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Old 07-10-2003, 21:31   #1 (permalink)
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Lightbulb Are u being ripped off by your employer?

Have you got a car provided to you from your employer? Who is getting the benefit you or the employer?

(Lol. Sounds like an ad.)

Thought Id drop this to arouse some people to another way to purchase a car (other than going to a bank yourself) and is tax effective which means you will effectively increase you net pay after car expenses and reduce the tax you pay assuming your employer will package a car for you in the way decribed below.

The tables attached show that an increase in annual salary by $2,201 (eg1) and $4,409 (eg2) per annum was made by just having your employer provide you a car (using a novated lease) instead of you providing it yourself for a sacrifice in your net pay.

There are a number of factors that will increase or decrease the benefit such as your annual gross salary, cost of the car, the running expenses, your total klms travelled, total business klms travelled and how much expenses you pay yourself.

It is more likely to be a potential benefit where:

1. The car cost is low (particularly below about $57,000)
2. You have high klms (particularly where more than 25,000) and/or where you high business klms.
3. You pay before tax is high (particularly where higher than $60,000)

There may be a benefit because via your employer you get your car costs effectively with no GST (if registered for GST)

Thus say fuel expenses initially costing $110 end up costing you only $100 taken from your before tax pay (ie. $110 - $10 GST).

Note if you had of paid them yourself they would NOT be able to claim back the GST (ie. $10) because you are not carrying on a business so it would cost you $110.

But who gets the $10? You or your employer?

If your employer does not do this per the example above YOU ARE BEING RIPPED OFF, because otherwise the employer will take $110 off your pay when it only costs them $100 ie $10 goes to the employer.

You also save on income tax because your gross wage before tax in reduced by $100!

The downside is Fringe Benefits Tax, which may leave you with no benefit depending on your circumstances (ie factors stated above)

Facts of example1

Cost of Car $30,000 (incl GST)
Annual Klms travelled 25,001 (no business use all private use)
Annual Salary $35,000 (excluding super)
Employer pays ALL car related expenses

Facts of example2
Same as 1 except Annual Salary is $70,000

I’ve provided the worksheets used to calculate the benefit for those interested. BE WARNED THE ATTACHED IS HEAVY

I’m sorry people I have to disclaim myself so someone doesn’t try to sue my butt off, to say that this is not advice and if interested you should see your accountant or financial adviser.

This stuff is pretty heavy, but u don’t need to understand the whole thing just that there may be a potential benefit to you.

Note that the benefits increase (with all factors remaining constant) as you salary increases, this may be due to the difference marginal tax rates applied at each income level.

Ie. in eg 1 excess (over $20,000) is taxed at 30% while eg 2 excess (over $60,000) taxed at 47%.

Give us your thoughts anyways, just trying to help you people increase your pay as there is big savings to be made, interested to hear any replies.

Cheers.

(Ps Im an accountant)
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Last edited by Ford Grunt; 09-20-2003 at 04:31.
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Old 07-10-2003, 21:58   #2 (permalink)
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Re: Are u being ripped off by your employer?

Sound pretty clever to me!

Pity I'm self employed hehe
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Old 07-10-2003, 23:14   #3 (permalink)
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Re: Are u being ripped off by your employer?

Dont see my supermarket giving me a car... :(

Sounds good otherwise.
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Old 07-11-2003, 01:35   #4 (permalink)
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Re: Are u being ripped off by your employer?

Quote:
Originally Posted by mongrelEB
Sound pretty clever to me!

Pity I'm self employed hehe
Thats not necessary a problem, if you operate through a company structure (or trust) the car is treated as owned by the company (or trust) not you individually so you can do it.

Its possible to be both the employer & employee, (confused?) where you are the sole director of the company.

Can't do it for it you operate as a sole trader or a partner in a partnership as there is not enough seperation of ownership.

Trick is seperation of ownership, heard the saying company car?
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Old 07-11-2003, 02:48   #5 (permalink)
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Re: Are u being ripped off by your employer?

Employees getting shafted by the Employer ??? NEVER !
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Old 07-11-2003, 03:16   #6 (permalink)
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Re: Are u being ripped off by your employer?

yeah me in partnership
oh well don't buy new cars anyway :)


ROFL Milo
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Old 07-11-2003, 04:26   #7 (permalink)
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Re: Are u being ripped off by your employer?

Ford Grunt do you think its worth starting a company for these benefits??
Im self employed and run my own business and have been thinking about starting a company for a number of reasons, 1.tax reasons 2. vehicle reasons 3. i may employ in the future.
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Old 07-11-2003, 06:01   #8 (permalink)
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If only someone would write a spreadsheet where you could enter all the info and have it spit out what your post tax pay would be. Most of the novated lease companies offer calculators that will tell you the difference between paying for a car yourself and having a lease but they wont tell you your take home pay after the car is taken out.
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Old 07-13-2003, 03:12   #9 (permalink)
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Re: Are u being ripped off by your employer?

Quote:
Originally Posted by Fordy
Ford Grunt do you think its worth starting a company for these benefits??
Im self employed and run my own business and have been thinking about starting a company for a number of reasons, 1.tax reasons 2. vehicle reasons 3. i may employ in the future.
Mate, there are a number of factors that need to be considered before u make the choice of which business structure to use

To name a few: how tax is calculated for each structure, workers compensation issues, Fringe Benefits tax issues, asset protection, potential land tax issues, capital gains tax, ease of change of owners etc.

Therefore I couldn't give you a simple answer because there are just too may things to consider, without alot more information about your business.

People generally think the best structure is a company but this is not always the case.

No single business structure suits everyone careful consideration is important, in fact you may wish to use more than one business structure to run the business!

Cheers, good luck with the business.
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Old 07-13-2003, 03:21   #10 (permalink)
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Re: Are u being ripped off by your employer?

Quote:
Originally Posted by Tote
If only someone would write a spreadsheet where you could enter all the info and have it spit out what your post tax pay would be. Most of the novated lease companies offer calculators that will tell you the difference between paying for a car yourself and having a lease but they wont tell you your take home pay after the car is taken out.
Regds,
Tote
I have vertually done this in excel, only problem is I need to manually adjust one cell to correctly calculate the tax which varies depending on which category income theshold applies.

I could use a function to adjust for the difference marginal tax rates but I haven't got around to that yet.
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