MMS - McMillan Shakespeare

skc said:

It doesn't seem to mention FBT payable and it didn't ask whether the car is for private or business use.

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That's because the employer pays the FBT if applicable (ie. they lodge an annual FBT return).

The novated lease agreement is between three parties - you, your employer and the leasing company.

My understanding, as simply put as I can, is that the employer makes the lease payments on behalf of the employee, makes any adjustments for FBT and then deducts, the adjusted repayments from the employee's cash salary. That's why they call it a salary package.

The individual doesn't claim any expenses in their tax return.

craft said:

At the moment for the majority FBT liability roughly equals or is massaged via employee contributions to equal PAYE savings...

Mum and Dad on average wages are screwed unless the likes of MMS can come up with another mechanism that gives them access to fleet buying power, employer backed financing and GST savings (arguably the real gov’t subsidy).

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The only way in which people are "screwed" is missing out on the "savings" achieved through packaging a lease vehicle (new cars primarily). Mum and Dad are better off when they purchase such vehicles second hand.

By way of example, I leased a new car for 2 years and the person who bought it from me two years later got a car with 12 months warranty, perfectly maintained, spotless inside and out and paid $12,000 less than I did. I pocketed about 2k at the end of the lease. The only party that got screwed in this deal were the taxpayers of Australia who end up paying for this govt subsidy.

FxTrader said:

The only way in which people are "screwed" is missing out on the "savings" achieved through packaging a lease vehicle (new cars primarily). Mum and Dad are better off when they purchase such vehicles second hand.

By way of example, I leased a new car for 2 years and the person who bought it from me two years later got a car with 12 months warranty, perfectly maintained, spotless inside and out and paid $12,000 less than I did. I pocketed about 2k at the end of the lease. The only party that got screwed in this deal were the taxpayers of Australia who end up paying for this govt subsidy.

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Fleet discount would have been more than 2K. GST saving would have been 10% of new car price.
Buying power on operating expenses would have had an impact.
Probably very little saving attributable to the FBT statutory rate unless you were on 180K plus or were talking an expensive car or drove a crap load of kms.

Good low km 2nd hand market will be impacted. They will become scarcer hence more expensive as something like 300,000 currently participating average wage earners will be penalised out of participating in future fleet buying power on new cars and may face financing issues so will probably not update their cars.

Any rate not in my interest to keep up this debate. So I’m jumping on the Yay they shafted those dirty tax rorters theme and MMS is going to get creamed as they deserve because all they have ever done is fleece the government.

NLC car leasing business loses 70% of business and is sacking 80 of 150 or so staff on the back of the idiot Rudd. This guy is not the prime minister he is a joke.
Gonna be giving more hand outs to Ford and Holden and Toyota again soon I guess, I suppose we will be able to supply cheap cars to the world funded by tax payers.

On top of this how much work is this going to create for employers to re-negotiate salaries with employees with car leasing perks?

Some examples so people can get their head around this – all based on 100% private usage.

Assumption: $35,000 vehicle, Actual costs incurred to finance the car through a novated lease $10,000pa

Expenses paid before tax so income is reduced by the $10,000. Saving to the employee $10,000 times marginal tax rate

The now defunct statutory method: $35,000 x 20% = $7,000FBT liability multiplied by the FBT rate of 46.5%. Paid by the employer but passed onto the employee.

The operating method – as all usage is private the full $10,000 multiplied by the FBT rate.

So for a person on 34% marginal tax rate.

Old Statutory method = Income tax saving of $3,400 FBT liability of $3255.
Operating method = Income tax saving of $3,400 FBT liability of $4,650.

A person earning over $180,000 and on top income tax rate.

Statutory method = Income tax saving of $4,650 FBT liability of $3255.
Operating method = Income tax saving of $4,650 FBT liability of $4,650.

High income earners lose the tax break but other benefits will still make packaging viable. Average wage earners are penalised out of obtaining other packaging benefits like fleet discount etc.

Now have a look at Industry body information as to who is actually leasing.

The average price of a packaged car is just $34,500
Just 5% of packaged cars are in the luxury category (BMW, Mercedes, Audi)
35% are made by local manufacturers Toyota, Ford and Holden
Over 70% of drivers earn less than $100,000

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http://www.aspia.com.au/downloads/ASPIA_Media_Release_18_July_2013.pdf

The Rudd/Bowan arguments and numbers just don't resemble reality. A lot of average wage earners are being penalised out of tax neutral packages to stop benefits (rorting?) only available to high wage earners.

Ruddy 2.0 should have just called an election before he did anything to remind us how shoot from the hip/non consultative he is.

Industry doesn’t look like it’s going to die quietly.

ALL sections of the car industry - representatives from manufacturers, importers, leasing firms and dealerships - are due to hold a crisis meeting at Toyota Australia's head office in Melbourne this afternoon.

