Novated leasing

What is End of FBT year, and how does it affect me?

The Australian Tax Office (ATO) requires you to pay a certain amount of Fringe Benefits Tax (FBT) on your novated lease.

The amount of FBT is based on the taxable value associated with your vehicle. This must be collected (or offset) within the current FBT year, which is from 1 April – 31 March.

To offset the FBT, an annual amount of post-tax, equivalent to the taxable value of your vehicle, is deducted from your pay. This is known as the Employee Contribution Method (ECM).

For most customers, there is likely nothing they need to do prior to the end of the FBT year.

Some customers - especially those who have recently entered into a novated lease -may need to readjust their post-tax contributions to meet ATO requirements and reduce any FBT amount payable.

Collecting your annual amount of Employee Contribution Method (ECM or post-tax)

Under the salary packaging arrangement, if an employee chooses the ECM method for a novated lease, then post-tax (employee) contributions are made to reduce the taxable value of the novated lease vehicle.

This offsets the amount of FBT you may need to pay, and you can use these post-tax funds for your novated lease vehicle expenses throughout the year. The funds are simply added to your balance for:

• Monthly lease payments
• Maintenance
• Running costs
• Fuel
• Claims for any eligible expenses such as registration and insurances

Shortfall

In some instances, too much post-tax (ECM excess) or not enough post-tax (ECM shortfall) is collected. An ECM shortfall is not a penalty or fine. It can occur for a range of reasons, such as:

• Income being missed (for example, taking leave without pay and Maxxia not receiving deductions during that time). Please ensure Maxxia is notified of any change in your employment that may impact the funds received for your novated lease.
• The lease terminates before its natural end date and there are no pay cycles remaining to collect more post-tax.
• A new novated lease is set up late in the FBT year and there are no more pay cycles remaining to collect the required post-tax.

If an ECM shortfall is not resolved prior to the end of the FBT year, it will become an FBT liability for your employer. However, it is the employee’s responsibility to cover the shortfall difference or pay the FBT liability to the employer to be remitted to the ATO.

How can I resolve an ECM shortfall?

There are a number of options available to you should we contact you regarding an ECM shortfall:

1. You may choose to make additional post-tax contributions for the remaining pays in the FBT year to offset your ECM shortfall.

2. You can choose to pay the remaining post-tax amount directly to Maxxia. The post-tax must be received on or before 31 March. If the post-tax is received after, it will be counted towards the new FBT year.

3. You can claim for Unreimbursed Running Costs. This refers to costs incurred during the period of the lease, but have not already been claimed and received a pre-tax reimbursement. This will reduce the ECM shortfall by the claim amount that you have paid. Any claims used for this purpose cannot be claimed in the future.

4. You may be eligible to claim Days Unavailable if your vehicle was away for non-routine service and repairs, or where the vehicle was left (with keys) with your employer. Days unavailable can only be applicable if the vehicle was unavailable for 3 days or more (this does not include when you dropped off or picked up the vehicle). Substantiation may be either in the form of a tax invoice from the mechanic showing the date the car was dropped off and picked up, or a letter from your employer confirming that they had the vehicle on site and were in possession of the keys.

If you work in the Health or Charity industries, there may be other options available to you. However, it is imperative that you contact us prior to 31 March to discuss your options.

FBT Liability

If we do not rectify the shortfall of ECM, your employer will have to pay the FBT owing to the ATO, as the amount is now an FBT liability. In most cases, the employee will pay the employer, who then pays the ATO. Under your novated leasing arrangement, Maxxia will collect any FBT liability incurred on behalf of your employer. If you have an FBT liability owing, we will contact you to advise your options and organise payment. Whilst an ECM shortfall can be offset, a liability must be paid.

What happens if there is an FBT liability?

If you were unable to resolve your shortfall prior to the end of the FBT year, you will be required to cover the FBT liability.

If this occurs, there are a number of options available to you:

1. Depending on your account balance, we may be able to use some of the funds in your vehicle account with Maxxia to pay the outstanding amount.

2. Depending on your employer’s requirements, you may be able to pay the liability over a number of pay cycles with pre-tax dollars.

3. You can pay the FBT liability directly to Maxxia using post-tax funds, who will then send this to your employer on your behalf.

Why do my deductions differ from my proposal?

One of the most common questions we get at this time of year is, “Why does my contribution amount differ from my original proposal?”

The answer is that each time we provide you with an estimate of your deductions, we use the remaining pay cycles in the FBT year (ending 31 March) to calculate the numbers. As we get closer to March you may have fewer pay cycles than estimated. This is why there may be a difference in the estimate we calculated a month ago and the contribution amount you end up starting with.

We have therefore temporarily adjusted your deductions based on how many pay cycles are left and on the pro-rata FBT requirement.

The reason for this adjustment is to minimise any shortfall and potentially offset the amount of FBT you may need to pay. Your deductions will automatically return to the proposed amount from 1 April.