Novated leases?

bindi · 09-02-2005, 06:35 AM

Hi all,

Just wondering if anyone knows about this for cars. It was suggested for the hubby, but we've never looked into it before.

I'm assuming it's like my mother in law's set up, where you salary sacrifice (good tax break) and get a new/newish car. Everything is included in the weekly payment, such as tyres, servicing, petrol, insurance etc.

Is this right? How old can the car be, maximum? And are there any special dealers you have to go through (NSW)???

Thanks for any info

XWGT · 09-02-2005, 06:55 AM

Have a look at http://www.prosperion.com.au/pages/overview/default.htm

Also http://www.remunerator.com.au/

And many more

EA2BA · 09-02-2005, 09:41 AM

The main thing is make sure you do enough claimable business k's in the car or it will cost you money at tax time.

Pilch · 09-02-2005, 09:47 AM

Your km's travelled for the FBT financial year will have a large bearing on tax costs. making it to 25000k's is recommended, 40000k's if possible. Also, at the end of the lease the car is yours, and you can sell it at anytime (usually). If your hubby changes jobs while the lease is in progress, the lease will become your responsibility!

A novated lease car is a "personal" use car, so the total k's you do is the most critical, but as dellboy said business km's will be beneficial at tax time also!

**cs123** · 09-02-2005, 10:02 AM

Quote:

Originally Posted by Pilch

Also, at the end of the lease the car is yours

You have a residual you have to pay at the end of the lease. You can't depreciate a vehicle to $0 over the term.

09-02-2005, 01:57 PM

Quote:

Originally Posted by cs123

You have a residual you have to pay at the end of the lease. You can't depreciate a vehicle to $0 over the term.

and that residual is subject to GST

MADDER · 09-02-2005, 02:21 PM

One thing in regards to FBT. If you do between 25000 to 40000 in a year for example the FBT is roughly 11% of the purchase value of the vehicle. On the face of it the FBT would seem to almost cancel out any tax advantage there is to salary packaging a vehicle on an income that isn't in the top tax bracket.

But....

You can pay some of the running costs yourself with after tax dollars and for every post-tax dollar you contribute to the running of the Fringe Benefit, the FBT is reduced by one dollar. In the case that your in a $40,000 vehicle, the FBT will be about $4400 (based on 25000-30000kms). Now if you're in a thirsty Falcon and do 30,000k's then your fuel costs will go very close to equalling the FBT and almost cancel it out. See the "employee contribution" part of this PDF from the ATO HERE

bindi · 09-02-2005, 02:29 PM

Ok well currently he's on over $80k and he's (hopefully) about to be offered permanency (over $90k), which means he's definitely in the highest tax bracket.

He uses the EA to get to and from work (about 200km per day) as well as occasionally going to the company factory (about once a week, so another 100km or so).

We are just so sick of driving old cars that do nothing but break down - he needs reliability to get to work and back travelling those k's. Basically the plan is he gets another younger car (maybe an AU or a smaller auto - autos are wonderful in bumper to bumper traffic) and I either get the EA or we sell both our cars and get an ED or EF for me and the kids.

Let's hope it works out! Thanks for all the info, those websites are interesting

JPFS1 · 09-02-2005, 10:45 AM

I wouild only advise a novated lease if you are significantly into the top tax bracket..

They try to tell you that they have made leasing more afforadble by introducing the contribution method along with the statutory method, which technically it is better, but depending on the car it can and will significantly reduce your take home pay if your on the average wage, say, 50K.

I believe you can lease a car up to 6 years old???

The FBT, like others have said is extremely important also... need to do 25000+ to begin to make it worthwhile.

My advise is to consult with an accountant and go through both scenarios, leasing and buying it outright. It will all depend on the price of the car and your sallary.

Tote · 09-02-2005, 12:48 PM

Generally speaking if you do enought business KM to justify claimimg more than 60% business usage you are better off financing the vehicle yourself (Commercial HP, loan or whatever) and claiming a large tax deduction at tax time.
If you do a lot of KM you can't claim, travel to/from work for instance a novated lease may be the answer.

If you are in the top tax bracket you can significantly reduce the tax you pay as the novation comes from your pre tax pay and you effictively get a 47% deduction on the cost of your car and running costs.

You need to carefully investigate the number of KM you will do as Fringe benefits tax is applied to your lease payments on a scale that drops the greater number of KM you do. This will change the effective deduction you will get and may make a lease unattractive on a car that only does limited KM. (less than 20,000 per year)

You need to consider the value of the car at the end of the lease. There are minimum payout figures for the number of years of the lease.
they are something like:
12 months = 65.00%
24 months = 55.00%
36 months = 45.00%
48 months = 35.00%
60 months = 25.00%

It can be an expensive excercise if you lease an XR8 based on a $55000 purchase price for 3 years and then put 180,000 Km on it and find your trade in value is $18K. Thats $7K that you have to find to get out of the vehicle.

My figures are probably not very accurate, Ive only put them in to illustrate the things you need to think about. As stated above, ask your accountant what he thinks and then consider it carefully.
Also you need to realise that changing cars mid way through a lease isn't really a viable option.
Regards,
Tote

Dark Horse · 09-02-2005, 12:30 PM

It's definitely recommended if your gross salary places you in the top tax bracket.

Check which company the employer organises for the novated lease of the car, some are quite restrictive in certain conditions compared to others.

JPFS1 · 09-02-2005, 03:18 PM

Based on the info you've supplied Bindi... it would more than likely be very beneficial to go a novated lease.

09-02-2005, 05:05 PM

Be mindful that while the high K's help with the FBT calculations, you may even get up to the 7%, 40,000k rate with the figures you are quoting, the trade-in will not be brilliant against the residual due to those high K's. It really is a very fine balancing act.