When a motor vehicle is used 100% for private purposes there is normally no tax deduction available on the expenditure.
With this strategy an employee can generate annual tax savings of $2,500 – $3,000 pa by salary packaging their private motor vehicle with their employer. The tax savings result from the motor vehicle tax concessions available under the Fringe Benefits Tax Act and also the GST savings on the motor vehicle expenses incurred.
This will involve the employer owning or leasing the motor vehicle and providing the motor vehicle to the employee as a fringe benefit as part of the employee’s overall salary package. The employer ensures the employee’s overall salary package doesn’t increase by reducing the employee’s cash salary paid to cover the motor vehicle and fringe benefits tax costs.
The annual tax savings to an employee will depend on the motor vehicle cost and annual operating expenses (fuel, registration, insurance, repairs and maintenance), but will be $2,500 – $3,000 per annum where:
- The employee is earning gross income between $50,000 and $80,000 per annum.
- The motor vehicle is valued at less than $30,000.
- An after-tax employee contribution is made to eliminate any fringe benefits tax payable by the employer.
Subject to an employer’s approval, this strategy enables an employee to salary package more than one motor vehicle at a time. As such, it should also be used to salary package a spouse or children’s motor vehicles if they are used for private purposes only.