TOT being removed in exchange for increased salary. Help.

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#1562895 31-May-2016 11:19

My only experience of this stems way back to 1997 in the UK.

I worked for a department in a large company. Some eejit felt it would be a work of genius to turn us into a stand alone company within the Group. Our salaries were then approx equivalent to say $85,000 a year, with fully expensed company cars provided (we did about 35,000 km a year) that were changed every year or every 12,000 miles, whichever occurred first.

Under the new arrangement, our salaries went up to say $100,000 equivalent but no car. You could either buy your own or choose whatever you wanted and they would simply deduct the lease cost from your salary. It was not, it turned out, quite the case that you could have 'whatever you want': I asked if I could lease a Ferrari and they said no...! I would not have done so as I would have had to give up eating, but I thought it worth the enquiry.

mudguard

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#1562939 31-May-2016 11:56

SepticSceptic:

Did you sign the amendment ?

Of course, the amendment didn't change that part of the ToT. From memory it was something relating to drink driving.
I'm assuming it will be an allowance of some kind rather than part of the salary as such. Now to wait and see.

SepticSceptic

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#1562964 31-May-2016 12:42

mudguard:
SepticSceptic:

Did you sign the amendment ?

Of course, the amendment didn't change that part of the ToT. From memory it was something relating to drink driving.
I'm assuming it will be an allowance of some kind rather than part of the salary as such. Now to wait and see.

Then it reads to me that the company has made an amendment to you employment contract ( in regards to the car no longer being a ToT) without your signature ?

gzt

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#1562968 31-May-2016 12:49

Can you call someone in your equivalent position in Australia?

It may help to know the exact arrangement they use currently.

No guarantees they will do that same thing in NZ but may give you some idea.

mudguard

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#1563007 31-May-2016 14:15

Australia are in the same situation as us, the takeover is from US. The difference between here and Australia is that a Novated lease is a more feasible option for them, whereas its a more unusual product for NZ. As far as I'm aware only one company offer it.

I've had a call from the fleet company, running costs for the year are about $25k for the lease, maintenance, fuel, FBT and insurance. They pointed out that this was at a substantial discount given the size (originally) of the fleet, fuel card and insurance, so to take that into account for the maths, IE no fuel discounts, lease etc.

And of the fleet, my car is the cheapest being a Camry. So it's already adding up to a big number.

In regards to the post above, there was no unauthorised amendment to the ToT, the clause about it not being a part of the package, has always been in there. I've never had to take note of it before, as obviously I've continually been supplied a car.

Conference call tomorrow, so maybe an update.

Dynamic

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#1563032 31-May-2016 14:40

Just reading through this https://en.wikipedia.org/wiki/Novated_lease for my own information, I see the Novated Lease in Australia is an attractive option in one respect as the vehicle is paid for in pre-tax dollars.

I tend to think leasing a car would be a risky move as your job could end for any one of a number of reasons and you can get stuck with the payments for the rest of the term. At least if you finance a car and the job ends and you want to be rid of the car, you can advise the finance company you want to sell the car and they will work with you on the steps. You would have to pay early termination fees. If you had to finance and were able to put it on your mortgage (in a floating interest revolving credit account) there would be no termination fees.

Assuming you are not alone, perhaps work with your coworkers on this and share the cost of an accountant to crunch some numbers for you.

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#1563192 31-May-2016 17:12

mudguard: In regards to the post above, there was no unauthorised amendment to the ToT, the clause about it not being a part of the package, has always been in there. I've never had to take note of it before, as obviously I've continually been supplied a car.

Personally have no idea but that is something to note with your employment counsel it may not be cut and dried in every situation. Hopefully the situation will not require any action.

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#1563278 31-May-2016 19:57

i had to work this out some time ago when the fuel price was a little higher than now... (about a year ago).

Diesel $0.15 per km + Ruc's + Insurance + vehicle cost (say $550+gst Per month)

Petrol $0.24 per km + Insurance + vehicle cost (say $500+gst Per month)

Insurance non sign written think $60 to 90 per month.. (think that was State)

Call some of the leasing companies and ask for a lease cost.

