Give your employees a well deserved break…on tax

With the Coalition winning the recent election and scrapping the Rudd Government’s proposed changes to FBT rules on salary packaged vehicles, current low interest rates and high Aussie dollar, now is a good time to negotiate a good deal on a car – and get a tax break too!

Giving your employees the opportunity to purchase a vehicle under a novated lease arrangement provides them with the most tax-effective way to buy a car of their choice for their own use – and at no cost to the business.

To many employers however, the mention of novated leasing immediately brings concerns around administrative burden, FBT liability, requirement for vehicle logbooks and maintenance and perceptions that it only applies to employees who need a car for work or high income earners. It ends up in the too-hard basket.

But novated leasing is not as complicated as it first seems. In fact, by utilising a dedicated external provider (like Prosperity), there is very little the employer needs to do. At Prosperity we provide the complete solution – from the initial consultation with an employee (lease quotes, tax saving calculations etc), finding the vehicle, arranging the finance, to managing the ongoing requirements (payroll deductions, reporting etc).

What is a Novated Lease?

A novated lease is simply an agreement between the employer, the employee and a finance provider/leasing company.

Under a novation agreement, the employer agrees to deduct money from the employee’s salary (each pay period) to cover the costs of the lease payments, registration, running costs, insurance and maintenance costs of the car. These costs are calculated upfront and usually remain constant during the lease period.

During the lease the employee is responsible for the registration, insurance and maintenance of the car. If the employee leaves, then the responsibility of the lease is transferred to them and they must arrange to make their own payments.

At the end of the lease, the employee has a few options; sell the car, pay any residual and own the car outright; keep the vehicle and extend the lease; or trade in purchase new vehicle on a new lease.

Employer Benefits of a Novated Lease

  • You can offer all your employees the extra incentive of a car in their remuneration package – the vehicle does not have to be used for business purposes;
  • It potentially takes away the burden and responsibility of managing a company car fleet;
  • It takes away the necessity of recording the car as an asset or liability in the business;
  • It takes the responsibility of making lease payments away from the employer as soon as the employee leaves their job;
  • It leave no FBT liability. FBT is deducted from employees pay as part of the lease agreement.

Employee Benefits of a Novated Lease

  • No GST is charged on the purchase of the car or on its operating costs;
  • Tax savings are provided through salary sacrifice arrangements as the lease payments are taken out of pre-tax wages;
  • Employees have the freedom to choose their own vehicle;
  • Vehicle can be used unconditionally for both work and private purposes;
  • Employee can get discounts on vehicle purchase price and operating costs – as a result of Prosperity’s purchasing power;
  • Employee has the option to own the vehicle outright at the end of the lease term.

Let’s look at how it works in real life…

Juliet works for an IT company and earns $60,000. She is looking to buy a Toyota RAV4. She has found the perfect one for $35,000. Her employer puts her in contact with a Prosperity Smart Drive consultant and they provide her with a novated lease quote.

Juliet instantly receives a discount of $3,181 on the car as she doesn’t have to pay GST. On a three year lease, her repayments are $1,278 per month which includes all costs (finance payments, CTP and comprehensive insurance, registration, roadside assistance, fuel, tyres and servicing).

As a portion of these costs are taken from Juliet’s pre-tax salary, she ends up $3,290 better off each year as compared to paying for the car out of her disposable income.

Juliet is happy that she saves some money, has the car she wants and she simply puts all petrol and servicing costs on the fleet card provided.

In summary, novated leasing has become increasingly popular over recent years and provides real advantages to both employers and employees.

Talk to us today!

 

Are you ready for the Super Guarantee increase?

From July 1, 2013 employees will receive 9.25% compulsory superannuation and this amount will increase gradually  to 12% on July 1, 2019. This is great news for an employee’s super balance, but who will pay?  Either the employer takes the change as a direct, and potentially huge, increase in wage costs, or it convinces its employees to see the increases as part of the normal pay increases they will be expecting over the next seven or so years.In addition to increasing the level of SG contributions to 12%, the legislation also removes the age limit on SG contributions. Presently, SG is not required for an employee who is aged 70 or more.

Schedule of increases in the level of SG contributions

Year starting on    Super guarantee
1 July 2013    9.25%
1 July 2014    9.5%
1 July 2015    10%
1 July 2016    10.5%
1 July 2017    11%
1 July 2018    11.5%
1 July 2019 and after    12%

Minister for Employment and Workplace Relations Bill Shorten insists that, rather than constituting a ‘tax on business’, the super increase will be covered by ‘deferred wage increases’ worked out between employers and employees during wage negotiations.

