Payroll deductions
The boss is paying your car expenses... payroll deductions balances their books and passing you the saving
There are lots of different categories but with salary packaging a novated lease, its usually just these
- Fringe Benefits Tax, and
- Pre tax, and
- Post tax
As you'll have a novated lease, you'll be getting a benefit (employer paying your bills, claiming GST etc) and reducing your tax, so the ATO want to make sure that everyone gets the same treatment and Fringe benefits tax FBT is applicable.
FBT using the Employee Contribution Method ECM, means the FBT is negated using a Post tax deductions and wont show FBT on your 'Payment Summary' at the end of the year (unless you're earning over $200,000 pa then you opt to have the FBT Pre tax or Post tax).
What does all that mean...
After claiming the GST, a car costs the employer $10,000 for the year (for fuel, rego, insurance, rentals and maintenance etc) and the FBT applicable is $4,000
Using Statutory Method STAT:
The employer would take $14,000 Pre tax (Car costs $10,000 PLUS FBT $4,000), total $14,000 deducted from your pay.
Employer pays $4,000 FBT to the ATO, $14k spent, $14k deducted, Employer is not out of pocket.
Using Employee Contribution Method ECM
The employer would take $4,000 Post tax (to negate the FBT) and $6,000 Pre tax, total $10,000 deducted from your pay.
$10k spent, $10k deducted, Employer is not out of pocket. Your FBT was negated through equivalent Post tax deduction.
Where to next
I'm ready to do the numbers