Salary sacrifice and leasing a car

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

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Originally Posted by Brian Hjelm

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.

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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

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

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

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Originally Posted by 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

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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

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.

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Originally Posted by adm333

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

Dave

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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.

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.

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 !

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.