Car salary packaging will not always save you money, despite what salary packaging firms would have you believe. In fact in some circumstances it can cost substantially more than buying a car in your own name. Recently I reviewed a quote from a salary packaging firm for a client of mine. The quote promised over $7,000 in savings over a 3 year period. I did calculations that showed she would save much more than that by buying the car in her own name and not salary packaging.

Most salary packaging firms are not entirely truthful. The figures they present don’t tell the whole story. When considering a quote from a salary packaging firm there are two basic issues to consider:

  1. The cost of buying, financing and maintaining the vehicle
  2. The tax benefits (or lack of!)

The only way to accurately assess whether a car salary packaging proposal will actually save you money is to compare their quoted total after tax cost of ownership with your total after tax cost of ownership.

With regard to issue 1 above, if you compare their total cost of ownership with what it would cost you to buy, finance and maintain the vehicle yourself, you might be surprised to find their cost is higher than yours. They have to make money somehow, so they are always going to add in to the cost an amount for themselves.

With regard to issue 2 above, what they don’t allow for is any tax deductible use of your car. The tax “savings” they promote assume you could not claim any tax deductible use of the car if you didn’t salary package. That is fine if you actually can’t claim any deductible use, but it’s inaccurate if you can.

There are usually tax savings from salary packaging if you use your car mostly for private purposes. If you use your car for work/business more than private purposes, you will likely get better tax savings by putting the car in your own name.

In a nutshell, you should always compare their total after tax costs with your total after tax costs.

Please see our article on fringe benefits tax (FBT) for a general overview of FBT.

How we can help

At Bristax, individual and business tax accounting are two of our specialist areas. We would be happy to speak or meet with you to discuss your situation.We’ll take the time to understand your circumstances and provide advice that maximises your financial position.

You can contact us on 1300 883 597. We have offices in Brisbane, Sydney and Melbourne and provide full tax and accounting services Australia wide via internet, email and phone.

For other tips on fringe benefits tax, you can also check out our other articles on FBT.

This article is for general information purposes only and has not been prepared with reference to the circumstances of any particular person. You should seek your own independent financial, legal and taxation advice before making any decision in relation to the material in this article.