admin May 17, 2013 No Comments

If you don’t have an accounting background, understanding all the ins and outs of fringe benefit taxes and how they apply in the case of a novated lease on your car could drive you towards another sort of fringe  the lunatic fringe.

A novated lease is considered a fringe benefit and is subject to fringe benefit taxes, same as any other sort of non-cash perk that comes as part of the job. Under a novated lease system, the company you work for is leased, technically speaking, by the company, although the costs are passed on to you and are taken out of your salary package before the pay cheque hits your bank account. And the use of a car leased primarily by the company for private purposes is considered a fringe benefit. (In case you’re wondering, being allowed to take home the scrap paper from the photocopier so your kids can draw on the back, or getting to take home the sandwiches that weren’t eaten at the staff lunch aren’t fringe benefits, even though you might consider them a bit of a perk.)

The good thing is that your company’s accountant will take care of all the fiddly side of calculating fringe benefit tax and will take it out of your salary, much the same way that he/she handles the normal tax bits. So you don’t really have to worry.

You may or may not have to keep a log book, depending on whether your company prefers to use the Operating Cost Method or the Statutory Formula Method. The Statutory Formula Method doesn’t take any notice of whether you use the car for private or business use, but just uses a percentage multiplied by the cost of the car to work out what your fringe benefit is worth. It’s usually about 20%, although the method of calculating this has been changing over the last few years. At the time of writing, it’s 20% unless you travel more than 40,000 km in a tax year, in which case it’s 17%. From 1 April 2014, it’s all going to be 20%. A lot of employees like this method, as it’s a lot easier from their point of view.

If you have to use the Operating Cost Method, you have to keep a logbook of your driving so the bean-counter in the office knows how many kilometres you drove for business and how many you drove for private use. In this context, remember that the drive to work in the morning and back home again in the evening counts as a private trip. However, if you had to take your car out to ferry a broken computer to the fix-it whizzes, or if you were asked to go and pick up the visiting consultant from the airport, this would count as a business-related trip. The number of kilometres you drive for business and for personal use are used to calculate what your fringe benefit is actually worth.

If you have a lot of driving to do as part of the job, e.g. for sales or as a mobile consultant or something like that, then a novated lease probably isn’t the best option for you. And you will have to keep a logbook all the time.

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