Salary sacrifice and leasing a car

[HAK]

Hi Guys

the wife is being offered a really good position with a new compony however this time there is no company car and we have grown custom to the company car appose to her VT commodore that we let the rego lapse as we have no real use for it any more any way she being paid the extra for the car allowance and was thinking of leasing a car as a salary sacrifice thingy but we don't know to much about it and before we approach an accountant who would ask the earth just advice I thought I would run it by you guys for feed back how does it work, how much should one earn in order to think of leasing a car as a salary sacrifice:confused:

[waynep]

Doesn't the full stop or caps key work on your keyboard ? ;):D

In my experience, Salary Sacrificing /Novated Leasing to buy a car is only really beneficial if a) you are on the highest tax rate and b) you do a lot of km a year. I had one but don't now.
You need someone to sit down with you and go through the sums for your circumstances.
I'm betting the Govt will change the FBT rules relating to novated leases anyway, because it's ridiculous in these days of reducing greenhouse gases etc, you get a bigger tax break the more km you do. If anything you should be rewarded for the less km you do !
I presume you're looking at a Novated Lease or Associate Lease ?
Some points to ponder :

-They're not bad but can be heavy penalties for getting out early. so you need to be sure you're going to keep the car for a while.
- If she loses her job, can't work for any reason, you will still need to make the same lease payments. ( or get out of the lease at big penalties )
- You need to look after the car, as the resale value affects what you have to pay out at the end of the lease. ( not like a company car where you just hand it back )
- You should get all your maintenance and fuel GST free.
- But it is still a loan, so you are paying interest, which would probably more than negate the GST rebate.
- You don't need to lease a new car, and suffer the devaluation when you drive out the door. You can lease up to a 7 year old car. ( depending on your leasing company )

[CaverD3]

Salary sacrifice is expense. But the cost can be out weighed by the tax savings. It depends on how much she earns. Your accountant will tell you if it is worth it for you.
If you get a LR you can get the corporate plan, if the company has a turnover >$30m, free servicing and free loan car (although Alto give a free loaner to all service customers) plus floor mats.
Most companies make you go through their leasing company but you do not have to buy the car through their dealer. Do your homework and wait till the end of the month and push dealer for the best price and you will do better than the corporate they will give you.
And get a motorpass card rather than a majors card as you will get diesel cheaper. (no dicount on diesel as petrol :mad:)
Oh yes as Wayne said if you lose job it is expensive to pay out. You can get insurance to cover this included.

[Signal1]

I look at leasing this way:

If you are going to purchase a new/used vehicle with the assistance of a loan, then leasing generally will be more beneficial. Break it down into three areas:

Loan Cost
Whether you purchase a vehicle privately with a car loan or lease a vehicle, the vehicle is still under finance for a period of time i.e. 5 years.

Operating Cost
Whether operating a vehicle under a lease or privately, the majority of operating costs will be the same i.e. Insurance, Rego, Tyres, Servicing & Fuel. In regards to fuel, yes, with a Fleetcard or Motorpass card, you get a few cents of the pump price of fuel.

Balloon
Under a lease, there is a balloon where as with a a privately owned and financed vehicle; the loan is finalised on the last payment (60th month)

Write all these costs down and compare. I have assisted staff at work do these figures and on every single occasion, leasing has worked out better. My car is better for it as I can actually afford all the operating costs instead of skimping and skipping things each month to make payments...it's all just goes on the card.

[foz.in.oz]

[QUOTE=waynep;

- You need to look after the car, as the resale value affects what you have to pay out at the end of the lease. ( not like a company car where you just hand it back )
- You should get all your maintenance and fuel GST free.
[/QUOTE]

When you leave the lease, most lease companies don't give a stuff about the state of the car. They just need you to pay what they call the resisdual. This is based on the "original cost" at the start of your lease and is normally a percentage based on how long the lease was set up to run for, ie 1 year 75% of the cost, 3 years 40% etc. The only time conditional value is an issue is if you intend to continue leasing another car and want to use the first car as a deposit.

Leasing can be a good thing or a bad thing. Yes you get tax releif on services and fuel, tyres and accesories (providing they are purchased with the car in the original sales contract), but you do have to pay a management fee. Also if you do less kms than you plan to, or you use more rubber, or more fuel, or they got the original figures wrong (ie wrong fuel consumption prediction) your payments will go up in the following year.

They can be good for easing the pressure when it comes to affording on road costs but they do not guarantee that you will be financially better off.

One other big downer is that the new Defender is classed as a comercial vehicle under the new fbt rules and some lease companies have refused to lease them.

Ray.