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http://www.theaustralian.com.au/news/car-industry-to-hold-fringe-benefits-tax-crisis-meeting-this-afternoon/story-e6frg6n6-1226681232138

Thanks for those examples Craft, makes it very easy to understand the process.

craft said:

The Rudd/Bowan arguments and numbers just don't resemble reality. A lot of average wage earners are being penalised out of tax neutral packages to stop benefits (rorting?) only available to high wage earners.

Ruddy 2.0 should have just called an election before he did anything to remind us how shoot from the hip/non consultative he is.
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What kind of fricken BMW driver drives around all day on the job? How dumb are these guys?
What was scary was Abbot calling for an election straight up, which would not have allowed the milky bar kid to pull out his plastic pop gun and show us again what he's made of, unless the libs were smartly using reverse psychology encouraging him to dig in! Let's hope so!

craft said:

Some examples so people can get their head around this – all based on 100% private usage.

Assumption: $35,000 vehicle, Actual costs incurred to finance the car through a novated lease $10,000pa

Expenses paid before tax so income is reduced by the $10,000. Saving to the employee $10,000 times marginal tax rate

The now defunct statutory method: $35,000 x 20% = $7,000FBT liability multiplied by the FBT rate of 46.5%. Paid by the employer but passed onto the employee.

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Thanks Craft for the example. Here's what I got from Remserv's calculator, assuming a $70k salary (34% marginal tax rate), $35k car (as per your example), 4 year term and 15000 km travelled per year.



The calculator is claiming potential saving of $1558 per year which is a lot more than what your example suggests.

In the calculator, the car without novated leasing costs $12376 to own/run per year, which is the same as the number under novated leasing (first two blue items circled), so there doesn't seem to be any fleet discounts factored in.

In fact the calculator shows that the benefit comes from lower tax paid, and there is no mention of FBT payable by the employer passed onto the employee.

What am I (or are they) missing?

P.S. Appreciate your time if you choose to respond but perfectly understand if you don't want to spend too much educating me about novated leases...

skc said:

Thanks Craft for the example. Here's what I got from Remserv's calculator, assuming a $70k salary (34% marginal tax rate), $35k car (as per your example), 4 year term and 15000 km travelled per year.

View attachment 53426

The calculator is claiming potential saving of $1558 per year which is a lot more than what your example suggests.

In the calculator, the car without novated leasing costs $12376 to own/run per year, which is the same as the number under novated leasing (first two blue items circled), so there doesn't seem to be any fleet discounts factored in.

In fact the calculator shows that the benefit comes from lower tax paid, and there is no mention of FBT payable by the employer passed onto the employee.

What am I (or are they) missing?

P.S. Appreciate your time if you choose to respond but perfectly understand if you don't want to spend too much educating me about novated leases...

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12376 x 34% = 4207 PAYG saving – FBT liability would have been $3255 to get their potential saving they have utilised the Employer contribution Method (ECM) to the max $7000 after tax – which eliminates the FBT although it creates GST on the ECM.

This is about as optimistic as you could estimate the potential tax benefits - the 12376 for a 15K 4 year lease on a 35K seems steep – a figure I suspect maximised to flatter the potential tax break rather than accurately representing true final lease costs.

Not sure why they emphasise the tax savings as the initial drawcard rather than the cost saving that fleet discounts etc can bring – probably because the tax savings is universal whereas the fleet discounts to an extent vary and are dependent on who you work for and the prior negotiations as part of engaging the packaging company.

I say good riddance to the tax rubbish but just wish it was done cleaner – the uncertainty re the election and whether it will or won’t happen is ridiculous given the magnitude of the changes to the sales model needed. As is the penalty nature of forcing 34% marginal tax earners to pay 46.5% FBT rates for any benefit that is negotiated and provided via the employer as part of a package. If this stands then MMS ability to adapt would be severely hampered – their potential customers would be reduced to high wage earners and FBT rebated/exempt employers. My original thinking factored in removal of tax benefits but not the introduction of penalties – can’t believe it will stand but hey who knows with this crop of Muppets [also can’t believe I’m watching them climbing Alp d’Huez twice tonight in the tour either – but they are – lesson anything is possible]

The real business is group buying/financing and integration into automated payroll deductions. MMS now has the employer relationship base to implement that business model and all the small competition without scale are now dead without the tax cushion.

Don’t get me wrong – MMS will get whacked by this but so long as the 46.5% rate isn’t applied to everybody then they are well positioned to dominate a viable revised business model.

craft said:

Don’t get me wrong – MMS will get whacked by this but so long as the 46.5% rate isn’t applied to everybody then they are well positioned to dominate a viable revised business model.

