Thread: novated lease advice

Originally Posted by Sleepy

Reads90,

Please go and speak with an expert. I mean this in the nicest possible way, but some of the posts above are based on old info, and not quite correct.

The number of km's is less relevant now as the tax rate is changing to 20% Flat. There used (Prior to budget) be a 7% FBT for over 40,000km...this will soon raise to 20% (Phased in over next 48months) making the cost higher.

Have a read of the link I posted above.

"The new approach is a setback for drivers who live far from their workplace or require a vehicle to cover vast distances for various reasons. This segment will see its FBT bill increase incrementally over the next 4 years."

Only if the "Statutory Rate" method of FBT is chosen. There's no change I saw to the "Log Book" method.

It's a matter of whether you employer or outsourced vehicle supply company will use log book. Some don't because stat rate is easier.

Not hard to foresee an marked switch to log book method across the country though. Especially high annual km vehicles.

Regards
Max P

Originally Posted by Tusker

Only if the "Statutory Rate" method of FBT is chosen. There's no change I saw to the "Log Book" method.

It's a matter of whether you employer or outsourced vehicle supply company will use log book. Some don't because stat rate is easier.

Not hard to foresee an marked switch to log book method across the country though. Especially high annual km vehicles.

Regards
Max P

Quite correct Max, and I stand corrected.

I have novated for 15 years and was quite happy until Julia and Wayne got the razor out.

Thought I understood it, but not as well as I thought.

Here is a bit more reading that I found today Novated Leases - Taxation, FBT, GST. I have operated under the Statutory Method. Note: this site refers to the per budget rules, which were good if you could do 25,000km and bloody good if you could do 40,000km per year. These rates will transition to 20% over the next couple of years. Which is what screwed me. Thanks Julia!.

If you can use the Operating Methodthen, as Max has said, it may work out better.


Another good reason to listen to an expert.....

Also if you are leasing before April Next year and doing over 40,000 KM your FBT value for the life of the lease will be 13%, not 20%. The increase to the FBT is on a sliding scale.

If your business usage is high compared to your private usage over a representative 3 month log book period you are best to finance yourself and claim depreciation and running costs in your tax. $12000 tax refund cheques are nice

If you have a significant private usage over the 50000KM that you are doing you might be better off leasing as this gives you the advantages of all the running costs and the purchase price being GST free. With my lease I get a couple of fuel cards so going on a trip is a cheap exercise. These items are also paid out of pre tax dollars so there is a tax benefit there.

A company car is always going to be cheapest but you may not have the advantage of having something you like to drive.

You may be able to increase the depreciation schedule on your lease if most of your KM are business ones as well, that allows you to pay off a greater amount of the purchase price over the term of the lease than the generally fixed amounts.

Go see your accountant and give him you scenarios. That way you will get sound advice on a complicated subject. What suits one person may not suit another. I'm happy with my decision to lease a Disco 3 at about a $400 a month premium over what I was paying for a company falcon in my previous job.

Regards,
Tote

There's another hidden cost with novated leases. Because they reduce your pre-tax salary, they also reduce the amount that your employer will pay into your superfund on your behalf.

For example, if your novated lease reduces your pre-tax salary by $1,000 per month then your employer will pay $90 per month LESS into your superannuation fund.

This needs to be factored into your calculations.

Never forget that YOU are responsible for the lease payments. If you lose the job you will be unable to pay these on the rock'n roll. In my DSS days I saw plenty who had fallen into this trap. Unemployment may cause extreme financial hardship if you have a novated lease.

I always had a fully supported company car, full private use permitted, and if back in the workforce (unlikely at my age) I would not accept anything less. I always thought that a novated lease was a whole load of ****, a means of an employer shifting some of their costs and responsibilities onto unsuspecting staff.

Dont kid yourself, it will always cost you more to lease a car than to buy it.
Save up your cash and buy a near new car. I dont care what tax incentives you can use, the best car is an owned car paid for with cash. You can then buy privately or bargain with cash better than you can with a lease agreement.
Trust me, a car is no longer new once you have driven away from the dealer, and also add up the cost of servicing the car over the lease period and decide if you still want to go that way.
For example- 5 years of servicing will cost upwards of $8000
- You will have a car with 150000km or so
- You will have lost over half its worth in depreciation
- Plus 5 years of interest at 15% (ouch!)
You will be paying nearly $60000 for a $40000 acr plus forking out premium prices for servicing.

You would have to be paying a load of tax before that is worthwhile.

Dont want to put you off your dream car but this makes it sound a bit more like a nightmare!

That's exactly why I went for the car allowance method. I now own all of my cars outright, can choose where I get fuel, can choose where I get them serviced, can choose the type of tyres I want, can choose to upgrade components without breaking any lease terms...

But, leasing might be the only option for some people!

Originally Posted by 4x4_bugsy

Dont kid yourself, it will always cost you more to lease a car than to buy it.
Save up your cash and buy a near new car. I dont care what tax incentives you can use, the best car is an owned car paid for with cash. You can then buy privately or bargain with cash better than you can with a lease agreement.
Trust me, a car is no longer new once you have driven away from the dealer, and also add up the cost of servicing the car over the lease period and decide if you still want to go that way.
For example- 5 years of servicing will cost upwards of $8000 But it would cost you the same if you bought the car, and you would not be getting it GST free paid from Pre Tax dollars
- You will have a car with 150000km or so This depends entirely on how many KM you drive, would be the same if you bought the car
- You will have lost over half its worth in depreciation Same as if you bought it
- Plus 5 years of interest at 15% (ouch!) A quick google search shows interest raytes are currently at about &% and Toyota finance are offering 2% on some vehicles
You will be paying nearly $60000 for a $40000 acr plus forking out premium prices for servicing. Yes, finane costs money and cars are not an asset that will ever appreciate.

You would have to be paying a load of tax before that is worthwhile.

Dont want to put you off your dream car but this makes it sound a bit more like a nightmare!

Are You proposing to save up and buy a different (cheaper) vehicle instead of leasing? If so that is an entirely different argument. As I have highlighted your claims are a little absurd although you are entitled to your opinion. As a counter point I put the following argument.
The OP is looking at substituting a company car for which you would assume they are taking a cut in the pay they might earn of about 15K gross. The company car does not suit their needs and they do high Kilometres presumably on business, although this is not stated.

A fully maintained novated lease will cost them anually about 2/3 of the purchase price of the car from their pre tax salary, hence the 15K per annum charge for a company falcadore which typically costs a fleet buyer about $28K

So as a starting point they could novate a similarly priced vehicle at a similar cost to what they are paying now but they need to consider such things as the value at the end of the lease, the term of the lease and whether they can get a suitable vehicle for the $28K they are leasing.

Alternatively they could elect to novate a $40000 car for say 3 years. This option results in a higher cost but you get similar tax benefits to the company car and get a vehicle that you can use for both a work and personal vehicle that suits your circumstances.

Put another way, If I have a company falcadore and want to do the Simpson Desert in my holidays I could either keep my company car and then go out privately and buy a 4wd that suited my needs, register and maintain it or I could put a fraction of those funds into getting a leased car that is subsidised by the money that I would otherwise be paying tax on.

As I said before it is a complicated field. Take your situation to an accountant and get some advice on YOUR case.

Regards,
Tote