[Tote]

I have just leased a new D3 and the difference between paying for it on CHP or similar and Novated leasing is about $11k per annum. You do need to work out the costs based on your own circumstances.
Find out which Novated leasing company your wife's employer uses and their web site will have a calculator that allows you to calculate the impact on their take home pay.
A comment regarding having to pay for the vehicle if you lose your job, most companies force you to take out insurance cover that protects you if you lose your job through illness or redundancy.

An accountant is a good move though before commiting.
Regards,
Tote

[Tusker]

I'm surprised the difference is $11k. The luxury car limit is about $57,000, so a D3 is caught. You realy need to factor in the tax consequences, not just repayments.

Anyway, salary sacrifice invokes FBT, which at 48.5% is rarely viable unless you're in the top bracket, i.e. over $150,000 now.

Regards
Max P

[jik22]

As others have said, find out who the company is that's doing the novated lease and speak to them. I was new to Aus when I did mine, so didn't know the tax laws here (But have a good understanding of finance and tax laws in other countries so I could ask lots of questions!) but the advisor explained everything, did the savings calculations (and explained them to me so I could see they were both accurate and how they worked) showing I'd save significantly leasing my just bought D3 back to them!!

Basically, it allows you to pay for lease and operating costs of the vehicle from your gross (pre-tax) salary, and avoid paying GST on them. If you are in a higher tax band, this outweighs the additional cost of the lease over a cash purchase. If you also travel a good distance (Typically reckoned to be over 25k km's a year) you reduce the FBT liability too.

Bear in mind you do get a residual payment at the end of the lease that you owe on the car though, and it's your responsibility to pay this and then own the car, or sell the car to pay this. Not a problem if you're rolling it into a new lease, as they're calculated to be less than the trade-in, but worth thinking about. I just stuck the money that I would have used for a car purchase in an offset account so I'm saving the mortage interest on it too! ;)

For me, coming from the UK where you get screwed on both company cars and car allowances, Novated leasing is the best thing since sliced bread! :)

[waynep]

When you leave the lease, most lease companies don't give a stuff about the state of the car. They just need you to pay what they call the resisdual. This is based on the "original cost" at the start of your lease and is normally a percentage based on how long the lease was set up to run for, ie 1 year 75% of the cost, 3 years 40% etc. The only time conditional value is an issue is if you intend to continue leasing another car and want to use the first car as a deposit.

Ray.

You're right, but what I meant was if you want to sell the car to use as part or all of the residual payment. ( or hopefully even have a surplus ). As with any second hand car, what you get for it will depend on it's condition.
Well that's how it happened for me anyway. I hadn't heard of one where they'll take it back at a pre-agreed value.
In the good ol' days of company owned cars it was so simple - we just used to hand them back and get a new one - sigh
Some people at my place still get a company Shellcard. That's a very valuable bonus these days.

[Bigbjorn]

Never forget that if she dislikes the job and leaves, is sacked, or the company goes down the gurgler, she still has a car and also still has the debt. Insist on a company owned and funded car if a car is needed to do the job.

[cartm58]

Question you need to ask yourself does she actually need a brand new car, if she don't then novated lease ain't worth doing and your better off financially putting the cost of the novated lease into additional salary sacrifice superannuation contributions especially given changes to tax laws on superannuation.

If she does need a car and a new one then there are several options you need to consider, such as at end of lease period are you keeping car or getting another one under a new novate lease. Another option is taking out insurance to cover payments on lease if she loses or leaves work as well as covering balloon payment at end of 3 year lease period which depending on car lease arrangements could be 50% of new value, so in 3 years you need to find another $25,000 for example on $50,000 car. SOme companies have guaranteed buyback prices to pay for end of lease arrangements but of course they are building cost into slightly higher monthly payments.

All you are really doing is averaging your salary between FBT tax rate and PAYE tax rate and if on higher PAYE rates you make saving as FBT rate lower. How much you save depends on your salary and FBT rules on things like car business private use and km travelled per year etc.

You can go to ATO tax site and get information to do some quick calculations for yourself, also definitely talk to accountant and in particualr pay attention to lease costs and balloon payments as well as the monthly charges.

Shop around for deals too on salary packaging there a few companies competing to provide the service to employees, depending on what your wife employer is doing in relation to managing the salary packaging options internal or outsourcing them to financial service companies.

As i said if she don't need a new car don't do it, super it instead

[Tusker]

Never forget that if she dislikes the job and leaves, is sacked, or the company goes down the gurgler, she still has a car and also still has the debt. Insist on a company owned and funded car if a car is needed to do the job.

Gotta agree. There's nothing magical about a novated setup. The cashflow, tax & FBT outcomes are identical to a company leased and provided car.

