Novated Lease

[peter_rs]

Ok a rare non golf question.

Is anyone doing this for there car? Any pitt falls?

As it happens I have have had a continuing loan on my Subaru's for the last six years.

I normally upgrade just before 3 years, so the trade value of the car covers the loan + a couple of K for a trade.

Would it be better to go with a novated lease so I pay the repayments before tax, the repayments are less and I still have the same balloon after 3 years?

The next car I'm looking at is only for 3 years or so before the family car.

Is there a smart way to go? I bro in-law pays his car of in 2 years but that is for company use.

So any advice Rusty, MTB, JC anyone?

[henno]

FBT is the killer. Unless your taxable income is quite high, or you are doing a lot of kms per year (or both) it is barely worthwhile in my opinion. I would say unless you are earning 80K+ and/or do more than 15000km per year I wouldn't bother.

If you are paying 30% tax, but are hit with FBT of 28% it is hardly worth it.

I have a company vehicle, rather than a novated lease. I only get to chose my car from a small handful of preferred models, but it is simply not worth my while to forgo the before-tax income just to be able to pick a different car.

[BrisVegas]

I've had a fully maintained (car, fuel, servicing, rego, insurance) novated lease for 2 years now and i'm a fan. For me, it's a good way to budget for any and all car expenses. It also lets me drive a new car that's under warranty the whole time i'm paying for it. I can choose to buy it outright or trade it in at the end of the lease and and leftovers in my account and/or surplus over the residual value is mine to keep. It also lowers my taxable income which helps a bit for Family Tax Benefits etc..

Novated leases "can" make sense depending on your circumstance. These days, most novated leases are done using the Contribution Method. The "contribution" is really just the FBT tax and is based on the annual kilometres travelled. eg. 15,001-25,000km is 20% FBT. 25,001-40,000km is 11% FBT etc.... (ie. FBT reduces if you do more kilometres as the govt presumes the more driving, the more it's work related.)

Lots of info around on the web. I use SMB. http://www.smb.com.au/NovatedLeaseVehicles/default.aspx

[peter_rs]

henno is that work km or all?

25000Km/year over the last 6 years, 3-5K of those are work.

[BrisVegas]

It's ALL kilometres, hence my comment that the ATO presumes the more km you do, the more work related it must be.

[senecio]

A timely post this one. I've recently landed a promotion that has the option of a novated lease if I choose. I spoke with my sister (accountant) and her advice was very similar to Henno's. It is only worth it if your taxable income is high and you can keep the FBT down with high Km's.

I now tick both those boxes so it looks like a goer for me. It will work well for me as I can now take my current car off the road full time and relegate it to weekend duties. Something always hoped to do.

[tg01]

You need a high income and do lots of kays, I would suggest 25k a year to make it worthwhile.

Its how I package my car and it works well for me, I pay for all fuel pre-tax and given my car generally gets 800k on a tank around town it is brilliant.

[poidda]

So it's worthwhile doing a "Ferris Buhler" to get the kms up to save the FBT? ;)

[BrisVegas]

yes for sure! Clicking over 25,000km is worth 9% of the car's value to me as a lump sum at the end of the FBT year.

[mikezone13]

So it's worthwhile doing a "Ferris Buhler" to get the kms up to save the FBT? ;)

Yeah I have a mate that near the end of every period he offers his car up for use for anyone that is going up or down the coast to get his Km's up.

[Moe Norman]

I had one previously and only did 18,000kms and it was a killer for me, not worth it at all.

I now have a company vehicle instead and its much better.

As everyone else said, if you do the km's it's worth it for sure. You really have to be sure that you will though

[peter_rs]

I need an accountant :oops:

[Johnny Canuck]

If you do less than 15K per year, you are paying 26% FBT. Depending on your circumstances, this can still be beneficial.

If you are doing in excess of 25,000km per year, it will definately save you a good amount of money, as you only fall into the 11 percent stat fraction bracket.

Another benefit is if you incur any additional costs (ie. insurance excesses), you can use these an employee contributions to reduce the amount of FBT the you would have to pay.

The employee contribution method is very good too, a much better way of doing FBT than the full payment method.

Make sure that you get over your nominated kms for the year or you can be faced with a big bill.

The four brackets are:
0-15k
15-25
25-40
and 40+.

It doesn't matter if you drive 15,001 km or 24,999km, you still pay the same amount of FBT on the year.

What Fleet company does your company use? If you ask them for a quote, they should breakdown how much you will save over the course of a year and over the duration of the agreement.