The real challenge for HR departments, then, will be in communicating the change. Will they build the SG increase into the overall wage increase each year? This will depend on how well they can communicate to staff that super is, in fact, part and parcel of their remuneration. The challenge will be greatest in companies or industries where pay is usually expressed and perceived to be net of super.

A recent survey revealed that 95% of workers believe that job salaries should be advertised as base salary figure plus super and not as a total remuneration package. For most employees, super is seen as an “obligatory payment” from the employer rather than a legitimate component of a salary package.

This would suggest that it’s going to be an uphill battle for employers to convince workers (especially young ones) that their future wage increases will include a superannuation component, when most people only look at how much hits their bank account every pay period..

Another challenge for HR professionals is that the attitudes towards superannuation can vary greatly across industries. In the traditional white-collar industries of banking and accounting there is a better understanding of total remuneration packages as being an overall cost to the employer whereas other industries such as tourism and hospitality there is a focus on cash and super is barely on the radar.

There is no denying that the impact of these changes can be huge for businesses and yet, according to a survey by Aon Hewitt, many employers have not yet fully considered the effect it will have and have also not prepared themselves to avoid fines for non-compliance.

Aon Hewitt questioned 160 Australian companies about superannuation, which produced these interesting results:

  • 58% of employers were yet to determine their response to the SG hike
  • Of the 29 per cent of companies currently paying above the SG, only 11 per cent planned to stay the same amount ahead of the minimum when it went up, whereas 32 per cent expected to absorb the increase

Aon Hewitt senior consultant and actuary Ashley Palmer said “”Broadly speaking, those who use a remuneration packaging method may be passing the cost on to employees, while employers who use the base-plus approach will be bearing the increase themselves,”

So, what to do now?

  • If not already accounted for, the increases will need to be factored into your business’ budgets going forward.
  • Start thinking about how the increased level of SG contributions will affect remuneration packages from 1 July 2013
  • Consider any implications for employment agreements and remuneration packages, and this may require employers to review all staff contracts. Employers may need to seek legal advice in this area.
  • Ensure that their payroll systems are configured to remit the increased contributions to each employee’s superannuation fund.
  • Consider any older workers aged 70 or more, as SG contributions will need to be made for them from 1 July 2013.
  • Be mindful of the concessional cap of $25,000 which from 1 July 2012 applied to all employees.

Article by Mark Sablatnig, Manager, Prosperity Wealth Advisers Pty Ltd.  Mark provides solutions about corporate super, group insurance and employee benefits to our clients from offices in Brisbane, Sydney and Newcastle.

Is your staff productivity reduced by financial stress?

What can you do to turn it around?

Recent statistics have shown that when your staff face personal financial stress, your business could suffer from poor productivity.

A recent survey reviewed over 450 organisations and found that employees under financial stress can spend up to 20 hours per month of their working time trying to resolve their personal financial problems.

It is a terrifying statistic for employers hoping for increases in staff productivity in these challenging economic times.

By bringing clarity and simplicity to your employees financial life, you can accelerate their financial success and assist them to obtain that extra measure of freedom that smart financial advice and wealth building deliver.

What can you do as an employer to reduce this drain on your business?

1.  Seek out financial education.  As an employer you could offer financial education to your employees, providing training to help them understand topics such as budgeting, the importance of saving, the difference between ‘good’ and ‘bad’ debt, insurance and superannuation.  There are a handful of firms nationwide that will come into your office and run tailored education programs.  These short courses provide education in financial literacy helping staff to understand their finances better and make improved financial decisions.

2.  Put in place a benefits package.  Depending on your industry, there are a range of benefits staff can access ‘before tax’, or in a way that can be supported by the employer.  If you put in place an Employee Benefits Package, staff might be able to access significant savings on superannuation fees, motor vehicle expenses, computers, life insurance and even meal expenses. In a corporate super plan as part of an Employee Benefits package, the fees and insurance premiums are often lower.

3.  Promote the benefits available to staff.  Many staff of companies with benefits programs are often unaware of the benefits scheme on offer.  But you can change this, helping your staff and increasing morale and productivity simply by promoting the benefits available.

Offering a structured financial Employee Benefits package to your staff will reduce their financial stress, make life transitions easier and help you to achieve a more productive, creative and effective work environment.

Article by Mark Sablatnig, Manager, Prosperity Wealth Advisers Pty Ltd.  Mark provides solutions about corporate super, group insurance and employee benefits to our clients from offices in Brisbane, Sydney and Newcastle.