Novated Leasing - Your Thoughts?

[M&Ms]

As said here, novated leases are ok, but only if you circumstances stay the same for the term of your lease. It is your responsibility, not your companies. Also keep in mind you will have to pay out the balloon payment in the end if your arrangement isn't to hand the car back, which is money you have to find, and your car (especially if its a falcon you purchased brand new) could actually fetch you less in the second hand market than the balloon payment value.
I've got a lease, and did the math's before going in(highly recommend everyone does the same), and found im a couple of thousand dollars better off per year. However, the lease calculator would have me believe I'm 5-6 grand better off!
Also, something which hasn't been mentioned here, all your running costs and purchases (including vehicle purchase) may be GST exclusive, depending on your company (in my case, I save on GST also, added bonus!)

[devilcv8]

Originally Posted by Magna

did you elect to use the employee contribution method ECM? that way you make a an after tax contribution into your novated lease account which covers the FBT. that way the money goes straight back to you for use on the running costs of the car, rather than the ATO.

I just noticed the VE SS ute is a FBT exempt vehicle so you don't pay any FBT on it at all providing you're using it just for work and driving it to work and back.

https://www.ato.gov.au/General/Fring...otor-vehicles/

Yes I did do the ecm method.

Fbt exempt vehicles are only exempt if your employer allows a lease based on that. Being federal ps, they don't. So while it may be fbt exempt, it wasn't for me. And yes I did investigate that option, but couldn't get agreement

I was quite happy to do a new lease and only do the commute, but employer wouldn't agree

[paulb351]

I have a notated vehicle at the moment and doing the math the Fbt changes have killed the value that leasing notated provides. I did a two year lease as the fbt at 10k a year after tax made no sense to go for a long term


As others have highlighted the high leasing rates in notated schemes and the admin charges also transfer any remaining benefit to the finance co. If a dealer is offering low or zero financing then forget then ovation and take the cheap deal.

Re: early lease termination, the finance co use an approximation calc called rule of 78 to calculate the early payout which favours the finance co. I have also seen a deal where the no cation contract also asks for an additional monthly payment on to of the early payout calc (very harsh ) but I guess it ensures users don't payout early and run the course of the loan.

[cheap]

I would look for a well priced and well looked after 2-3 year old car to novate instead of new. Always look for someone else to take the big depreciation hit.

[turbodewd]

If you want to save money, buy a car and keep it for 10 years :^)

[PG2]

Just a follow up.....

I have done some very rough figures by working it out in the following way; I have added up the amount it affects my pay each fortnight plus the residual at the end. I then compared it to 'normal' car loan repayments (currently at 2.9%) plus all associated running costs (petrol, rego, insurance, servicing etc). If I am calculating it correctly, the lease is about $7000 dearer over the 4 year term.

[Polyal]

Im a novice at this but generally a lease will be more, they have their margin. But...the point of leasing is the whole pretax thing. What do you get when/if you fall back into. Cetain income bracket? Could be more than 7k over two years?

[Bonn]

Currently doing it with the GT, did it before with the XR8, changed jobs - no problems.
Love it.
Have pre-tax salary-sacrifice fuel cards = way to go!

Only catch; if you exit before the lease runs out, you lose money.

One of the best aspects is that all costs. including tyres, servicing (& in this case fuel) are just taken from a slush fund, which gets inflow from your car allowance, pre-tax.
No big lumps of expenditure, such as rego co-inciding with tyres, etc.
My lease plan lets it go way into the red, if necessary, and climbs back up into positive.
It's a great system.
There is a post tax component, if set up properly, to negate the FBT.

If you're after a money making/saving scheme, not sure.
If it's a way of having your dream car, with someone else and the ATO contributing - enjoy!

[NAK302]

we are currently on our 3rd novated lease car through our employer. i don't know the nuts and bolts of the tax savings etc but i do know we get quite a substantial fleet discount at time of purchase, discounted insurance and most definately discounted fuel prices. we do about 50,000km per year therefore we take our vehicle in to be serviced about every 3 months. this in itself is good for us as we don't need to pay at the time, it just comes of the maintenance costs already built into the lease. basically, my wife pays the lease straight of her gross wage which reduces her taxable income to offset such things as the medicare levy etc and keeps her out of the highest tax bracket.

[PG2]

I looked at it simply as how much it will save me overall in terms of dollars. I was looking at how much comes out of my back pocket for the loan repayments and running of the car over the next four years.

The figure I was given by the lease company is the 'amount it affects my pay each fortnight'. Therefore this figure already takes into account any tax savings I receive.

I have checked if it will affect government benefits and because of my wife's wages it won't change.