Finally, you will save the GST on the purchase price of the vehicle. For instance, if your vehicle is $40K, the financier will pay the $4000 GST and claim it back. You will only finance $40K, not $44. You do have to pay GST on the residual.

As a final incentive for those that pay child support, novated leases will decrease your taxable income, so you have to pay less to the missus. However, we do not promote this aspect when selling the product, for obvious ethical implications.

I hope this helps.

[Johnny Canuck]

Generally, traveling more than 15K per year will save you money, unless you make next to nothing.

[Grunt]

I do it as I do 25000km/year and it brings me down a tax bracket. is worth it for me. I am on my 2nd 3 year lease and will either be extending it or getting another in May next year. Have to agree on the 25000km+ comments though.

[amanda]

One other thing - I know you love the Subaru - but if you drive a ute - because it's classed as a truck - no FBT to worry about (and no need to drive useless kms)

Our 2nd car is likely to be a ute (we will have huge gardens that will need a lot of work) that I'm thinking about organising as a novated lease through work.

[Grunt]

QANTAS would not let us get utes for this very reason Amanda.

[amanda]

Wow - UTS allows utes & vans - especially because the engineering & science profs are often carrying bulky stuff around.

I think even one of the VPs of the uni is driving one to save on FBT (this guy started as an accounting professor - figures!)

[Johnny Canuck]

One other thing - I know you love the Subaru - but if you drive a ute - because it's classed as a truck - no FBT to worry about (and no need to drive useless kms)

Our 2nd car is likely to be a ute (we will have huge gardens that will need a lot of work) that I'm thinking about organising as a novated lease through work.

There are a lot of restrictions regarding novating vehilces classified as trucks.

If you are going to pursue this avenue, definately look into it a bit further. Just because it is classified as a truck does not automatically mean that it is FBT exempt. The government places great restrictions on the private use of these vehicles.

Found this: To be exempt it should be limited to:
* travel between home and work
* travel which is incidental to travel in the course of duties of employment, and
* non-work-related use that is minor, infrequent and irregular (eg. occasional use of the vehicle to remove domestic rubbish).

[Johnny Canuck]

If you have anywhere I can get a good read up on this Amanda, can you pass it on? I need this knowledge for my job.

[amanda]

Johnny - nothing on hand - just verbal info from the Taxation Law lecturer here at uni and the VP (who used to work in our department) - sorry! I know that the uni has organised leases for people with Toyota Hilux, Mazda Bravo, Nissan Navara (not sure if that helps you though)

[BrisVegas]

One other thing - I know you love the Subaru - but if you drive a ute - because it's classed as a truck - no FBT to worry about (and no need to drive useless kms)

Serious??? That's a massive $$ savings versus a normal car. :smt038


hmmmm, lemme go check out dual cab utes for my next family car!

[amanda]

But utes are definitely not as safe as your regular family car - because they are a truck there are apparently less safety standards. I'm not sure if any utes are ANCAP rated

[peter_rs]

thanks guys

[BrisVegas]

i did a bit of digging around and utes are NOT exempt from FBT when it's a personal use novated lease. There are ways around it with FBT exemptions from employers (eg. Grunts emplyer QANTAS wont sign them) for work use vehicles but I wouldnt wanna be in a grey area when it comes to the ATO.

[amanda]

I have no idea how they do it at UTS then - perhaps we have to use the car to transfer goods between our campuses?

[markTHEblake]

I got my car through South Gate Fleet (http://www.southgatefleet.com.au/) they do the whole thing; finding you the cheapest car through fleet sales, and they also manage the whole Novated Lease thing.

If you get in contact with them they will give you the complete rundown, as well as save you a bunch of money on the actual purchase of the car, and no putting up with car salesman lies.

[Dazza]

But utes are definitely not as safe as your regular family car - because they are a truck there are apparently less safety standards. I'm not sure if any utes are ANCAP rated

There's only one star difference between the current Falcon Ute & the Falcon Sedan.
http://www.ancap.com.au/results/302/

http://www.ancap.com.au/results/285/

http://www.ancap.com.au/

[Rusty]

Pete under which method did you claim for your car previously?

[peter_rs]

Rusty in the past I have just done a loan and got a fuel allowance.

