How to Avoid FBT on a Novated Lease
Fringe Benefits Tax (FBT) can be a concern for anyone entering into a novated lease. However, with some strategic planning, it’s possible to reduce or even avoid paying FBT. Here’s how you can make the most of your novated lease without incurring extra tax.
1. Use the Employee Contribution Method (ECM)
One of the most popular methods to avoid FBT is through the Employee Contribution Method (ECM). This involves using after-tax income to cover a portion of your lease costs. By doing this, the value of the fringe benefit is reduced, effectively minimising or eliminating the FBT liability. The ECM can be applied to expenses such as fuel, maintenance, and insurance.
2. Choose an Efficient Vehicle
When selecting a vehicle for your novated lease, consider choosing a fuel-efficient or electric vehicle. These cars often have lower running costs, which can reduce your taxable benefits and, in turn, lower your FBT liability. Additionally, electric vehicles and low-emission cars may qualify for government incentives, further decreasing your tax burden.
3. Maximise Your Car’s Business Use
If you use your novated lease vehicle primarily for business purposes, you can reduce the taxable benefit by keeping detailed records. The more you use the vehicle for work-related tasks, the less personal use is calculated, which reduces your FBT liability. Keeping a logbook to track business kilometres is crucial in ensuring your claims are accurate.
4. Regularly Review and Update Your Lease
Regularly reviewing your novated lease to ensure you’re getting the best possible financial deal can help you avoid unnecessary FBT costs. Look into reducing your vehicle’s running costs, adjusting your salary packaging, or reassessing your ECM contributions to avoid paying more than necessary in taxes.
5. Seek Professional Financial Advice
Navigating the intricacies of FBT can be challenging. Consulting with a financial advisor or tax professional can help you optimise your novated lease arrangement. They can offer tailored advice to ensure that you’re taking advantage of all possible avenues to reduce or avoid FBT.
By following these strategies, you can make the most of your novated lease while avoiding extra tax costs. Always stay informed about changes to tax laws and vehicle-related incentives to maintain the most tax-effective lease structure.
Ready to explore novated leasing? Contact us today to find out how you can save on your next vehicle while enjoying tax benefits.