Where to Put a Novated Lease on a Tax Return
Filing a tax return with a novated lease in Australia can be confusing due to the tax implications around taxable income reduction and Fringe Benefits Tax (FBT). Here’s a quick guide to help you understand where a novated lease fits in your tax return.
Taxable Income Reduction
One of the main advantages of a novated lease is the reduction in your taxable income. Because the lease payments are taken from your pre-tax salary, they lower your taxable income automatically through salary packaging. As a result, you don’t need to report these lease payments as deductions in your tax return. This salary packaging benefit simplifies your tax process, as you’ve already received a tax reduction at the source.
Fringe Benefits Tax (FBT) Implications
The vehicle provided under a novated lease is subject to Fringe Benefits Tax (FBT), but your employer handles this tax rather than you. Therefore, you’re not required to report FBT on your personal tax return. However, it’s worth noting that the FBT associated with your novated lease can affect your employer’s tax obligations, and in some cases, your overall financial situation indirectly.
Employee Contribution Method (ECM)
If you’ve opted to contribute post-tax dollars to reduce the FBT liability on your novated lease, you won’t need to report these contributions on your tax return. The ECM payments are meant to offset the taxable value of the fringe benefit and streamline your taxable income without requiring further reporting from you.
No Deductions for Vehicle Expenses
With a novated lease, work-related car expenses cannot be claimed as deductions. This restriction exists because, under a novated lease arrangement, your employer is leasing the car rather than you owning it outright. Since the employer effectively holds the lease, they handle related costs, excluding you from claiming expenses for business travel or other work-related car usage.
Record Keeping for Potential Business Deductions
While you don’t need to report novated lease details or FBT directly on your tax return, keeping records of car usage is a good habit. Accurate records can assist you in claiming business-related deductions for other vehicles you might use for work, allowing for potential tax benefits.
In summary, handling a novated lease on your tax return focuses on recognising its impact on your taxable income, without the need to itemize deductions related to the lease. For personalised guidance on how a novated lease affects your specific tax situation, consulting a tax advisor is always a wise choice.
Need further clarification on how novated leasing impacts your taxes? Reach out to a tax advisor for tailored advice on maximising your tax benefits.