[peter_rs]

http://img261.imageshack.us/img261/7577/24122008239cu7.jpg

Santa came early. :)

Went with the Novated Lease in the end Aussie Fleet Management (www.aussiefleetmanagement.com.au). I'm glad that Subaru released a sedan and Subaru Australia & the Australia rally team developed the spec's for the MY09.... way better then the MY08. The MY09 has been out less then a month and there is a wait for up to March for some Specs.

[Grunt]

Nice car

Pete, did you get info on the govt's plans to change FBT rates? Saw an article last week that talks of then getting rid of the tax breaks, they have had enough of all the relief for the higher level income earners.

I will try and find it.

[Grunt]

Here's the link

Rudd Govt to update FBT (http://www.news.com.au/business/money/story/0,28323,24836443-462,00.html)

[peter_rs]

Looked at the article and it sounds like hot air....

I will ask about it.

[BrisVegas]

that's a nice colour.

[Tomo]

Did the fluffy toys cost extra?

[shazza_rs]

nope ... they've survived three cars now.... happy meal goodness :)

[CobraSS]

Did the fluffy toys cost extra?

They will cost extra if a cop having a bad day spots them......

[shazza_rs]

they aren't affecting the line of sight.... they sit behind the rear vision mirror... hardly blocking the view

[BrisVegas]

how many baby capsules fit across the back seat?

[just]

Indeed! Pete & Shaz, have you thought about a nice people mover or a station wagon? For that matter have you given thought to a house in the 'burbs?:razz:

[shazza_rs]

BV> two would fit easily.... its whether we can fit the rest of the crap associated with kids in the back with two sets of golf clubs :)

Just> I've told Pete a million times that i refuse to drive a wagon/mini van! And no plans to move to the burbs yet...... gotta get the marriage bit out of the way first. :)

[goughy]

gotta get the marriage bit out of the way first. :)

Showing real commitment here..... :)

[PeteyD]

I've told Pete a million times that i refuse to drive a wagon/mini van!

I can lend you the truck, and the kids!

[BrisVegas]

...i refuse to drive a wagon/mini van! And no plans to move to the burbs yet...... gotta get the marriage bit out of the way first. :)

that sounds familiar! I'm now living in the 'burbs and seriously considering a 7-seater as my next car... :o

[LarryLong]

Just stumbled across this thread. Work has that option for me and I'm thinking about it. I was wondering if anybody in the know would know if there's a 'sweet spot' from a Total Cost of Ownership point of view when it comes to the price of the car?

For example, if I had the choice of leasing a $30k new car, a $25k second hand car or a $15k second hand car, is there a price range and age of car that gives you the best bang for the buck?

Are there any makes or models that would improve your outcome with a novated lease? Normally I'm a subaru man because they seem to hold the value well, and I assume that would help you get better value if you could sell the car for more at the end of the lease (or does that just result in better profits for the leasing company?)

[Grunt]

it is actually closer to $40K that is becomes effective with Buy back options and the like.

[drnick]

Just don't sell them too quickly if you are leasing. Have had my Polo GTI 6 months and now I have to move it on as the family is going to get bigger soonish. Tops planning there Sean. Hahahaha.

Going to do a fair bit of cash on mine.

Anyone want a Polo GTI? ;)

S

[Johnny Canuck]

Just stumbled across this thread. Work has that option for me and I'm thinking about it. I was wondering if anybody in the know would know if there's a 'sweet spot' from a Total Cost of Ownership point of view when it comes to the price of the car?

For example, if I had the choice of leasing a $30k new car, a $25k second hand car or a $15k second hand car, is there a price range and age of car that gives you the best bang for the buck?

Are there any makes or models that would improve your outcome with a novated lease? Normally I'm a subaru man because they seem to hold the value well, and I assume that would help you get better value if you could sell the car for more at the end of the lease (or does that just result in better profits for the leasing company?)

no profits at the end for the leasing company if you are selling the car.

subarus are great at holding value, a smart car to novate.

in your case i would go $30K new car as 2nd hand can always get expensive in repairs. a newer car should be worth more at the end as well.

[rebjon]

no profits at the end for the leasing company if you are selling the car.

subarus are great at holding value, a smart car to novate.

in your case i would go $30K new car as 2nd hand can always get expensive in repairs. a newer car should be worth more at the end as well.

Listen to JC he is god with leasing vehicles ........

[Johnny Canuck]

don't make anymore work for me rebjon...

[rebjon]

don't make anymore work for me rebjon...

roger roger....

but i did say just listen...

btw BMW are also great vehicles to lease..I had a 120i leased for 3years and made cash on it when i traded...but be careful BMW wont take them back after 90ks

[Johnny Canuck]

with a novated lease, you own the vehicle from the get-go rj. there is no taking them back, unless you can somehow arrange a buyback with a dealer beforehand, which usually does not happen.