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MMS is on my watchlist again (it was seriously overpriced on fundamentals previously.) Given Joe Hockey's recent statements I expect the coalition to roll back this change so whatever the magnitude of the hit to MMS share price it may become an excellent speculative buy pre-election. If the coalition wins (still very likely) it will be pay day. If not, still the strongest player in its marget segment by a wide margin.

craft said:

Don’t get me wrong – MMS will get whacked by this but so long as the 46.5% rate isn’t applied to everybody then they are well positioned to dominate a viable revised business model.

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Thanks Craft for your response.

Another incidental aspect to consider with the calculations is that family payments and other misc govt allowances are based on taxable income - if the vehicle costs come from pre-taxable income this sometimes allows for a higher family payment, as well as the lower medicare levy shown in the above example.

DocK said:

Another incidental aspect to consider with the calculations is that family payments and other misc govt allowances are based on taxable income - if the vehicle costs come from pre-taxable income this sometimes allows for a higher family payment, as well as the lower medicare levy shown in the above example.

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I’ve seen the Family tax benefits issue being misused in the media.

Currently. Family Tax Benefit is calculated using Adjusted Taxable Income which includes grossed up Fringe Benefits. So receiving a Novated Lease Fringe Benefit from your employee instead of cash has minimal effect on Family Tax Benefit – best case scenario would be a few hundred $

Under the new rules there will be a penalty if you are on a salary level eligible for family tax benefits in receiving a non cash payment because fringe benefits tax would be levied in full and calculated at 46.5% instead of your marginal tax rate. Potentially $1000’s worse off in Family Tax Benefit if taking a vehicle over cash.

This issue is such a political football of misinformation that it’s a joke. Understand the detail and the reality is that for anybody on over 180K it is now tax neutral as to whether your compensation for work is received as cash or some other fringe benefit.

For anybody on less then 180K anything but cash salary is now penalised. (therein lies my problem with this policy change.)

When you consider the packaging concessions have been used as the basis to lower cash compensation in a lot of average workers wage deals – how fair is this change?

Also consider how FBT was introduced in 1986. Previously there was no tax on fringe benefits. The cost of paying an employee is deductable to a business whether you pay it as cash or provide some other benefit for the employee’s private use. Problem was that PAYG revenues was being hit if employees weren’t paid in cash. So the FBT regime was introduced as a compensating revenue stream. Right from the start the statutory method was available – effectively not applying the new tax to all private usage. (Sort of like not applying GST to fruit and vegs etc.) Now if you had business use higher then what the statutory formula implied they made the operating method available to recognise that higher level of business usage. FBT regime was not designed to tax 100% of private use especially as it was a flat 46.5% tax rate. It was the concession to get the tax in and make it fairer for lower tax brackets.

Now the whole thing has been turned on it head and people are being led to believe the system has been rorted and it’s a matter of integrity that justifies the speed and mishandling that is causing havoc to some peoples livelihoods. When what they are really doing is increasing the extent of an existing tax (analogy would be repealing GST exemptions) and disadvantaging average wage earners compared to high income earners in how they may be compensated for their work. What amazes me, is those that just blindly accept the rort spin – talk about frogs in the pot .

Sorry – probably not a lot to do with MMS – just my rant.

craft said:

Sorry – probably not a lot to do with MMS – just my rant.

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But an interesting and informative rant I stand corrected on the FTB issue - goes to show you need to really research the facts rather than believe a lot of the misinformation that's out there. Thanks for clearing that up for me craft.

craft said:

Sorry – probably not a lot to do with MMS – just my rant.

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Your explanation is interesting and appreciated, craft. You're immensely well informed about many topics, and your willingness to share with others is a considerable contribution to this forum imo.

I expect the stock to actually do well now on re-open.....on Wednesday of last week clearly this was not the case and I expected another fall but truly not much as it had already given up $2.64 or 15%......now I actually expect a rise....as here is some facts:

1. This FBT change needs to be Legislated. So it has not happened yet as company mentioned
2. The Coalition has said on Friday they will not support this FBT change, so legislation with this government is finished with this term of parliament given the hung parliament. Coalition support for FBT remaining unchanged was hugely important for MMS share price.
3. Despite Rudd getting press with some better polls, the Coalition is still way ahead at $1.36 and Labor is $3.00 to WIN the election with Sportsbet and other agencies right now...so the coalition is not supporting the FBT change is far more important and stops this FBT change in all probability from even occurring. It also stops the shorts from entering...they will look at $3.00 Labor to get this up and have to bet on that....no thanks. They might actually now go long bigtime. The math is better.
4. The government may yet exempt Australian Cars given the storm of Motor Industry Lobbying, Vic and SA premier lobbying and then Holden and Toyota lobbying as this affects their sales forecasts and hence investment which is being negotiated right now. The government surely wont want that. I think this is the compromise from Labor....this may come this week hopefully
5. The company is then likely to release record FY13 full year results in early August given previous outstanding results and rising 30%+ ROE, EPS rises and even a good Div Rise....if they get the whole of these valid 5 points up we could see $18+ on re-open as uncertainty in MMS would we eliminated, clear skies would lay ahead and strong earnings forecast once more.

