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Budget Benefits

The Gillard Government announced two pieces of legislation in the 2011 budget that might have escaped the attention of many, as they received very little press attention.

1. NOVATED LEASES

A novated lease is a method of financing the purchase of a motor vehicle through your employer that can give some substantial financial benefits to you. But there have been a few drawbacks and complications, as the net impact on the employer and the owner has been dependant on the number of kilometres travelled each year.

The budget has swept away this confusion and has now established a single tax benefit rate irrespective of the number of kilometres travelled. So, if you have previously looked at novated leases and walked away, it may now be more favourable for you.

If you want to know more about novated leases click here

2. SMALL BUSINESS OWNERS BUDGET BOOST

A surprise package in the Swan budget is a tax write off of up to $5000 for those wanting to buy a new car. In effect this means that, for example, a tradesman on a 30% marginal tax rate will receive a tax break of $1275 when buying a $34,000 ute. But there’s a catch. This won’t come into effect immediately. In fact on current plans you’ll have to wait awhile, unless the automotive industry’s lobbying for immediate implementation is successful.

4 comments

  1. Andrew says:

    “it may now be more favourable for you” is a furphy. Under the new scheme, it is only more beneficial now if you are travelling less than 15000klm where you pay less FBT than before. 15-24999klm stays the same and above 25000klm gets slugged more tax.

    More favourable. Huh, not so much.

    I think all of the finance companies that offer Novated Leases are going to lose business due to the changes. Pity.

    May 26th, 2011 at 2:02 pm

  2. David says:

    @ Andrew – we did say ‘may’ be more favourable. I think the majority of people in a novated lease will drive less than 25,000 kms so as you indicated will either be better off or neutral.

    The other thing to consider is the lower rates of FBT come in straight away (26% is already down to 20%) but the higher rates for people who drive longer are phased in over 4 years.

    Distance…………. Existing…..2011…..2012…..2013…..2014
    0 – 15,000km……..26…………20……..20……..20………20
    15,000-24,999km…20………..20………20……..20………20
    25,000km-40km……11………..14……..17……..20………20
    More than 40km……7…………10……..13………17……..20

    Also important to take into account ease both for employee and employer. Not nice to only have 22,000 kms on the clock when year’s end is approaching – forces a big holiday!

    However saying that the Government did tout this as a saving so overall they must be charging more….

    May 26th, 2011 at 5:13 pm

  3. Jeff says:

    The Budget states, “The 20% flat rate will only apply to new vehicle contracts entered into after 7:30 pm (AEST) on 10 May 2011, and will be phased in over four years.”

    Does this mean that if restructuring an existing Novated Lease contract (e.g. revised term, lease residual, change of employer etc), the new FBT rules will apply? Or do the new rates only apply when there is a change of vehicle?

    May 28th, 2011 at 4:58 pm

  4. David says:

    That’s a good question, Jeff. I guess it depends on the goverments interpretation of a ‘new contract’ vs a ‘restructured contract’.

    Probably best answered by the accountants this one I think…

    May 30th, 2011 at 1:46 pm