Post-tax Payments in Novated Leasing: How Do They Work?

Understanding salary packaging all comes down to explaining things in the right way, so we thought we’d break down the post-tax component of novated leasing and see if we can get things to ‘click’ for you!

How much post-tax do you need to pay on a novated lease?

Your novated lease is managed in accordance with the Fringe Benefits Tax Assessment Act 1986 (Cth), which requires a certain amount of Fringe Benefits Tax (FBT) to be paid.

The only exception is for eligible electric vehicles through the Government EV Discount, which are exempt from FBT.

This first part is simply working out how much FBT you will need to pay, or request to offset over the course of one novated lease year.

To work this out, you need to complete a calculation that involves the base value of the car, a statutory percentage (20%) of this value and the days of the year the car will be available (for this example we’ll work with 365 days).

On a vehicle worth, say, $35,000, the taxable value – based on a 20% statutory percentage – is approximately $7,000. After grossing up¹ this taxable value and applying the FBT rate², the amount of FBT you would need to pay is approximately $6,844.

Now you know the amount, you have two options.

Option 1: The FBT method (paying FBT directly)

This is the lesser-known option. You can, if you wish, pay the $6,844 of FBT owing on your novated lease. But there are some aspects of this that means it’s not the popular option.

Pros

• This payment can be made using before-tax money, which could mean additional tax savings.

Cons

• None of this amount can be used for your vehicle expenses – the whole amount is paid directly to the ATO.

The gross taxable value of the car is reportable on the payment summary. Pre-tax deductions can affect the amounts withheld for HECS/HELP and CSP amongst other wage garnishments. We recommend customers seek their own financial advice about how this may affect them.

Option 2: The Employee Contribution Method

The Employee Contribution Method (ECM) allows you to reduce the taxable value of your novated lease to zero by contributing your own post-tax funds to the running of your novated lease as part of your regular payments.

This essentially offsets your FBT liabilities for the duration of your lease.

Pros

• You can use the whole $7,000 you contributed post-tax for your novated lease vehicle expenses throughout the year, the funds are simply added to your salary packaging account balance for:
  • Monthly lease payments
  • Maintenance
  • Running costs
  • Fuel
  • Claims for any eligible expenses such as registration and insurances
• No reportable amount on your payment summary due to the nil taxable value. In contrast, the FBT method has a taxable value and is a reportable fringe benefit, which may affect your financial circumstances.

Cons

• Total amount required can be higher than the FBT method.
• Funds are not requested to be paid into your salary packaging account before-tax (though the rest of your novated lease contribution still is).

Post-tax – the popular choice for novated leasing

Most customers nominate to use ECM post-tax contributions to offset the FBT payable on their novated lease. It can put a smile on your face as you can still use these funds to run your novated lease throughout the FBT year.

Hopefully the above has made the concept of post-tax payments and FBT a little clearer.

And if it hasn’t, get in touch online or give us a call on 1300 30 39 40!

¹ Gross-up rate of 2.0802.

² FBT rate of 47% for the FBT year ending 31 March 2025.

Things you need to know: This general information doesn’t take your personal circumstances into account. Please consider whether this information is right for you before making a decision and seek professional independent tax and financial advice. Conditions and fees apply and you should confirm they are acceptable before you accept any arrangements with RemServ, along with credit assessment criteria for lease products. The availability of benefits is subject to your employer’s approval. RemServ does not act as your agent or representative (or provide you with any advice or recommendations) in respect of the leasing of any vehicle. You acknowledge and agree that any reward you receive is not a salary, however you may need to declare any reward as income for tax purposes.