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

miked

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#1563357 31-May-2016 22:40

You will want to beware that if they negotiate a fixed cost, then you could be out of pocket if they demand you do more km than the cost is based upon. Your fuel / mileage component should remain as a reimbursement that is tax free as long as you only get it for business travel (i.e. not including "commuting to your normal place of work").

At work, if I have to use my own car for any trips, I get 77c per km for the first 400km in any month, then 22c per km beyond that. 400 per month is close to the 5000km per year limit mentioned on IRD site (not that the limit is a hard limit for employees!). I noted IRD rate has dropped to 74c per km from 77c, and suspect ours will follow suit at some point.

I think the 77c (or 74c) rate is designed to cover fuel, both age and mileage depreciation, servicing, wear and tear, insurance, tyres etc... whereas the 22c rate is more for accurate for actual cost of using a car once major overheads are covered (eg to just cover direct costs: fuel, mileage depreciation, tyres etc). All if that should be just reimbursing "out of pocket expenses" and therefore come to you tax-free for legitimate business kilometres (eg excluding commuting kms).

Those rates clearly won't compensate for not already owning a car in your case where you used to have one provided through your company that is being withdrawn, so as others have mentioned, you'll need something else to cover that... as it is a component of your total remuneration package that is being removed. But I'm guessing that part won't be tax-free, but will get you into FBT territory. Same applies to if you currently get any personal or commuting kms included, then that is part of your "total remuneration package" and should be compensated for with the change, but again that element probably wouldn't be tax-free (again into FBT territory).

So at least 3 components to be considered:

Business Kms (tax free) - eg74c per km stuff so it includes most costs (and maybe a lower rate for higher kms too)
Car cost (not tax free)
Fringe loss (not tax feee) - previously included commuting and personal kms.

Not a tax expert though, so don't take my word for it.

dickytim

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#1563418 1-Jun-2016 06:18

0.72c x 40,000 = $28,800 a year.

Tell them you'll claim mileage, but do check with an accountant as I think there may be a cap on that for tax purposes.

Please note 0.72c /km is the new IRD rate.

Based on all other estimates I would say that this is the best, as far as the limitation to the KM I recall after 5,000km a year you need to keep a log book going.

I believe there are apps that can make this easy.

keewee01

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#1563591 1-Jun-2016 12:02

If there is a number of you affected in New Zealand, maybe approach the leasing company as a collective to see if you can get a better rate, if that is the preferred option.

MikeAqua

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#1563634 1-Jun-2016 13:15

I would approach it this way. Ask for salary increases for loss of personal car use and mileage reimbursement for every km you drive for work.

Your use of a vehicle for company purposes is not a benefit and should not be included in your salary and taxed.

Your salary should be increased to account for you losing the benefit of using company car for private usage - this saves you from owning car. It saves you the financing, depreciation, insurance and running of a car.

What is that worth per year? Multiply by 1.5 (33% tax rate). There is a rough guide to your salary increase.

If you are using your car for work the running costs should be reimbursement per km at IRD approved (non-taxable) rates - there is a sliding scale of $/km as mileage increases. Because this is reimbursement it is not taxable.

You can buy GPS trip loggers that plug into the 12v outlet in your car and download to a computer. This saves written log books.

Mike

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Hmm, what to write...
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#1563640 1-Jun-2016 13:28

trig42:

I wouldn't have thought it would be an increase to your 'Salary' as such, more an allowance.

My previous job I had to supply my own vehicle, and the company supplied Petrol. I got a $10,000 per annum Vehicle allowance, and a company BP Fuel Card.

The Allowance was tax free (I didn't pay PAYE on it), and it appeared as a separate item on my payslip (even though it all went into my account as one 'Pay'.

Australian owned company, NZ Subsidiary.

I had pretty much the same deal "tax free" as well. I was only doing 20-30,000 a year. I took that option because I prefer to drive a 5 series BMW rather than a company XR6 POS

If I was travelling more than that, there is no way I would go for that sort of deal. Either provide me the tools to do my job or I would be working as a contractor and claiming a leased car on expenses.

Matthew

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#1579265 23-Jun-2016 21:31

An update
They've offered a $10k upfront payment(net) , $15k pa salary increase, and 36c per km for business use. So pretty reasonable in my opinion.

gzt

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#1579274 23-Jun-2016 21:58

Sensible result. The increase available for vehicle expenses depends after tax if it is salary.

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