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Thread: Novated Leasing

  1. #1
    1000+ Posts gti138's Avatar
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    Default Novated Leasing

    I'm starting to think about getting another car. Basically for this reason - My wife's cruising around in an '85 Nissan Pulsar which was given to us by my parents, sure it runs, but it has no air-con and she does quite a few k's each day (min 60k per day) and I worry about her being out on the highway in an older (less safe in a crash) car.

    So I currently have a loan for the 206 which I would keep and either her or I would drive it. I have the ability to get a novated lease deal through work. Now I know absolutely nothing about leasing cars, the benefits, pitfalls, costs, etc.

    If anyone here does lease can you tell me how it works and what the benefits are.

    The other option is to save for a bit and buy a cheaper 2nd hand car with cash.

    Any input appreciated!

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    Fellow Frogger! Phil Whitton's Avatar
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    There are a number of companies providing novated leaqsing. My company uses SMB which has a web page and allows salary sacrificing. You have to nominate your useage milage for FBT purposes and it includes all on costs: petrol/deisel, servicing etc with a calculated residual after the agreed lease.You can then buy it out or "roll it over".
    If you are looking to salary sacrifice talk to your accountant to see if it is viable and what tax benefits you may attract,

    Bon chance

  3. #3
    1000+ Posts gti138's Avatar
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    Thanks for that - I am going to have a chat to my accountant/financial advisor about this before jumping in but this place is such a wealth of knowledge I thought I'd start here!
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    1000+ Posts David Shearer's Avatar
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    Quote Originally Posted by gti138
    Thanks for that - I am going to have a chat to my accountant/financial advisor about this before jumping in but this place is such a wealth of knowledge I thought I'd start here!

    Yeah I think that is the best idea, speak to your finance guy and they can work out whether its right for you or not. I'm currently on a novated lease and it works well for us as we've done quite a few kms this year. Its great having rego, servicing, insurance and maintainence covered too.
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    Fellow Frogger! Dr Nick's Avatar
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    I currently have a vehicle on a novated lease and this is how I understand the system

    You're buying a car through the company and the repayments are coming out of your gross salary. You will be paying income tax out of your wage after the car payment has come out. This sounds great but is only really a benefit if you are in the top tax bracket and the car payments will drop you down into the next one down.

    There are a number of options and I'm guessing that they have different names with different companies. The one I have pays for all my fuel, registration, insurance and service costs (there are always things which aren't included so be careful of how you choose). There are others where you're only sacrificing for the repayments on the car, and I'm guessing some options between the two extremes. There's even an option (operating lease I think)in which you "operate" the car for the term of the lease and at the end the company takes it back and tries to sell it.

    The major pitfall is that you have to nominate the number of kilometres the car will travel. You have to be careful here because there is a Fringe Benefits Tax component involved and if you don't manage to make the threshold they there will be extra charges.

    The other thing is that through novated leasing you're not paying the whole car off during the term of the lease. The number of years you take the lease on for will determine what this residual cost will be, so at the end of the lease you'll have to cough up the remaining amount. Depending on the car you choose this residual amount may be more or less than the car is worth at that time. If you choose carefully you might be able to make a few dollars out of it.

    I'm sure there are points that I'm missing. The best bet is to talk with your accountant or financial dude to work out if it's good for you.

    Hope this helps!
    Nick
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    Salary packaging via a novated lease is only worthwhile when the fringe benefits tax is less than the income tax payable on the sacrificed income.

    The FBT for vehicles is calculated using an ATO formula based on the capital cost of the vehicle under lease and the total distance travelled by the vehicle each year. You really need to travel more than 25,000 kms per annum which brings the FBT rate down from 20% to 11% of the capital cost.

    BUT...following the introduction of new income tax scales from 1 July last year and new scales which start next July 1, employees on middle to high incomes can possibly pay income tax which is lower than the rate of FBT, making packaging unattractive. (After July 1 2006 the highest marginal rate cuts in at $125,000.)

    As always, it's best to obtain independent advice, especially when future tax rate changes have the potential to diminish the benefit.

    Talk with any of your colleagues who may be currently salary packaging and check their experience. Also check whether your employer allows an associate lease to be packaged. This type of lease allows the vehicle depreciation to be claimed as well as interest on the finance, which is not possible in a novated lease, but it works best if your partner is on a lower marginal tax rate than you (it operates like a form of income splitting).

    As for novated leasing, check out BMW Finance, they do novated leases and I know several people who have had good experience with them (it doesn't have to be a BMW and they finance used cars also).

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    Fellow Frogger! blomquvist's Avatar
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    Talk to a reputable Accountant is probably the best advice.

