TOT being removed in exchange for increased salary. Help.

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mudguard

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#196367 28-May-2016 15:39

I don't even know where to start with this.

I had a call this week from my boss to tell us that our tools of trade vehicle will be returned 1st of August when the company that purchases us becomes official and that we will be having our salaries adjusted to compensate. She's asked us to work out as best as possible what the minimum that needs to be. What is awkward is that my colleague and I report to Australia and come under their umbrella so what might be ok for our Aussie colleagues might not be great for us.

My job consists of travelling around the country from Auckland, where the upper North Island we drive, everywhere else we fly and pick up a rental car. So I'm away from home 7 weeks out of 8. We average roughly 30-40,000k in our cars, the rest in rentals.

So obviously the car really is a tool, and not just a perk. I've contacted the company we lease the vehicles from to get an idea of what we pay for the lease and servicing. Obviously fuel is a big cost and insurance.

Do I need to speak to an accountant? A few casual inquiries suggest that leasing as individual is not that straightforward, the company we are currently with (I asked if taking over the lease was an option) however they flat out don't do it.

So do I purchase a brand new vehicle, buy an older one, lease?

Help!

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#1561251 28-May-2016 15:43

I always laugh when I hear about a company that says "we need to make some changes - tell us how much of a salary reduction you can live with". No way! Make an offer and then I'll consider my options. But I'm not going to undercut myself just to make your job easier!

Hence my position in this case would be: "you tell me what the minimum you want is, and I'll tell you whether that will work or not"

Aredwood

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#1561273 28-May-2016 15:49

Will you be working as an employee or a contractor for the new owners?As that makes a big difference.

mudguard

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#1561274 28-May-2016 15:50

gehenna:

Hence my position in this case would be: "you tell me what the minimum you want is, and I'll tell you whether that will work or not"

True, but I've got no idea what the cost is. $15k, $30k, $50k? Running and servicing a car for a year, insurance for commercial use? I assume I'll be paying 33% on any salary increase as well, so I'm not sure how that works. I've always been a PAYE worker.

EDIT. I will be an employee not a contractor.

alasta

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#1561277 28-May-2016 16:04

You need to talk to an employment lawyer. You are potentially taking on a large financial risk here, and you need to ensure that they really are within their rights to make what appears to be quite a significant variation in your terms of employment.

Employment law in Australia tends to be more employer friendly in a lot of areas, so Australian owned companies often try to do things in NZ that are outside of what is allowed in this jurisdiction.

gregmcc

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#1561278 28-May-2016 16:05

mudguard:

gehenna:

Hence my position in this case would be: "you tell me what the minimum you want is, and I'll tell you whether that will work or not"

True, but I've got no idea what the cost is. $15k, $30k, $50k? Running and servicing a car for a year, insurance for commercial use? I assume I'll be paying 33% on any salary increase as well, so I'm not sure how that works. I've always been a PAYE worker.

EDIT. I will be an employee not a contractor.

I would assume you have an employment contract? use that as a starting point, if they want you to use your personal vehicle for company business then expect to be fairly compensated for it.

If they are taking away a vehicle that is part of your contract then expect a significant pay increase for it's loss. Remember an employment contract is an agreement between 2 parties, not a one sided here it is like it or leave.

antoniosk

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#1561279 28-May-2016 16:06

mudguard:

gehenna:

Hence my position in this case would be: "you tell me what the minimum you want is, and I'll tell you whether that will work or not"

True, but I've got no idea what the cost is. $15k, $30k, $50k? Running and servicing a car for a year, insurance for commercial use? I assume I'll be paying 33% on any salary increase as well, so I'm not sure how that works. I've always been a PAYE worker.

EDIT. I will be an employee not a contractor.

If we may ask, what do you do and what sort of vehicle will you be needing?

________

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mudguard

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#1561283 28-May-2016 16:14

I audit inventory essentially. So the vehicle required doesn't actually need to be ute or anything. The rules for the vehicles have always been, 4 door. 2-3L, must seat 5 adults, towbar, bluetooth, and tinted glass (though that's for Australia rather than us).

I'll dig out my existing contract. My boss did mention that it will need to be a similar type of vehicle, so Toyota 86 or Fireblade for me just yet...

I don't have a personal car, we have very generous personal use.

gzt

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#1561284 28-May-2016 16:16

They know exactly what the vehicle costs are you can ask them.

My guess is:

a) they believe most of those kms are personal use
b) they will offer a fixed per km compensation for work use of your personal vehicle
c) they are acknowledging you are losing some compensation and are asking what you want in return.

They probably have no clue about NZ geography either but let's not mention that.

Imo you need to talk directly with someone instead of risking misunderstandings through a long chain leading to Australia.

During this time keep records of all conversations and dates etc in case it gets really silly you will need that.

On the positive side this is likely to be a case of no-one really has a clue and just muddling through the transition.

gzt

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#1561285 28-May-2016 16:21

There is some potential for this to get very messy and it could be worth employing an experienced advocate type person to ask the key questions tactfully and keep the process on track for a successful conclusion.

