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But I Can’t Afford it!? Salary Packaging Myths Busted

27th, Apr 2018 6 min read time
april oniste

If you’re thinking about salary packaging a car through a novated lease, there are potentially massive savings to benefit from. Salary packaging maximises your take-home pay, but many Australian’s are caught amid fact and fiction.

Novated leases are designed to save you money on the price of a new car, including all the running costs. These three-way agreements, between your employer, fleet company and yourself, allows for salary sacrificing of the vehicle finance and expenses associated, like car rego, fuel, maintenance and insurance.

Salary packaging and novated leases drive real benefits. Offering flexibility and savings, they’re considered the last decent tax break for employees. But can you afford it and is it really suitable for your needs? We bust the myths so you can better understand your options:

You can’t afford it, salary packaging is only suited for high salaries!

Have you written off salary packaging because you believe you won’t be able to afford it? Novated leases are a cost-effective way to fund your next vehicle out of your pre-tax salary – and it doesn’t cost you to arrange.

It doesn’t matter how much you earn, your taxable income can still be dramatically reduced through salary packaging. High income earners may be able to save more, but employees on lower incomes are still able to reap the rewards too.

Salary packages don’t have a negative effect on your pay. Each pay cycle, your employer will deduct a nominated portion before tax is taken out. Those funds are sent to the novated lease company or used to pay for eligible benefit items. Your post-tax salary is directly deposited into your account as usual. By reducing your taxable income, you pay less tax, ultimately increasing your disposable income.

Anybody can salary package

True. Providing you’re employed, anybody can benefit from salary packaging. This form of incentive comes at no cost to businesses either. As an employee, you can utilise a novated lease in your salary package as a convenient way to finance a car.

Despite the myths, government employees in Australia are already pre-qualified to arrange a novated lease for salary sacrificing. For other employees, you’ll need to have approval from your employer. The good news is, salary packages can be a huge advantage for them too.

It’s a hassle to organise

False. Because you and your employer engage with a fleet company, the setup process is quick and pain free. Salary packages, when done correctly, aren’t hard to create. And the benefits of lower salary on-costs and greater transparency in remuneration outweigh any of the paperwork. Easifleet take care of all the required paperwork during the set up stages and into the future.

You don’t travel enough kilometres to benefit

There’s a common misconception that you must travel a certain number of kilometres each year to benefit from salary packaging a vehicle. This is false. With the 2011 changes to the FBT (Fringe Benefit Tax) laws, there is no longer a minimum requirement. Novated leases, no matter how much or little your drive, create considerable tax savings. Regardless of the kilometres you clock up, your FBT rate stays the same at a flat statutory rate of 20%.

You can’t salary package items above the cap limit

False. Some items can be packaged above your cap limit, including a vehicle packaged through a novated lease. Other items that may be packaged above the cap limit are super contributions, income protection or disability insurance, or other work-related expenses.

Cap limits only apply to the public health or charity industries. This limit, $2,650 (or $5,000 grossed-up) is the highest amount you can package within a FBT tax year without incurring FBT.

FBT concessions are only for charities

Salary packaging is especially popular for charities because of the FBT exemptions. It doesn’t mean to say though, that it only benefits you if you’re a part of a charity. Novated leases are the most commonly reported fringe benefit arranged under salary packages – regardless of the industry you work in. Other top benefits to package may include tools of the trade, airline memberships and healthcare expenses.

No one salary packages anymore

False. Salary packaging is smart way to save money, afford things you normally wouldn’t be able to, pump extra money into your super and claim a handy tax deduction. Because of its multiple benefits, salary sacrificing is still very much a big thing for workers and employers.

From a business perspective, salary packaging can help to attract and retain staff and reduce payroll tax without any financial risks. For employees, it offers an opportunity to get into a reliable car with all running costs packaged and managed on your behalf. If you’re salary packaging something else, the GST and tax benefits are still positively convenient too.

You must purchase a new car

If you’re salary packaging a novated lease, you aren’t required to purchase a new car. Whilst novated leases make it easier to access the benefits of a new vehicle, you’re still able to choose the make, model and year. Different novated lease companies may have different rules. At Easifleet, you are able to purchase a used or new car for your novated lease, as long as it’s no more than eight years at the end of the lease period.

It’s too good to be true

Despite popular belief that salary packaging a brand new car and other essential goodies is too good to be true, it’s simply a myth. Well-designed salary package may seem like free money. But it’s not. It’s the money you would’ve been paid, with a small portion allocated to something else, like a novated lease, before the tax comes out of it.

Salary packaging doesn’t make much difference

False. Because salary packaging strategically maximises your take-home pay, replacing taxable income with exempt benefits reduces your tax obligations. This encourages some positive advantages for both employers and staff.

As an example, if you salary package a novated lease on an 80k salary, it’s very common to save 15k tax over 5 years on a standard new car.

What else can be salary packaged?

Novated leases are just one component of what can be packaged. Super, computers, childcare, rent, health insurance premiums, car parking, utility bills, holiday accommodation, mortgage payments, vehicle operating expenses and personal loans are some of the things that can be salary sacrificed.

If you’re considering a novated lease through a salary package arrangement, speak to one of our staff to find out more. At Easifleet, we’re dedicated to helping businesses and employee achieve maximum success through salary packaging.