Remunerator News

Aug 10 2018

How a Novated Lease can HELP

Salary packaging and novated leasing can be a great employee perk – no cost to the employer, employees can reduce their taxable income and don’t have to wait until the end of financial year for a tax break. However, when your remuneration is structured with:

  1. a company car (on top of your salary);
  2. take up salary packaging benefits with some FBT component; or
  3. a novated lease using the traditional full sacrifice (ie: running costs plus FBT) using either the Statutory Method or Log Book Method,

you will have a reportable fringe benefits tax amount that can increase your HELP/HECS payments.

How does a salary packaging or a novated lease affect my HELP/HECS payments?

HELP/HECS repayments are calculated as a percentage of your Reportable Income.

Reportable Income is what appears on your Payment Summary which take account of your Gross Income plus any Benefits you have received including Superannuation and any Fringe Benefits (where you have paid FBT).

The percentage is determined by which income bracket you fall into. The higher your reportable income, the higher the percentage of it is paid to HELP/HECS debt.

When an employee takes up salary packaging, they pay less income tax meaning their taxable income decreases. However, when the amount salary packaged is all pre-tax and there is FBT payable, this FBT amount is reportable and the employee could end up with a higher Reportable Income.

This means the reportable income falls into a higher HELP/HECS repayment bracket, resulting in higher HELP/HECS repayments.

(Source: https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/)

How do I reduce my HELP/HECS payments?

Taking out a novated lease using Employee Contribution Method (ECM) means that you have a pre and post tax contribution to the lease. The FBT is reduced to zero (as it is offset by the post tax amount) and is not reportable. The pre tax component means that the employee saves on income tax and ultimately has a lower reportable income. The employee’s reportable income could then fall into a lower income bracket and HELP/HECS payments would be reduced.

 


References

https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/

https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employees/Reportable-fringe-benefits—facts-for-employees/