Salary Sacrifice Question (Buying Car)

teacherer on 15/10/2017 - 23:29
Last edited 16/10/2017 - 23:54 by 1 other user

i was confusing a fbt salary sacrifice with a regular one
Hey y'all (I'm hoping I used the correct terminology and I'm not barking up the entirely wrong tree) I've been told apparently I'm talking about salary packaging, although emailing hr they were definitely saying salary sacrifice. This is hard

You guys helped me out with my last post about a 4x4 ute (my car is literally on its way out). I'm leaning heavily toward a used prado if I can justify the spend, gonna plan it with a financial advisor etc.

I was wondering if someone could help me understand how salary sacrifice works, I've talked with my brother who explained a few things as well as colleagues at work, but HR is just running me in circles.

My situation is working for education Queensland and my car is about to cark it. My wife and I will be graduating on 72k per year each. Which would attract 20k tax each including hecs and Medicare.

Question
I've been told the cap is 9k on salary sacrifice.
Hypothetically, If she claims our regular expenses with her 9k and I claim purely the car on mine.
For ease of numbers say a 45k car, if I pay this car back over 5 years, I can claim 9k per year and it would sync up nicely to 45k over 5 years.
It will bring my taxable income from 72k to 63k. This would bring my tax paid from 20k (hecs, Medicare and income tax) to 16k per year according to the ato calculators.
So this is a 4k saving in tax per year.
Over 5 years would I have saved 20k in tax and paid nearly half price on the car?
This seems too good to be true, especially since someone in my last post was saying salary sacrificing at 72k was pointless and dumb.

I'll be seeing a financial advisor in the coming weeks, but wanted to get this straight first as it might be obviously wrong.

Cheers guys

Sorry if this is obvious or if salary sacrifice is different everywhere and stuff like that

Solved

Financial

closed Comments

  • sunnyc on 16/10/2017 - 01:40
    +1

    Not worth it. Salary sacrifice has loopholes for the employers. Don't know if your employer will enact on these loopholes. Secondly, if you're buying a new car is definitely a waste of money. If you've just graduated, nothing is worse than buying a car on a loan. Makes it difficult to get home loans if you're looking for a home. Also they depreciate pretty quickly.

    • teacherer on 16/10/2017 - 07:59

      What would be the process of getting a loan and claiming the car payments on tax to the amount of 9k if not salary sacrifice?
      Thats what my brother has done

      • pjetson on 16/10/2017 - 12:39

        Does your brother use his car only for the purpose of earning his income and for nothing else? If not, I can't see how he can legitimately claim his car payments on his tax.

        • teacherer on 16/10/2017 - 12:43

          Each week he gets $350 paid straight back into his bank from a company at work. They're calling it salary sacrifice

        • pjetson on 16/10/2017 - 12:57

          @science-teacher: That doesn't make any sense. Another company, not his employer, is paying your brother money, and his employer is claiming that money as a salary sacrifice?

        • teacherer on 16/10/2017 - 13:00

          @pjetson:
          Okay so he can claim 9k per year expenses.
          He got a regular loan for his car and he claims his payments within that 5k
          Instead of getting money back at tax time he gets a payment into his bank (seperate from pay check) of around $330.

          This is a private hospital he works for. They refer to it as a salary sacrifice.

        • pjetson on 16/10/2017 - 13:11

          @science-teacher: I don't think you're explaining the situation correctly.

          The tax office has a specific example of salary sacrificing a car here:

          https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employees/Salary-sacrifice-arrangements-for-employees/

          You have to realise that the ATO is not in the business of willingly giving up tax. There will be Fringe Benefits Tax on this transaction.

        • teacherer on 16/10/2017 - 13:12

          @pjetson:
          So my terminology is probably incorrect?

        • JetLi on 16/10/2017 - 15:10

          @science-teacher: You need to chat to a qualified accountant, since your brother works for a hospital, there are specific concessions he can access only (i.e. salary sacrificing benefits up to a certain limit without attracting any FBT). In your case, since you work for a school (assumption), you would not qualify for any concessions at all, which means your employer would be liable for FBT (which will be oncharged to you), so in reality, based on your marginal rate, you would be paying more in FBT than you would be saving through salary sacrifice. i.e. you will be worse off overall.

