A legislated change to the way EVs are taxed will possibly see many workers consider salary packaging of EVs through a novated lease, according to The Sydney Morning Herald.
While there are already tax advantages to salary packaging medium-priced cars, those advantages are set to increase due to a bill passed by the federal parliament on Monday, which exempts certain electric and low-emission vehicles from fringe benefits tax (FBT).
Many people who haven’t considered novated leasing are going to look at it now, as it is a significant [increase in the] benefit.
Scott Iriks, the chief executive of Easigroup
FBT not applicable to PHEVs & EVs that costs less than $84,916
Under the change, FBT would not be applied to EVs with a purchase price of less than $84,916 and plug-in hybrids (PHEVs) up to the same purchase price. However, this is only up to April 1, 2025.
The change will broaden the appeal of packaging EVs for staff whose employers provide salary packaging of cars, as the tax previously made it unrewarding to package expensive cars.
Novated lease
Cars are packaged through a novated lease, a three-way contract between the employer, the employer and a specialist salary packaging company, which also organizes the finance.
The most popular term is three to five years. At the end of the lease, the staff either leases the same vehicle once more or upgrades to a new car with a different lease.
Employees who leave their employer or retire before the end of the lease, or staff whose lease ends, pay the “residual,” the final lump sum payment to get full ownership of the car.
Tesla Model 3 with a five-year novated lease
Figures provided by Easigroup present a Tesla Model 3 with a $72,500 purchase price, where running costs are lso packaged with a five-year novated lease, would cost around $332 weekly or $86,000 by the end of the lease, with about $21,000 residual payment.
The same package under the legislative change would cost under $228 a week, or more than $59,000 over the next five years, with a residual of nearly $21,000.
The change makes the salary-packaged Tesla Model 3 cost about the same as packaging a mid-range Mazda 3 with about $38,000 purchase price, though the residual on the Mazda 3 after five years would be $10,000.
The estimates are for someone with about $80,000 annual salary. The actual costs will differ depending on the employee’s salary, the term of the lease, and how much the car is driven.
Fringe Benefits Tax
FBT was bought-in during the mid-1980s to hold back the fast growth in the use of salary packaging, where cars, fitness clubs and private health care memberships were being packaged, denying the government of income tax revenue.
The FBT rate is 47% higher than the highest income tax of 45%. However, it’s calculated as a portion of the car’s value and so doesn’t retake all the benefits of packaging, which typically includes the costs of fuel, registration, tyres, servicing, and insurance.
An FBT exemption means the employee’s taxable income is lessened by the total amount paid for the car from pre-tax pay.