    A couple of quick observations:

    Using a log book can help substantiate use of vehicle for business purposes on a percentage basis, regardless of annual km. A three month log book sample is good for five years of claims, AFAIK.

    The lower the depreciation the better. The one key benefit of novated leasing is that any profit you make when selling the car at the end of the lease (eg profit = selling price - residual value payable) is NOT taxable. So if you can pick a car with low depreciation, you can actually reduce the overall costs of owning the car substantially (makes Froggys a less than good choice, unfortunately). This benefit enabled some people who leased the first Audi TTs have managed to do so for almost nothing.
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    sans witticism SLC206's Avatar
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    Quote Originally Posted by blomquvist
    So if you can pick a car with low depreciation, you can actually reduce the overall costs of owning the car substantially (makes Froggys a less than good choice, unfortunately).
    On the contrary, I sold my 206 GTi (138) for quite a bit more than the residual price that I had to purchase it for at the end of my last lease.

    "Common" cars tend to have huge purchase price discounts to start with (due to high fleet volumes, presumably) and so this can offset the lack of value at the end of a lease, compared to an "exotic" which would probably not attract much of a discount at the start of a lease, but could sell for more than the residual at the end of a lease.

    I'd also avoid blanket statements like "you must be in the top tax bracket" and "you must nominate at least 25,00km" as these are not absolutes, and rely heavily on individual circumstances. This is something a good relationship with an accountant/financial advisor can cover in detail.

    If you are in the market for a new car (something I think is an important factor) and can't pay cash for it, then a novated lease can compare quite favourably with a loan for a similar amount. It's certainly not a wise thing to do purely for "tax minimisation" reasons, however.
    Regards,

    Simon

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    So the first questions are:

    How far do you travel per annum (high total = good for FBT packaging with novated lease)
    What percentage use is for business (high percentage = deduct all running costs whatever method)
    What is your top marginal tax rate predicted to be during the term of ownership.
    Are you self-employed or an employee and if the latter do you maybe work for a govt department which can get FBT exemptions e.g. the health service.
    John

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    As an example, I am at the end of my novated lease of a 206XT, 4 years, 30% residual, 25000 km's per year. The actual "cost" (reduction in take home pay) is around $550 per month, which includes all servicing, fuel, rego, insurance and lease costs.

    So for a purchase price of around 20k, I have a balloon payment of about 7k for a 02 206 XT that has just over 100k km's on it. I'm quite sure I can get more than this for it if I decide to swap it over, but I won't be in a hurry to do this again as I don't need a new car, the 206 should last for a few years yet.

    Cheers

    Hoges

  11. #11
    Fellow Frogger! blomquvist's Avatar
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    Quote Originally Posted by SLC206
    On the contrary, I sold my 206 GTi (138) for quite a bit more than the residual price that I had to purchase it for at the end of my last lease.
    Congratulations, Simon. But I wouldn't want to generalise about residuals from one anecdote. Agree with much of the rest of what you wrote though.

    Cheers,

    Greg
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  12. #12
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    Has anyone mentioned you can lease a "used" vehicle. Nice to let someone else take the initial depreciation hit.

    Also, you can get "normal" loans (non-lease) that have a balloon figure if you need to reduce your monthly payments.

  13. #13
    sans witticism SLC206's Avatar
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    Quote Originally Posted by blomquvist
    Congratulations, Simon. But I wouldn't want to generalise about residuals from one anecdote. Agree with much of the rest of what you wrote though.

    Cheers,

    Greg
    Fair enough, however depreciation on the modern pugs (206, 307, 406, 407) is surely running at better than the residual payment for a 3yr lease (45%) so it's not just an anecdote, in my opinion. Obviously a GTi has a better residual than say an XR or an XT though, and the 180 had only just landed and was impossible to get at the time.

    Imagine if gti138 was looking at a Mark V Golf GTI, for example ( ) - he could make a killing on it as it is clearly the world's best motor car.

    On another note, I'm a little confused about the business use statement. My novated lease is fully maintained (fuel, rego, insurance, maintenance, etc.) and there is no regard for what I use it for, private or business. I guess some leases do take this in to account?
    Last edited by SLC206; 21st January 2006 at 05:22 PM.
    Regards,

    Simon

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  14. #14
    sans witticism SLC206's Avatar
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    Quote Originally Posted by mantra
    Has anyone mentioned you can lease a "used" vehicle. Nice to let someone else take the initial depreciation hit.