  • Donaldhump on 16/10/2017 - 02:34

    Salary sacrifice into super

  • ziaxk87 on 16/10/2017 - 06:12

    buy a demo model or used model upto 80000-140000 kms. with Prados they hold their value and even with 140k they will last you forever.
    salary sacrifice is ok, better speak with financial planner or advisor
    rmbr in salary sacrifice they charge you interest as well.. so for 45k car you will end up paying somewhere around 50-60k with buy out option post lease period.

    also rmbr it usually includes all items like cost of car, interest, maintenance, fuel, etc and you get 10% benefit of GST on these items as well

    • teacherer on 16/10/2017 - 07:58

      Is the claiming tax accurate to bring 72 down to 63?
      My brother got a loan and claims the car payment sad 'salary sacrifice'
      Or is this something else

  • supnigs super skids on 16/10/2017 - 07:55

    When I looked it up I did t do enough km to be worth it

  • original15 on 16/10/2017 - 09:11

    One way or another you'll still pay your hecs off (unless you die or switch gigs and don't make the minimum threshold), so when evaluating the reduction on tax paid should you be doing a side calculation to see how much of the "tax saving" is just further delaying HECS? Not saying that delaying hecs is the best or worst thing, just figured it was a little different in considering taxable income

    • teacherer on 16/10/2017 - 09:18

      Yeah whether we pay more or less hecs I'm not too worried because regardless it'll get paid off eventually
      I'm mainly worried with what kind of savings his deductions would get me to factor into the purchase of the car.

      If hecs is up by a couple of thousands, that's fine. It will have been paid anyway

  • HD Crasher on 16/10/2017 - 18:31

    Hi,

    I am an accountant and all I can say is you need to speak to an accountant about your personal situation, don't listen to the hype of people selling you cars and salary sacrifice options as it may not be the best option for you in your circumstance and they are going to make money out of you by you doing this. That is why they are in business so it is in their interest to upsell the potential benefits.

    Generally people lease cars via salary sacrifice because they can use the statutory formula which has concessional FBT taxation treatment. You can also make post tax contributions which most people do that are not on the top marginal rate of tax, which makes the lease option slightly more attractive.

    You can lease demo and second hand cars within the limits of the lease provider and tax laws.

    Sounds like you brother is receiving special concessions that relate to potentially being in Not for profit and other special treatment areas that get additional.

    Most employers will not try and take advantage of supposed loopholes and if you are a teacher you will be fine, but generally if you salary sacrifice you should double check with your employer and then double check yourself that your super payments remain at 9.5%. They may have reworded this as I don't deal with these sorts of things anymore, but that was a potential issue back in the day.

    good luck, gotta love new car smell, just not new car depreciation.

    • teacherer on 16/10/2017 - 19:34

      Hi HD Crasher. Thanks for taking the time to reply.

      I definitely need a car and am probably going to go for a used 4x4 wagon for when we start our family.

      I just called my brother, he's certain there are no fringe benefits involved in his situation. He reckons he loaned the car, scanned the invoice and sent that in and the amount is paid back each fortnight, and also claims his foxtel, phone bill and rent on it.

      So unless HR says otherwise, I can claim my car as a salary sacrifice, but I will pay fringe benefit tax. Is the 9k limit he has anything to do with me or an arbitrary amount set by his employer?

      Will it be hard to determine how much this tax would be?
      I'll be on 72k and paying a 45k car off over 5 years (guessing).

      I've been looking here
      https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Employees/Salary-sacrifice-arrangements-for-employees/

      Cheers mate

    • teacherer on 16/10/2017 - 20:07

      Okay he just checked his terms and conditions
      He is technically a not for profit
      Being a private hospital he didn't think so

    • JetLi on 16/10/2017 - 21:15

      OP won't qualify for any concessional car FBT treatment, he is not salary sacrificing a car through a novated lease, he just wants to buy a car personally through finance and get his employer to make the loan repayments, this is an expense payment fringe benefit, not a car fringe benefit. As stated above, go chat with a qualified accountant, he will tell you that you will be worse off.

  • TheBilly on 16/10/2017 - 20:46

    Buy an investment property and drop 10k-15k on a 2nd hand nissan patrol / landcruiser. Your concerns of paying too much tax is solved and you have a car capable of driving everywhere.

  • Moderatorneil on 16/10/2017 - 23:54

    OP has solved his problem and has requested closing comments.

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