Novated leasing involves your employer making the lease payments on your behalf using post-tax salary funds (the Employee Contribution Method, or ECM). It reduces the taxable value of the vehicle and helps prevent FBT liability.

A good novated lease provider will manage the cost of your car, fuel, servicing, insurance and roadside assistance in one simple monthly payment. They will also ensure that all of your tax obligations are managed correctly with the help of a novated lease FBT calculator.

What is FBT?

FBT is a fringe benefits tax that applies to any car or other vehicle leased by an employer to their employees (and associates). This arrangement is commonly known as a Novated Lease.

It is calculated by taking the base value of the vehicle and applying a statutory percentage of this to the days in the year that the vehicle will be available. It then must be added to the annual running cost budget for fuel and kilometres driven.

Typically, the amount of FBT owed will be approximately 47% of the grossed-up taxable value. The ATO only charges FBT on a gross basis, which equates to about $6,800 annually.

It can be a significant cost for those who salary package their car, especially as this is added to their pre-tax income. Fortunately, there are ways to minimise this expense.

For example, it is possible to reduce the FBT liability by using an ATO-approved fleet management solution that enables employees to tag each drive as either business or private. Alternatively, by selecting an electric vehicle eligible for the FBT exemption introduced for EVs in 2022 (up to a certain capping threshold), there can be significant savings made when salary packaging. You must seek independent financial and taxation advice to determine whether this makes sense.

How do I calculate my FBT?

If you lease a vehicle for your private use, fringe benefits tax (FBT) applies. FBT is calculated using a novated lease FBT calculator on the taxable value of your vehicle. It includes the cost price plus a statutory percentage based on the number of days you will have the car available to you each year.

This method of calculating the FBT considers the different variables to ensure that your package is cost-effective and based on the most suitable vehicle for your needs. We also consider any running cost contributions you will make, which reduces the taxable benefit and can save you even more.

A novated lease is an agreement between you and your employer to finance a vehicle. It is an arrangement for up to five years, but you can leave your job at any time and take the car with you, providing that you continue to meet the contract requirements. If you choose a fully maintained novated lease, your finance and running costs are rolled into one fixed monthly repayment, making it easy to manage your budget.

How do I pay my FBT?

The Government charges FBT on taxable employer-provided benefits such as car leasing or fringe benefits. Southgate calculates the taxable value of your Novated Lease using the Statutory Formula Method. It is based on the vehicle’s base cost price and the number of days in the year your car will be available for private use (for this example, we’ll assume 365 days).

If you’re not interested in the hassle of paying FBT, there are ways to avoid it, including using the Employee Contribution Method (ECM) to reduce your novated lease taxable value. ECM involves salary packaging pre-tax funds into your novated lease to offset the taxable value and help you keep any FBT payable to zero.

You’ll need to nominate this ECM portion of your novated lease in advance, and it can be included in your quote or found on the online calculator when you click here. It helps you avoid a potential shortfall at the end of the FBT year when your novated lease isn’t earning enough post-tax to cover all its running costs, including fuel, tyres and service, rego and CTP (NSW) insurance.

As a bonus, if you’re looking to trade in your current car and get into something new, the novated lease can be structured so that you pay the residual amount off using the money from your trade-in with the help of the novated lease FBT calculator. It allows you to change your car every two years and save on GST and FBT.