    Also, you can get "normal" loans (non-lease) that have a balloon figure if you need to reduce your monthly payments.
    That depends on the lease company. The one I use says it can be up to 18mths old at the start, and less than 5 yrs old at the end of the lease. This varies heavily with lease companies.
    Regards,

    Simon

    2018 308 GTi 2011 DS3 DSport
    ----
    2014 208 GTi 2007 207 GTi 2004 206 GTi180 2000 206 GTi 1995 306 XT

    www.peugeotclub.asn.au

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    i'm a tax accountant, but don't take my words as absolute but just as a guide.

    for it to be worthwhile, you need to at least do 15,000kms per annum for as for at least 4 years from the time you acquire the car.

    you don't need to be in the top bracket, but the savings are obviously more if you are in the top bracket. the cost of the vehicle (including running costs etc) need not result in you dropping into the lower bracket to be better off.

    ideally, having all costs relating to the car come out of your salary pre-tax would provide you a better result.

    generally, you should be at least $2k per annum better off if you did the minimum of 15,000kms per annum.

    you can lease a new or 2nd hand car, the FBT is worked out on the cost of the car, so the lower the cost, the lower the FBT.

    another benefit of leasing is also the fleet discount you can wrangle off the RRP of the car and dealer delivery is also reduced.

    BMW finance do a great rate if you don't have an employer preferred supplier.
    Leaseplan has been good too but pretty painful to deal with from an admin perspective, plenty of forms to fill.

    PS: yes, if you do business kms, then the FBT is also reduced.

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    1000+ Posts cruiserman's Avatar
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    We went down this same road last year. Depending on who your lease is through, mine is Rhodium = totalcare = Government buying power the discount on various cars is amazing. C5 HDi 3.5k dealer delivery 1800$ 407Hdi 1.5 k dealer delivery 900$ both with residuals in the 28k region (yeah right youll likely get that) took a trip to local land checked out cars that the family can actually fit in and travel some of the longer distances that we do in comfort hence the Statesman - discount 21k- yes that is 21 thousand dollars - dealer delivery cut to 100$ residual on a 75k klm locally recognised car $20,800 much easier to make a 10k profit than to make the residual on either the pug or cit. Make sure that you check out the details and get plenty of quotes prior to making your decision.
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  17. #17
    1000+ Posts gti138's Avatar
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    Thanks for the advice so far - It's something I'm going to look in to. I've got a week off in a couple so I'll go and have a chat with the relevant people then.
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  18. #18
    Fellow Frogger! Trixie's Avatar
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    Quote Originally Posted by SLC206
    Fair enough, however depreciation on the modern pugs (206, 307, 406, 407) is surely running at better than the residual payment for a 3yr lease (45%) so it's not just an anecdote, in my opinion. Obviously a GTi has a better residual than say and XR or an XT though, and the 180 had only just landed and was impossible to get at the time.

    Imagine if gti138 was looking at a Mark V Golf GTI, for example ( ) - he could make a killing on it as it is clearly the world's best motor car.

    On another note, I'm a little confused about the business use statement. My novated lease is fully maintained (fuel, rego, insurance, maintenance, etc.) and there is no regard for what I use it for, private or business. I guess some leases do take this in to account?
    If you say use the logbook method and your business use is a high proportion of your km travelled; say 75%, then you can deduct 75% of lease costs (or depreciation = 12.5% pa up to $57K plus term charges on a HP agreement which ends up much the same) and of all running costs. A fair bit therefore. Generally you have to claim it back later but it can reduce your tax burden more than using FBT benefits with novated leasing.
    John

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  19. #19
    sans witticism SLC206's Avatar
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    Quote Originally Posted by Trixie
    If you say use the logbook method and your business use is a high proportion of your km travelled; say 75%, then you can deduct 75% of lease costs (or depreciation = 12.5% pa up to $57K plus term charges on a HP agreement which ends up much the same) and of all running costs. A fair bit therefore. Generally you have to claim it back later but it can reduce your tax burden more than using FBT benefits with novated leasing.
    So you're talking about comparing a business lease with a novated lease?
    Regards,

    Simon

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  20. #20
    Fellow Frogger! Trixie's Avatar
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    Quote Originally Posted by SLC206
    So you're talking about comparing a business lease with a novated lease?
    Umm. Comparing a lease through salary sacrifice using FBT benefits to paying it out of post-tax income eg. Hire Purchasing it, and decucting the work proportion of running costs.
    John

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  21. #21
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    if you are able to justify using the car for business, you might as well do both!
    salary sacrifice and cut down the FBT with the business percentage. i think the outcome would be much better.

    the benefit would be that you only have to maintain a 12 week log book for up to 4 yrs unless your business percentage changes to more than 10% of your current logbook. less paperwork to maintain compared to claiming the deduction.

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