Handle9

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#1561286 28-May-2016 16:25

Just to clarify it sounds like your vehicle isn't a TOT vehicle - if there is private use it is considered part of your remuneration for tax purposes and FBT is payable.

The cost for a vehicle in the 2.5l class for around 20,000 kms per annum is approx $20k (+-$2k) on a fully maintained 45 month operating lease including FBT and fuel. Assume that you are looking for around $30k for 40,000 kms/annum. I'd be having a very serious conversation with my manager around this as the rules are very different in Australia to here. You need to make it very clear that if they want to change your compensation they need to make an offer to you to consider rather than the other way round. As others have said if this is a compensation benefit in your contract then it can not be withdrawn without your consent.

Novated operating leases and salary sacrifice are common place in Australia as they offer significant tax advantages. They have only just been launched here but still aren't widespread. This makes company cars far less common in Australia than here. I wouldn't assume you just have to roll over on this - you are being required to undertake a significant amount of travel and for this sort of mileage I'd be flat out refusing to roll over.

mudguard

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#1561288 28-May-2016 16:26

gzt: They know exactly what the vehicle costs are you can ask them.
a) they believe most of those kms are personal use
b) they will offer a fixed per km compensation for work use of your personal vehicle
c) they are acknowledging you are losing some compensation and are asking what you want in return.
.

They will know the exact costs of course, I've got no doubt. There are 50 vehicles involved, the rest of the world has already come under the new company, so we will hear from the US and UK as to what's happened. It's more that they've asked us to come up with a figure as well.

A. For this role personal k's are minimal, I often do 1500km a week. In Australia my colleagues are doing nearly 80,000k. I for one loathe getting in the car in the weekends.

B. You could be right. I see the IRD has something like 79c per kilometre. Up to 5000kms though

C. Yep, hence us trying to do some maths. For some roles, a friend for example, was offered a company car or a payrise, but he rides to work, doesn't need the car so took the money. That car would just be a perk. But for us, we are putting the cars through some heavy use, I'm not sure how keen I would be to purchase a Camry and have 120,000k's on it after three years.

Edit, on the call she said (conference call) to the Aussie staff to look at Novated leases. Again only one company offering it here. However I think we'll keep trying to work out the numbers and see what they come up with.

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sleepy

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#1561290 28-May-2016 16:33

a link to the ird website which states 72c per km as claimable rate

http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/emp-deductions-allowances-mileage.html

Aredwood

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#1561366 28-May-2016 18:38

It seems like an awfully tax inefficient way for that company to go about managing vehicle costs. As your "cost of funds" is unlikely to be lower than your employers, or the rental company. And since you will have to pay tax and deductions first, and then the vehicle costs. They will have to pay you alot more to get the same end result. And you will then need to consider what else will change when you get a higher income (not just more tax). You will be paying out more in Kiwisaver, If you are paying child support or student loan, that will increase as well. Will you (or your partner) end up loosing any working for families or accommodation supplement payments? Also Petrol won't remain at the current prices forever. So calculate your fuel costs on the assumption that petrol will go back to $2.30/L or Diesel back to $1.50/L. Also will the IRD even allow a "per kM" reimbursement for 30,000+k per year? As they may see such a high amount as suspect, and ask you to prove it is work related. And for insurance, you will need a policy that covers rental car costs. And you will need breakdown cover that covers long distance towing. Otherwise you might get stuck ages away from home with no working car through no fault of your own. (imagine someone crashing into you and writing off your car). Will you need to install GPS tracking?

If the reason for the changes is only for the company to avoid having to pay FBT. Then see if you could keep the company car, but say you will give up the right to use it for personal use. (in exchange for a pay increase of course). Sure you will still have to purchase a car for your personal use. But you could buy whatever you want, and a second hand one would be fine as you won't be using it much. (also assuming you have parking available for 2 cars).

[Edited to add]

Maybe they are worried about being sued due to car crashes. Which would be a non issue in NZ due to the ACC system. And Im not aware of any companies being taken to court in NZ due to their choice of company vehicle. (crash safety ratings) Still see alot of Mitsubishi L300s, Mazda Bongos, and early shape Toyota Hiaces on the road that are company owned. Despite them all having terrible crash safety ratings.

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#1561465 28-May-2016 23:39

There's a bit of terminology here I am not familiar with, and not especially familiar with the general are, but are you saying

A new company wishes to remove your works vehicle and expects you to replace it with your own vehicle?

If that is the case, my personal reaction would simply be to say no. However, INL. I strongly suggest that you consult at the very least a competent accountant, and preferably an employment lawyer as well.

SheriffNZ

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#1561482 29-May-2016 08:17

I agree with the recommendations around and employment lawyer.

For what it's worth, I started a new job a couple of months back which comes with a car. I get reasonable personal use around the city but have to fill it up myself if I take it away on holiday. In my contract, the cars benefit is valued at $10,500. The car is a 2014 Holden Commodore SV6

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