Another thing I thought of is the idea of having a slush fund for associated costs of running the car. Thinking in terms of the running cost slush fund - instead of leasing the car and paying interest on the slush fund why not put the difference of the loan repayment and the lease payment each fortnight in a savings account and earn interest instead?

I may be working this out the wrong way (and I am more than happy to be corrected).

[NAK302]

Originally Posted by PG2

I looked at it simply as how much it will save me overall in terms of dollars. I was looking at how much comes out of my back pocket for the loan repayments and running of the car over the next four years.

The figure I was given by the lease company is the 'amount it affects my pay each fortnight'. Therefore this figure already takes into account any tax savings I receive.

I have checked if it will affect government benefits and because of my wife's wages it won't change.

Another thing I thought of is the idea of having a slush fund for associated costs of running the car. Thinking in terms of the running cost slush fund - instead of leasing the car and paying interest on the slush fund why not put the difference of the loan repayment and the lease payment each fortnight in a savings account and earn interest instead?

I may be working this out the wrong way (and I am more than happy to be corrected).

it looks like you look at things from every angle and i commend you for that. i guess we are lazy with our money but it suits us in terms of a one payment program for the running costs of the high milage that we do.
novated lease isn't necessarily for everyone.

[PG2]

Originally Posted by GT-0733

it looks like you look at things from every angle and i commend you for that. i guess we are lazy with our money but it suits us in terms of a one payment program for the running costs of the high milage that we do.
novated lease isn't necessarily for everyone.

Exactly, leasing is not for everyone. I have many people at work who swear by leasing. Some of them can't believe I don't do it considering I was in car sales for 15 years.

I have re-checked my calculations and made a mistake with the fuel cost. It is around a $3500 difference in my situation. Maybe the leasing company has loaded me up with loan insurance(s).

[FoxtrotGolfXray 5.0]

Originally Posted by PG2

Exactly, leasing is not for everyone. I have many people at work who swear by leasing. Some of them can't believe I don't do it considering I was in car sales for 15 years.

I have re-checked my calculations and made a mistake with the fuel cost. It is around a $3500 difference in my situation. Maybe the leasing company has loaded me up with loan insurance(s).

Are you able to Associate Lease? Depending on your personal circumstances, this can effectively work as income splitting.

For best results, you do need to have enough money to be able to afford to purchase the vehicle in the first instance. However, with loans being as low as they are at the moment (especially through manufacturers), it would be interesting to run the calcs on loaning the money at, say, 2.9%.

I have one vehicle on Associate and one on Novated, only because I wanted a new car and my employer, at the time, would not allow a new vehicle to be Associate leased.

Associate is by far a better economic proposition, especially given that my wife earns under the tax-free threshold, even with the income from the car lease.

Craig H

[zilo]

Originally Posted by Magna

correct people forget to factor in the gov assistance like the family tax benefit when they reduce their taxable income through salary packaging.

when we crunched the numbers for a guy at work with a family he actually ended up with extra cash in his pocket over the life of the lease, which effectively cancelled out the balloon payment in the end!

yeah...BUT...if you do any overtime your hourly rate is reduced as well.

because your notional hourly rate drops by the corresponding amount.

can be costly if you add up time and a half and double time on a regular basis.

then the big catch?....who gets the depreciation?

the lease company.

Who suffers the depreciation...you do...without the deductions along the way...

the depreciation is the best tax deduction of all.

and you don't get it with a lease...THEY DO.

[PG2]

Originally Posted by psychobimbo

Are you able to Associate Lease? Depending on your personal circumstances, this can effectively work as income splitting.

For best results, you do need to have enough money to be able to afford to purchase the vehicle in the first instance. However, with loans being as low as they are at the moment (especially through manufacturers), it would be interesting to run the calcs on loaning the money at, say, 2.9%.

I have one vehicle on Associate and one on Novated, only because I wanted a new car and my employer, at the time, would not allow a new vehicle to be Associate leased.

Associate is by far a better economic proposition, especially given that my wife earns under the tax-free threshold, even with the income from the car lease.

Craig H

Thanks for your reply.

My work will not allow associated leases either. They are not flexible in how they allow us to lease vehicles.

[FoxtrotGolfXray 5.0]

Originally Posted by zilo

yeah...BUT...if you do any overtime your hourly rate is reduced as well.

because your notional hourly rate drops by the corresponding amount.

can be costly if you add up time and a half and double time on a regular basis.

Huh? Care to explain how your hourly income rate is decreased if you sacrifice some of your pre-tax income? The amount you earn per hour, either normal or overtime, is not impacted by how you use your money (either pre- or psot-tax).

