Optimising employee benefits in the mining and resources sector through novated leasing with fringe benefits tax–exempt utes, four-wheel drives and electric vehicles.
The mining and resources workforce is on track to grow by 5.9 per cent over five years from 2021 to 2026¹, renewing focus on delivering better employee experiences. Ask Julian Davis, Director of leaselab, and he’ll tell you that novated leasing is an incredibly powerful and fairly simple way of delivering employee benefits using salary sacrifice mechanisms available through the Australian Taxation Office.
Novated leases allow employees to utilise their pre-tax income to finance a new car. Instead of buying a car outright or with a car loan, you and your employer enter into a lease agreement with a provider like leaselab for a fixed period (typically one to five years). During each pay cycle, the lease payment gets deducted from your pre-tax salary, reducing the amount of income tax deducted.
‘It’s a great way of tapping into your full salary to fund a car purchase, while reducing your overall tax bill,’ says Davis. ‘It’s a win-win situation. Employers can provide perks with minimal effort to attract talent, while employees gain considerable savings.’ With novated leases, you avoid GST on the sale price of the vehicle itself, as well as being able to package running costs as part of the lease. ‘You can pay for fuel, rego, servicing, insurance, roadside assistance and tyres all from your pre-tax salary,’ Davis says.
Further savings can also be achieved depending on the type of vehicle you purchase. For example, novated leases for some utes and four-wheel drives that are predominantly used for work don’t attract fringe benefits tax (FBT). Therefore, the lease and running costs can be deducted, and employees pay in entirely pre-tax form, achieving maximum tax effect for the employee. ‘Since ute and four-wheel drive purchases are common across the mining and resources sector for work purposes, it’s an important thing to keep in mind for anyone in the industry thinking about buying a ute or four-wheel drive,’ says Davis.
Uptake of electric vehicles (EVs) is another major trend in the mining and resources sector, and, fortunately, another area that attracts taxation savings. EVs and plug-in hybrids priced under the Luxury Car Tax limit are also exempt from FBT, thanks to the Australian Government’s recent Electric Car Discount incentive.² Import tariffs have also been cut by five per cent on these vehicles.
‘With a monthly income of $7000, you’d normally expect to pay around $1625 in pay-as-you-go tax (PAYG). A novated lease of $1000 per month could be entirely deducted from that, reducing your monthly taxable income to $6000,’ says Davis. ‘This would lower your PAYG to $1275, saving you $350 a month on tax. You can also think about it in terms of saving $350 on the after-tax cost of your novated lease, bringing the cost of leasing and running your vehicle down to $650 per month. This saves 35 per cent on income tax and, with the additional 10 per cent GST saving, delivers total savings of 45 per cent compared to financing a car lease using post-tax income.’