The only difference is legal. As already noted, if she leaves the company under a novated lease, the company simply stops payments. The obligations continue with you to pay each month, or pay it out.

Regards
Max P

[adm333]

It does not have to be a brand new car.

Most companies will allow a novated lease / salary sacrifice on second hand vehicles, so you can take advantage of the process (assuming the numbers stack up) but not commit to such a large initial purchase price.

You are also then not wearing the big depreciation hit that goes with a lot of new cars (eg Land Rovers).

I bought my 9YO P38 under this arrangement.

The estimated annual milage is probably the single biggest consideration as it significantly reduces the FBT liablilty with each band.

< 15,000 Km - very high FBT probably not worth it.
> 25,000 Km - reasonable FBT - could be well worth it

Dave

[adm333]

Oh I just thought of another hidden trap for young players.

As far as I am aware, the balance of the lease is subject to GST.

So, if you leave your job after x time and decide to get a normal personal loan to pay out the balance you can automatically add 10% onto that amount.

ie. if the payout figure is $20,000 you will have to pay $22,000

I could be wrong about this but I'm sure it is the case in a number of novated lease scenarios.

Dave

[Tote]

I'm surprised the difference is $11k. The luxury car limit is about $57,000, so a D3 is caught. You realy need to factor in the tax consequences, not just repayments.

Anyway, salary sacrifice invokes FBT, which at 48.5% is rarely viable unless you're in the top bracket, i.e. over $150,000 now.

Regards
Max P

My employer is not affected by the LCT so they don't pass it on to me. Also if you are not in the top tax bracket you can take a portion of the payments out of post tax income with an effective tax rate at 42%
If you do more than 40,000Km a year FBT rates are at 9%, not 48.5%.
As I said you need to investigate the options thoroughly for your given situation.
Regards,
Tote

[Taz]

Does your employer allow associate lease? if so, depending on your partners income, this approach can be significantly cheaper and much more flexible in terms exiting early and the type/age of vehicle you choose. However it does involve a deeper level of understanding as it can effect family tax benefits and other personal tax issues.

[jik22]

< 15,000 Km - very high FBT probably not worth it.
> 25,000 Km - reasonable FBT - could be well worth it

Dave

Just to elaborate on this:

15-25k = 20% FBT
25-40k = 11% FBT
40k+ = 7% FBT

However, if most of your mileage is business, but your total mileage is low, you can use an alternative formula to calculate your liability and still get hit with less than the 20% your annual mileage would attract using the above figures.

You do really need to be in one of the higher tax brackets for this to be worhwhile though, and it doesn't make buying a new vehicle suddenly viable if you weren't going to do it anyway. Think of it more as a way of lowering your taxable income if you happen to want a new or newish car.

[Desert Traveller]

Having a novated both my last 2 vehicles, a D3 with extras and a VW Eos the following are my comments.
Look at residual value vs projected actual value (Redbook).
Unless you get a diesel and are doing more than 40k per year it is marginal. My current Eos is marginal @ 25001 kms per year (67 kms per day).
Just do the numbers VERY carefully, lots of benefits BUT all benefits have risks.
The on big advantage is you get what you want and not what the company gives you.

[Discopug]

I agree with desert traveller.
You need to be doing the high k's of more than 40k and have an economical vehicle ( usually a diesel ).
The FBT is at the lowest and the Gov probably thinks it will pick up the tax in fuel use.
Get some thing like the Peugeot diesel and you will laugh all the wayto the bank.
I have got my second novated lease, no other options for tax relief and i might as well have a near new car for the same amount I pay in tax.
The real benefit is at the end of the lease. If you get a higher valuation on the car than the residual then its tax free !

[Col.Coleman]

Depending on line of work, if over one ton carry, considered a commercial vehicle by tax department, no personal use expected and FBT does not apply. Mine is this way for the 130, everything is paid by me, and then is claimed as deduction, get 100%. Do a withholding variation about now and less tax is withheld every week, so more in your pocket each week and square up on final figures at tax time. TALK TO AN ACCOUNTANT. Everyones situation is different.

[HAK]

wow it doesnt sound worth it

[HAK]

Wow I'll get her to see an accountant, I dont think she will clock up the Km's to be truethfull, not with the new job it will be mostly flying I wonder if she can lease a plane :D so it may not be worth it and she just under the higher tax bracket she wanted a ford foucus XR5 any way not a land rover :(

[Michael2]

If she has a legitimate reason for claiming work related travel (refer to your accountant or ATO website), then owning a car and depriciating it at 26%p/a + proportion of running costs that are work related is a good option.