Or have I misunderstood what you meant?

Craig H

[FoxtrotGolfXray 5.0]

Originally Posted by PG2

Thanks for your reply.

My work will not allow associated leases either. They are not flexible in how they allow us to lease vehicles.

Bugger! Oh well, was worth the thought.

[jimmyxr6t04]

I enjoyed my lease car, and when compared to a loan it worked out well. I was paying $350f/n for a $35,000 (second hand) turbo territory, and fuel was about $200f/n, so realistically it cost me $550f/n in repayments and fuel only.

My $53,000 (second hand) leased V8 caprice cost me about $700f/n, including all fuel, rego, tyres, servicing, etc etc... so for an extra $150 per fortnight it was all included. To me, it was worth it... It was convenient too. When i wanted to pay it out early, my residual came down pretty quick, and i ended up getting 32k for it, and owed 34k on it (after nearly 2 years).... If i had waited until the end of lease in a few months time it i probably would have broke even.

Just bought a new territory but used cash, my theory? if i had to borrow money, i'd lease, if i had the cash i'd use that.

[zilo]

Originally Posted by psychobimbo

Huh? Care to explain how your hourly income rate is decreased if you sacrifice some of your pre-tax income? The amount you earn per hour, either normal or overtime, is not impacted by how you use your money (either pre- or psot-tax).

Or have I misunderstood what you meant?

Craig H

Sorry mate...I can't make it any simpler than what I said.

If your employer pays your lease with pretax dollars then your package on the employers' books is less.

And so is your hourly rate....and so is your overtime.

Your employer loves it cause it's less payroll tax etc for him.

And I reckon less employer super contributions too.


I may be wrong but that's the way it was when I was last employed...

[Bonn]

Originally Posted by zilo

And I reckon less employer super contributions too.

No, Super is based on 9% of your Base salary.
If you have a car allowance, and use that, it's in lieu of a company car - great for avoiding Buzz-boxes, etc. If not, it brings your gross down, and your tax.
Each $1.00 towards your car is only the equivalent of $0.51 - $0.70 of your take home pay, so the higher your tax bracket, the less you're actually paying. What that means is on a tax rate of say 40%, for every $10k your car costs, your stiffing the government for $4,000 = pretty neat, eh!

[zilo]

Originally Posted by Bonn

No, Super is based on 9% of your Base salary.
If you have a car allowance, and use that, it's in lieu of a company car - great for avoiding Buzz-boxes, etc. If not, it brings your gross down, and your tax.
Each $1.00 towards your car is only the equivalent of $0.51 - $0.70 of your take home pay, so the higher your tax bracket, the less you're actually paying. What that means is on a tax rate of say 40%, for every $10k your car costs, your stiffing the government for $4,000 = pretty neat, eh!

Not sure if you are agreeing or disagreeing with me.
cause I asserted the same thing...the base goes down.

[JoshXR]

Im just about to come up on the end of my current lease, will be looking at doing it again just out of convenience, my employer uses NLC I have only herd good feed back from them, I also know of 12 colleges that also lease through them

As mentioned in other post a couple of things to look out for like excessive insurance premiums ect, saving on service cost fuel gst exempt plus if I use a certain provided I can save another 3% off of fuel, my fg turbo is currently out of warrenty and I'm due for another set of diff bushes and I was quoted through ford the lease price for that job was only $500.. Normally 800+.

They also have a calculator if your interested it gives you a rough figure however the prices don't include there fleet discount so the price comes down further, it's worth a look if your interested
http://www.nlc.com.au/calculators/

[devilcv8]

Originally Posted by zilo

Not sure if you are agreeing or disagreeing with me.
cause I asserted the same thing...the base goes down.

Both in Telstra and fed gov with leased cars the super was paid based on pre salary sacrifice wage, not after.
Tax etc. Was on the lower amount.

[jimmyxr6t04]

One other thing i forgot to mention, when leasing, i paid roughly $150-200 less per fortnight in tax, so in the 2 years of being on a lease, i paid approx 10k less income tax. Yes, i copped FBT to more than make up for it, in fact the FBT was more than the income tax, but when i factor in GST saving of about 3k, GST savings on all the fuel/servicing/tyres, it was worth it for me... A loan on its own on 53k would have nudged $500 (probably more) per fortnight, add my fuel and running costs and it made sense to lease, discounting the fact of the residual, as that only comes into play if you intend to pay out and keep the car. If constantly turning them over, i'd prefer to lease. The other good thing with the lease was, i ended up being about $2500 in front on fuel due to not using the car as much as a anticipated, so i got that back (but paid tax at my nominal rate). Was still a good little boost to my fortnightly pay, and nearly covered my residual short fall.

