Friday, August 29, 2008 
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Packaged Car Lease

Instead of buying your next car outright, you may be able to lease the car and pay all your running costs through your salary package.

Whilst salary packaging does attract fringe benefits tax (FBT), the further you drive each year the less FBT you have to pay. Also, by paying some costs yourself, you can reduce your FBT liability.

Let's consider John and Jill, each on a salary package of $45,000 pa. They each buy a $30,000 car, John through a personal loan and Jill through a packaged lease. Each drives about 30,000 km pa.

After paying for all car expenses, Jill's packaged car lease gives her nearly $3,000 more in after-tax, take-home pay (see table below).

The car packaging difference*

John Not packaged $

Jill packaged $

Gross salary package
45,000
45,000
Total lease and running costs
-
- 12,570
Employee contribution
-
+ 3,300
FBT
Nil
Nil
Taxable salary
45,000
35,730
Income tax on salary
- 10,347
- 7,427
After-tax salary
34,653
28,303
After-tax car cost
- 12,570
- 3,300
Net take-home pay
22,083
25,003

*Above table is an illustration only.

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