If the car is a commercial vehicle (ute or van that carries more than 1,000kg) and is used for work, then even if the work related use is not 100% , the ATO deem it to be commercial and the whole vehicle and all it's expenses are tax deductible. This criteria isn't industry specific, so even if you don't need a truck for work, the ATO still call it a commercial vehicle, provided you can legitimately claim the travel.

Please check with your accountant in case this criteria has recently changed.

However given this situation, a 130DC Defender makes for a very attractive work car.


I think this is reason why Salary Packaging companies don't offer high capacity utes, or the one I inquired about some years ago didn't.

[waynep]

with the new job it will be mostly flying I wonder if she can lease a plane :D

...now there's an idea ...I'd love to see that... a Cessna on salary sacrifice :D

[CaverD3]

Wow I'll get her to see an accountant, I dont think she will clock up the Km's to be truethfull, not with the new job it will be mostly flying I wonder if she can lease a plane :D so it may not be worth it and she just under the higher tax bracket she wanted a ford foucus XR5 any way not a land rover :(

She could always get a LR and you drive it and buy her a focus.:whistling:

Our D3 is my wife's leased car.:thumbsup:

[jik22]

Wow I'll get her to see an accountant, I dont think she will clock up the Km's to be truethfull, not with the new job it will be mostly flying I wonder if she can lease a plane :D so it may not be worth it and she just under the higher tax bracket she wanted a ford foucus XR5 any way not a land rover :(

She doesn't have to do the k's, and it doesn't have to be her car.....I leased the D3 for the wife, as she does higher k's than me, as I also fly everywhere with work.

However, if she's doing low k's, but the majority are business related, it might also be worth it. Gather all your facts and figures and pop to see an aco****ant.

[HAK]

yeah will do one last question can you trade cars with a lease ?

[jik22]

yeah will do one last question can you trade cars with a lease ?

If you mean can you trade a car on a lease in for a newer one, then yes....not done it yet, but if it's like finance I suspect the dealer will make the residual payment on your behalf and roll the (hopefully) positive balance forward as a deposit on the new one.

[Tote]

You get any positive balance on a trade in as a cheque from the dealer. It is not legal to pay for the new vehicle any other way.
Regards,
Tote

[jik22]

You get any positive balance on a trade in as a cheque from the dealer. It is not legal to pay for the new vehicle any other way.
Regards,
Tote

Well, I think you're obligated to declare the "profit" on your tax return as it came from pre-tax income, but I didn't realise that stopped the dealer taking it directly? Oh well, worst ways the dealer you knows you have it so you just have to bank it and then give it back to them! Doesn't really matter I guess.

[Bigbjorn]

My experience has been that the lease is for the full price of the new vehicle. The trade-in less payout is yours. It is taxable income unless the rules have changed in the last few years.

[Tusker]

yeah will do one last question can you trade cars with a lease ?


Do you mean trade a pvte car in on a financed on, or trade a financed car for another.

Either way you can, but the tax outcomes are obviously different. The new lease will be for the full amount of the new car as mentioned.

There's one tax trick that's often forgotten: There's as ruling or a case from about 10 years ago which I can't find now.

Anyway, if an employee pays out the residual, & subsequently sells the car at a profit, that's tax free.

Regards
Max P

More effort than simply trading in, but always worth looking at.

[VladTepes]

You realy need to factor in the tax consequences, not just repayments.

Anyway, salary sacrifice invokes FBT, which at 48.5% is rarely viable unless you're in the top bracket, i.e. over $150,000 now.

Regards
Max P

true but if you make 'employee contributions'(pay part of the costs pre rather than post tax) you can nett this out so no nasty surprises at tax time.



Find out which Novated leasing company your wife's employer uses and their web site will have a calculator that allows you to calculate the impact on their take home pay.

An accountant is a good move though before commiting.
Regards,
Tote

Concur. Some companies are better than others but many employers don't offer a choice only nominating one company you can use.


Doesn't the full stop or caps key work on your keyboard ? ;):D

In my experience, Salary Sacrificing /Novated Leasing to buy a car is only really beneficial if a) you are on the highest tax rate and b) you do a lot of km a year. I had one but don't now.
You need someone to sit down with you and go through the sums for your circumstances.

- You should get all your maintenance and fuel GST free.

- But it is still a loan, so you are paying interest



For us, doing relatively low kms and not eqrning heaps, it works out to be fairly revenue-neutral (as compared with a loan). It is nice to have it all (car payments, rego, insurance, fuel, maintenance, tyres etc) all wrapped up in one neat package so we know what we are paying all-up. So from that point of vieww we like it. Plus we got a new car. That's always a good thing.


Enjoy !