Tuesday, February 27, 2007

Baby you can drive my car...

Backwards and forwards, backwards and forwards...

I had thought this was an urban myth.

But apparently not.

Throughout Australia this month executives are going to be driving their cars (or having their wives and children drive their cars) backwards and forwards, backwards and forwards, up and down hills...

...in order to save a few thousand dollars on tax.

Deloitte Indirect Tax has put out a press release, not condemning the practice, but stressing the benefits. I am not sure what they expected me to do with it.

Perhaps to post it here for everyone to read:

Media Release


Drive your benefits further – before it’s too late!

As the end of the FBT year approaches, so does the last chance for significant FBT savings on your salary packaged car.

Deloitte Indirect Tax Principal Frank Klasic said that salary packaged cars remain the most popular fringe benefit provided to employees.

“Although many employees successfully package their cars, there are still many who do not minimise the FBT associated with their car fringe benefit,” Mr Klasic said.

“The easiest way for employees to maximise their FBT savings is to plan ahead before the FBT year ends on 31 March.”

According to Mr Klasic, many employees may be on the cusp of the next kilometre threshold used to calculate FBT using the statutory formula method. Where this is the case, increasing the kilometres driven can also significantly increase your savings.

For example, an employee who has a car valued at $35,000 and drove 24,000km during the FBT year would have an FBT liability of $6,720. Increasing the number of kilometres driven to more than 25,000km would reduce that employee’s FBT liability to just $3,696 – a saving of more than $3,000.

“Employees should be aware that all kilometres driven between now and 31 March will be included when calculating the associated FBT,” Mr Klasic said.

“In addition, employees should collate their invoices and receipts to substantiate related car expenses such as car insurance, maintenance and repairs, where these have been paid using their own after-tax dollars.

“Employers that leave requests for odometer readings to the last moment may find that employees are not contactable or too busy to provide the information. This can result in estimates being used which often prove incorrect.”

Another important consideration for employees, before the 31 March deadline, is the possibility of making after-tax contributions towards their car fringe benefit.

“Many employers and employees continue to use salary packaging arrangements entered into before the reduction in personal income tax rates which came into effect on 1 July 2006. This change, in many circumstances, means that employees using the employee contribution method will significantly reduce the FBT liability on their car fringe benefits. This, in turn, can result in a net increase in after-tax salary.

“It’s not only car fringe benefits that require some housekeeping at this time of year. Many other benefits require employees to provide declarations at year end.”

Employers who are classified as rebatable or exempt employers (including hospitals, charities and public benevolent institutions) are exempt or concessionally taxed for FBT up to a certain threshold. As such, they may be able to provide employees with extra benefits which won’t be subject to FBT.

“Many employees do not reach their threshold limits in relation to benefits provided by a rebatable or exempt employer. This means employees and employers are not getting the most out of their salary packaging arrangements.”

“Tax effective planning methodologies and effective communication strategies are very important at this time of year,” according to Klasic.

NB: See our media releases and research at www.deloitte.com.au.

For further information:

Frank Klasic

Deloitte Indirect Tax Principal

Tel: (0) 3 9208 7514

Amanda Kennedy

Media and communications manager

Tel: + (0) 3 9208 7407