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Federal Budget 2016 – What does it mean for vehicle ownership?

The Federal Budget 2016, to be quite brief, will have very little effect on the average Australian, and very little effect on vehicle ownership.

Vehicle ownership

If you have a novated lease, or are thinking about getting a novated lease?
The budget has absolutely no effect on your situation.
So what does that mean?
It means every employee paying tax through the PAYG system, no matter what they’re earning, can still salary package their car with a novated lease, and access the tax breaks that are already in place.

If you’re a small business owner?
Last year the Government introduced legislation allowing businesses with a turnover of less than $2M, to instantly write off assets of less than $20,000.The announcement yesterday raised the threshold from $2M to $10M. The tax break still expires on 30th June 2017.

So what does that mean..?
If you run a small business with a turnover less than $10M, and you need any vehicles, you should buy them before 30th June 2017, and you should try to keep the purchase price under $20,000.

Income levels
For those earning less than $37,000, there will be a $500 refund on super contributions, and the Medicare Levy threshold has been raised according to an individual’s personal situation.

For middle income earners, the upper limit for the 32.5% tax bracket has been raised from $80,000 to $87,000 – meaning roughly 500,000 Australians will be better off by up to $315 a year.

For high earners, the threshold at which they pay an additional contributions tax has been lowered to $250,000 effective 1 July 2017.

Superannuation
On top of the impact to high earners, the annual cap on concessional super contributions has reduced to $25,000 which could potentially affect those who choose to salary package added super contribution. And a lifetime cap on non-concessional contributions of $500K from 1 July 2017.

A balance cap of $1.6M has been introduced on the total amount of super an individual can transfer into the tax-free retirement phase, with a tax of 15% on anything over that value. Based on current estimates, this will only affect 3% of the country.

So what does that mean..?
It means very little change in the financial position for the average Australian. And so, in the search for tax breaks – it’s best to take advantage of the opportunities already in place. Such as novated leasing.

The DIY Budget
If the Government isn’t going to give you any tax relief, then you’ve got to go out and find it yourself. So, let’s look at a more statistically ‘average’ employee, earning $65,000 ex super, who is looking to buy a Mazda 2 Maxx with a RRP of  $22,006.

The annual kilometres are 13,000,  the finance term is three years, and there’s no business use, so we’ll compare personal finance against novated leasing, and see what happens. 

As you can see in the table below, the novated lease delivers an extra $1,937 in tax savings every year, for the next three years – which is $5,811 over the life of the lease.

So if you’re looking for tax savings and you didn’t find them in the budget this year, just give us a call, or click here, and we’ll see if we can help.

Personal finance Novated lease
Gross Salary $71,175 $71,175
Super $6,175 $6,175
Salary sacrifice $0 $5,587
Taxable income $65,000 $59,413
Income tax -$13,972 -$12,044
Employee contribution $0 -$3,835
Take home pay $51,028 $43,534
Car costs -$9,431 -$0
Disposable income $41,597 $43,534
Annual saving $1,937
3 year saving $5,811
Posted by Ernest Chunge

Head of Finance

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