Right now MMS I believe theoretical price would have fallen to $12.50-$13.00 by Thursday and rallied back to $16 on Friday after Abbotts support....next is $18 again with an Australian Car exemption to FBT changes from Rudd and with August earnings uplifts we may even see $20ps+ and a short rally from hell.

Just my read. Rudd has closed in some polls but until he and Labor is ahead in polls and the bookies by a large margin, and they havn't given an FBT Australian car exemption (worse case), MMS is actually in good shape for real rise on return to trading of $3-4 to near $20 and if it breaks that...we are away technically.

Cheers.

GuruofGurus said:

I expect the stock to actually do well now on re-open.....on Wednesday of last week clearly this was not the case and I expected another fall but truly not much as it had already given up $2.64 or 15%......now I actually expect a rise....as here is some facts:


4. The government may yet exempt Australian Cars given the storm of Motor Industry Lobbying, Vic and SA premier lobbying and then Holden and Toyota lobbying as this affects their sales forecasts and hence investment which is being negotiated right now. The government surely wont want that. I think this is the compromise from Labor....this may come this week hopefully
.

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I'm not sure they'd be able to do that under the various free trade agreements they've signed up for.

banco said:

I'm not sure they'd be able to do that under the various free trade agreements they've signed up for.

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No it can be done as it is not a legal tariff or legal subsidy or fits the pure definition.
Its an FBT concession available to certain fleet and package buyers only of an Australian made product.

Meaning it is optional not complusory. It is not a broad base price advantage. It is also available to anyone that wants to manufacture here and not just Australian companies..eg. Toyota buyers would receive it.

The Legal Eagles could easily construct it so it conforms.

GuruofGurus said:

No it can be done as it is not a legal tariff or legal subsidy or fits the pure definition.
Its an FBT concession available to certain fleet and package buyers only of an Australian made product.

Meaning it is optional not complusory. It is not a broad base price advantage. It is also available to anyone that wants to manufacture here and not just Australian companies..eg. Toyota buyers would receive it.

The Legal Eagles could easily construct it so it conforms.

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The tide has turned in Mcmillan's favour once more. Heads they win tails they win... McMillan lost $2.56 too much last week. Why ?

Fact: 2 weeks ago we actually had more uncertainty for the MMS future because the Coalition had said nothing of potential changes to FBT and now they have committed to no changes and they are ahead in the polls/Betting markets.

Sellers would be gifting their valuable shares . Labor is $3.00 to win the election and by a margin on 5 seats they would be $15.00 outsiders to the Coalition $1.36 outright favourite. 3 PMs, 5 immigration ministers, pink batts, faceless men, Carbon tax, NSW labour corruption, Health service corruption, mistake after mistake, Julia was a joke and we all know it.

Smart money will be the MMS buyers at those odds. Thank god they received coalition support. It was key to retaining and restoring MMS value.
Cheers.

GuruofGurus said:

No it can be done as it is not a legal tariff or legal subsidy or fits the pure definition.
Its an FBT concession available to certain fleet and package buyers only of an Australian made product.

Meaning it is optional not complusory. It is not a broad base price advantage. It is also available to anyone that wants to manufacture here and not just Australian companies..eg. Toyota buyers would receive it.

The Legal Eagles could easily construct it so it conforms.

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The tide has turned in Mcmillan's favour once more. Heads they win tails they win... McMillan lost $2.56 too much last week. Why ?

Fact: 2 weeks ago we actually had more uncertainty for the MMS future because the Coalition had said nothing of potential changes to FBT post election and now they have committed to no changes and they are ahead in the polls/Betting markets.

Sellers would be gifting their valuable shares. Labor is still miles behind at $3.00 to win the election and by a margin on 5 seats they would be $15.00 outsiders to the Coalition $1.36 outright favourite. 3 PMs, 5 immigration ministers, pink batts, faceless men, Carbon tax, NSW labour corruption, Health service corruption, mistake after mistake, Julia was a joke and we all know it. Its not magically all solved by Ruddenomics.

Smart money and fund managers will be the MMS buyers at those odds. Thank god MMS received coalition support. It was key to retaining and restoring MMS value.

Did you like my 5 reasons it actually goes up on Thursday ? The tide has turned from a markets perspective.....I mean why sell because a few orders have been cancelled well there is a sixth reason they just became a monopoly in their space as well.....right ? as the lesser competitors thrown in the towel. Those clients move to Mcmillan.

Cheers.