[Bonn]

Originally Posted by zilo

Not sure if you are agreeing or disagreeing with me.
cause I asserted the same thing...the base goes down.

No, Base stays the same - Base is Base, as per your contract!

[Magna]

Originally Posted by zilo

yeah...BUT...if you do any overtime your hourly rate is reduced as well.

because your notional hourly rate drops by the corresponding amount.

can be costly if you add up time and a half and double time on a regular basis.

then the big catch?....who gets the depreciation?

the lease company.

Who suffers the depreciation...you do...without the deductions along the way...

the depreciation is the best tax deduction of all.

and you don't get it with a lease...THEY DO.

you're paying the lease with pre tax dollars, which is similar to a deduction, the bonus is that you don't need to use the car for work purposes by using the statutory formula. by making a after tax contribution you avoid any fbt. the payout figure is usually the depreciated amount.

there's no point discussing overtime, etc as salary packaging/novated leasing doesn't work for everyone, but for those that do it works very well.

[FoxtrotGolfXray 5.0]

Originally Posted by zilo

Sorry mate...I can't make it any simpler than what I said.

If your employer pays your lease with pretax dollars then your package on the employers' books is less.

And so is your hourly rate....and so is your overtime.

Your employer loves it cause it's less payroll tax etc for him.

And I reckon less employer super contributions too.


I may be wrong but that's the way it was when I was last employed...

I'm certainly no accountant (who want to be ) so take what I say with a grain (or two) of salt, but I think you are wrong.

You are paid a wage or salary that is defined in pre-tax dollars. Based on that income, the employer contributes a percentage (or fixed amount, dependent upon the scheme you are in) towards your superannuation.

Out of this, the employee can make pre-tax contributions towards things like super, or a lease, etc and then the employee's 'pay as you earn' tax debt is calculated. This is taken off the employee's pay and made to the ATO. After this is taken out, the employee can then make post-tax contributions to such things as super, FBT, etc.

None of the above impacts upon the amount of salary, wages or superannuation that the employee earns, whether it be standard time or overtime payments (which are all pre-tax income).

So, to clarify, making pre-tax payments does not affect the pre-tax wages or salary an employee earns and therefore does not impact upon the 'package on the employer's books' as you have stated. The figure on the employer's books is a pre-tax value, not a post-tax value. And therefore, there is no impact upon the 'hourly rate'.

Craig H

[Bonn]

...and the way around Depreciation is to lease a second-hand vehicle.
As long as it is no older than 8 years old at the end of your lease, you're in.

[zilo]

Originally Posted by psychobimbo

I'm certainly no accountant (who want to be ) so take what I say with a grain (or two) of salt, but I think you are wrong.

You are paid a wage or salary that is defined in pre-tax dollars. Based on that income, the employer contributes a percentage (or fixed amount, dependent upon the scheme you are in) towards your superannuation.

Out of this, the employee can make pre-tax contributions towards things like super, or a lease, etc and then the employee's 'pay as you earn' tax debt is calculated. This is taken off the employee's pay and made to the ATO. After this is taken out, the employee can then make post-tax contributions to such things as super, FBT, etc.

None of the above impacts upon the amount of salary, wages or superannuation that the employee earns, whether it be standard time or overtime payments (which are all pre-tax income).

So, to clarify, making pre-tax payments does not affect the pre-tax wages or salary an employee earns and therefore does not impact upon the 'package on the employer's books' as you have stated. The figure on the employer's books is a pre-tax value, not a post-tax value. And therefore, there is no impact upon the 'hourly rate'.

Craig H

yep, you're not an accountant.

In my opinion you haven't "clarified" anything, unless you mean clarified your opinion?

Hourly rate is affected by pre-tax salary sacrifice.

Happened to me, the employer was Fujitsu Australia.

[FoxtrotGolfXray 5.0]

Originally Posted by zilo

yep, you're not an accountant.

And I take it that you aren't either?

Originally Posted by zilo

In my opinion you haven't "clarified" anything, unless you mean clarified your opinion?

Hourly rate is affected by pre-tax salary sacrifice.

Happened to me, the employer was Fujitsu Australia.

Ok, well, let's agree to disagree on this. Your circumstance is the first I have ever heard of anyone's hourly rate being impacted by the amount that they sacrifice out of their gross pay. First time for everything, I suppose.

As a result of this discussion, I would strongly encourage anyone considering novate leasing a car through their employer check with their employer first as to whether their hourly wages/salary is impacted by any pre-tax payments. I would suggest that most people will not be impacted by this, based purely on my own personal experiences.

Craig H