee will be paying these costs is one of the first steps for determining what type of salary packing solution you will opt for.
From an employer’s perspective, the keys to structuring a salary package deal for motor vehicles are ensuring the package is win-win and not ending up paying excess fringe benefit tax.