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Harley-Davidsons and Tax: The Salary Sacrifice

Date:
By Wom Battle

Face it, Harley Davidson® motorcycles cost a lot compared to most other motorcycle brands.  When I was considering buying my new Harley-Davidson Road King® nearly a year ago I wanted to do it as cost effectively as I could so I could spend more!.  I wanted to spend $40k ride away (based on a guess on the cost of finance) so with the budget set I went about discovering how I could afford it.  Sadly I didn't have $40k cash.

Along came the concept of a novated lease and salary sacrifice. I discovered that a Harley Davidson, or other motorcycle, as a vehicle can be salary sacrificed and my employer was open to the concept.  Off to the accountant I went to find out if it made sense. They way it was explained to me, assuming I actually understood the explanation, is that the lease costs and the running costs (fuel, servicing, tyres, rego, insurance etc) of the Harley Davidson are paid for out of my pre tax income by my employer and I sacrifice that amount of my gross wage. I get what's left of my wage and pay income tax on that.  Or, spinning it around, I don't pay income tax on the amount I sacrifice to pay for having my H-D Road King and riding it.

To get a novated lease I obviously had to find someone to finance it.  If I couldn't find a bank or financial institution to lend me the money needed to to buy a nice new Harley Davidson I had to forget it.  I discovered that some financial institutions would have lent the money for a car but wouldn't consider the Harley Davidson or other motocycles, fortunately my usual bank was open to it.  With finance available the next step was to work with the bank to determine the period of the lease, the monthly repayments and the balloon payment at the end.  Harley Davidsons seem to retain their value pretty well, but it would have been be easy to get suckered into picking a big balloon payment to reduce the lease payments which would have left me with a nasty surprise at the end of the lease when trading it in or paying it out if I decide to keep the Road King. I went for 5 years and about a 6k balloon, so I reckon I'll be in good shape in terms of the tax advantage gained for the sacrifice and getting a good buy at the end :-). This decision came down to what I could afford to sacrifice. The more I pay off it during the lease the more salary I sacrifice and the bigger the tax saving. But balancing that I still have to play my part in feeding the kids and taking my wife to the shops.

Repayments known, my accountants (or the people chosen to help set up and manage the salary sacrifice) then tried to work out what all the lease and running costs might be for the full year and determine how much I should sacrifice each pay period to pay to cover them. This was easy for me because I'd kept the records of costs for the 98 Road King I was replacing!

A bonus: One advantage here is that because the my employer pays the bills they can claim the GST and it was set it up so I only sacrifice the ex GST amount. 10% off my spend there in one hit! BUT... it can also be set up the other way so you cop the GST and the employer gets the bonus so I needed to work that out up front.

The spanner in the works: Fringe Benefits Tax.  Allowing me to salary sacrifice to buy my Harley Davidson is a benefit that my employer gives me as part of my employment package. To get the best benefit out of the salary sacrifice the Harley Davidson should be used for business purposes for the most beneficial per km FBT calculation method.  Otherwise the benefit all the costs and you'll end up not saving.  That covered if mixed among the business use I use my Road King for private purposes the tax man will want their chunk of that in FBT. The good news is that the statutory rate for FBT calculation on a motorcycle is pretty good, at the time of writing, 13c per kilometre on private kilometres.  So, if I don't use the Harley at all for work, i.e. 100% private use, and I travel 10,000 km in the year the FBT payable is $1300.  If my split is 50% work and 50% private then I'll  be up for $650.00 (I'm not getting into record keeping here!) In any case an employer won't want to pay the FBT so what I have to do is give a bit back each pay to cover it.  The great news here is, compared to the equivalent FBT scaled rates payable for a car in this situation, the 13c per kilometre is CHEAP AS! 

A gotcha: Accountants or providers that manage salary sacrifices charge fees usually up front for setting it up and ongoing each year to do the sums and make sure the sacrificed amounts equal the costs.  I needed to check out the costs up front before deciding who to use and find out where they are factored in.  Some providers will include/hide them in the amount sacrificed each pay.

