Novated Lease Operations Resume

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Automotive financiers have resumed novated leasing operations this week after Prime Minister Elect, Tony Abbott, reinstated Australia’s FBT concession on new vehicle purchases.

FBT concessions were hastily abolished by the ousted Rudd Government on July 16, in the lead-up to the Federal Election, in an attempt to plug an $1.8 billion dollar hole in the budget.

Reinstating FBT concessions means employees can once again take advantage of the additional buying power of their pre-tax incomes to help buy a new vehicle.

The move was welcomed by specialist ‘salary packaging’ financiers and the car industry. Observers predict a sharp increase in car sales from September.

“This is a great result for the car industry,” said Bill Baker from Novated Leasing. “It’s also terrific for employers and employees. With salary sacrificing on vehicles now effectively available once again, employers can continue to reward key employees with a significant benefit – one that costs the employer very little. And employees who opt in will stimulate demand for new cars, and thus boost job security in the automotive sector. It’s a ‘win-win’ for all involved, and a welcome move from the new government.”

Former Prime Minister Kevin Rudd abolished the FBT concessions on new car ownership within eight weeks of the election. These had been in place for 27 years, and were considered a stable part of the automotive finance landscape in Australia. At the time of their removal, former Treasurer Chris Bowen told reporters: “The world has moved on from when this system was introduced in 1986.” Mr Bowen dismissed the concessions as a “loophole” and said they were mainly used the rich in order to enjoy driving “Maseratis and BMWs”.

However, the reality was that most salary sacrifice contracts were in the hands of workers earning less than $100,000 each year. The system was also an entrenched, and significant, stimulus package for local car sales.

Car sales plummeted in the aftermath of Mr Rudd’s and Mr Bowen’s snap decision to axe the concessions. In August, Holden’s sales dropped six per cent and Ford’s plummeted an incredible 20 per cent, both approaching 20-year lows.

Under the Abbot government’s reinstatement, employees can once again claim an 80 per cent ‘concession’ against FBT liability, regardless of the proportion of work-related vehicle use. In other words, an employee who uses their salary sacrificed vehicle even 100 per cent for personal use (ie with no business component) is liable for FBT on only 20 per cent of the cost of the vehicle, with the balance of 80 per cent of costs attracting no FBT liability.

Car industry observers are already predicting a resurgence of demand for new cars, and a return to strong sales growth and greater market stability from September.

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