Another Gotcha: I had to be reasonable in the cost calculations for the regular sacrifice and keep an eye on it.  I didn't want to get to the end of the year and have to hand over a swag of my after tax cash to top it up and it's not good saving to sacrifice too much.  At the end of each year adjustments when the real numbers are in, this is another spot where the accountants or people managing the sacrifice may charge fees if they aren't factored in to the ongoing sacrifice.  I intended trying to keep them adjustments to a minimum.

Big Warning:  The cost effectivness of this all relates to a saving in income tax... if I wasn't paying much tax I woudn't save much.  If I pay lots of tax there's probably a good saving to be made. An accountant can soon say if it's worth it.

I have to now be nice to my employer.  It will cost them administrative dollars to facilitate this for me, they didn't really have to take on the extra burden. If I then fall out with them and leave work my financial institution will come after me to ensure the lease continues to be paid. Obviously my  employer won't be handing the cash over for me and Centrelink probably won't stump it up either. Sadly too, the lease repayments will then be coming out of my after tax dollars and all the salary sacrifice benefits will be gone!

While the final numbers for me are coming soon, I know how much I have sacrificed, I know what the costs were, I know what the fees are/were and I know how much FBT I have to pay.  For me it was very worth the effort!

Disclaimer:  I'm not an accountant, I ride my Harley Davidson and have a stupid name.  This is not advice it's a general record of my experience and the decisions I had to make with salary sacrificing based on my own unique circumstances.  If you are prepared to make decisions on your own circumstances based on the above you are freakin' nuts! If you are freakin' nuts and get it wrong, don't come after me. I'm having a few gins and buying extra bits of chrome for the Road King on the money I saved on my salary sacrifice and don't want to be disturbed.

 

 

5 comments

Simon (Shrek)

Posted by Do you know the ATO ruling that allows this? I want to buy a harley!!, 27/06/2010 3:35:46 pm

Hey Shrek: MT 2034 is a good start for the FBT stuff. And see http://www.ato.gov.au/businesses/content.asp?doc=/content/33353.htm&page=22 And also: http://www.ato.gov.au/businesses/content.asp?doc=/content/33353.htm&page=24&H24

Posted by Wombattle's Harley Davidson, 27/06/2010 9:47:44 pm

Hey mate, Which company did you setup the salary sacrifice with? Also, who gave you the novated lease? I'm keen as to salary sacrifice a Harley but all the companies I've spoken to said they don't offer salary sacrifice on bikes. Cheers, Stu.

Posted by Stuart, 21/09/2010 2:09:17 pm

Vinay

Posted by Thanks for the wonderful piece of information, my dream yamaha R6 is a lot closer now!, 24/09/2010 11:13:52 am

I didn't use a company to set up the salary sacrifice. The novated lease was financed by my bank (nab). My accountants gave me/my employer info about the amounts to sacrifice to cover the lease & expenses and re-contribution for FBT. My employer manages the payroll stuff. I'm lucky enough to have a corporate CC for fuel/servicing expenses. Any adustments are are made at tax time and I pay my accountants to review it.

Posted by Wombattle's Harley Davidson, 24/09/2010 1:58:00 pm

Disclaimer: This non commercial website and its content is not affiliated with or associated in any way with the Harley-Davidson Motor Company, Harley-Davidson Australia, the Harley-Davidson Owners Group® or any Harley-Davidson® Dealers in Australia.  The use of the terms Harley-Davidson, and Road King® are unavoidable because that's what I own and ride.  This website,  called "My Harley Davidson" , and any opinions or comments expressed herein are purely about my Harley-Davidson Road King ownership experience, a truly great experience at that. I have no intention whatsoever to infringe on any trademarks or copyright ownership of the Harley-Davidson Motor Company or anyone else.


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