[rebjon]

with a novated lease, you own the vehicle from the get-go rj. there is no taking them back, unless you can somehow arrange a buyback with a dealer beforehand, which usually does not happen.

There is a balloon payment at the end of the lease period, from memory its 20ish% off the purchase price.

BMW will buy the car back if its in good nick that what i did....payed me cash and I payed out the balloon payment myself before I bought the REX.

You can also pay it out (get a loan) and you own the car or some leasing companies will buy the car back from you if you lease another car through them, usually at your loss but you don't have to worry about exchanging cash ect....

[BrisVegas]

Most novated leases have standard residuals. ie. 40-45% after 3 years. This is probably accurate for the tradition fleet vehicles (Falcon/Commodore/Camry et). Things like VW, Subarus, Honda etc are typically worth a bit more than that after 3 years, so there is "potential" to pocket some money if you sell the car or trade it at lease end.

If you decide to keep it, then lease something that you will want to own as a 3 yo vehicles... My opinion is that simpler, cheaper cars are better to own long term, whereas the more sophisticated cars are nice to own for 3 years, but you're better to get rid of them before expensive, sophisticated things start to go bang.

FWIW, I leased my $26k Focus as it's a car that is pretty basic and I plan to buy it out and run it til it dies, hopefully in 10+ years time.

Another thing worth looking at is the actual $$ allocations for things like fuel, tyres and servicing etc... New cars don't typically need much in the way of servicing, but can cost a packet for tyres and brakes etc that last <50,000km typically. For instance, my little Focus has cost virtually nothing ($150) per 15k service and has used $1k less fuel than budgeted for. But, I just replaced the tyres and they were $1100, which is way more than they'd allowed. In the end it all works out because all the allowances go into one bucket. At the end of the lease my car will have a surplus of several $k which I can put towards buying it out.

[LarryLong]

no profits at the end for the leasing company if you are selling the car.

subarus are great at holding value, a smart car to novate.

in your case i would go $30K new car as 2nd hand can always get expensive in repairs. a newer car should be worth more at the end as well.

That surprised me, I was thinking that getting a car just old enough for the new car price drop to have happened would ensure that the price stayed up compared with a new car that depreciates quite a bit. I heard a whisper that you can get them GST free with some leasing companies - is that true? If so, I guess that would make the new car option much better.

Certainly keen to minimise maintenance. As a non-mechanical chap, second hand cars scare me.

Hadn't thought of the luxury type car option, but I guess if there was a car that could keep its value to the point where it would pay for itself I'd be all over that. I think I need to speak to an accountant.

On a slight tangent, a mate says to go for a chattel mortgage instead of a lease - is that good advice?

[AlexMc]

I did my Novated Lease at 16K km's and it does work out a little bit better than financing it outright - certainly the rego and insurance is a bit cheaper (insuring a Golf GTi is expensive even at the age of 35 with a 60% NCB), fleet discount and not financing the GST is a great bonus as well. My lease covers rego, insurance, part of the fuel, servicing, tyres...it works pretty well for me.

[Johnny Canuck]

Most novated leases have standard residuals. ie. 40-45% after 3 years. This is probably accurate for the tradition fleet vehicles (Falcon/Commodore/Camry et). Things like VW, Subarus, Honda etc are typically worth a bit more than that after 3 years, so there is "potential" to pocket some money if you sell the car or trade it at lease end.

If you decide to keep it, then lease something that you will want to own as a 3 yo vehicles... My opinion is that simpler, cheaper cars are better to own long term, whereas the more sophisticated cars are nice to own for 3 years, but you're better to get rid of them before expensive, sophisticated things start to go bang.

FWIW, I leased my $26k Focus as it's a car that is pretty basic and I plan to buy it out and run it til it dies, hopefully in 10+ years time.

Another thing worth looking at is the actual $$ allocations for things like fuel, tyres and servicing etc... New cars don't typically need much in the way of servicing, but can cost a packet for tyres and brakes etc that last <50,000km typically. For instance, my little Focus has cost virtually nothing ($150) per 15k service and has used $1k less fuel than budgeted for. But, I just replaced the tyres and they were $1100, which is way more than they'd allowed. In the end it all works out because all the allowances go into one bucket. At the end of the lease my car will have a surplus of several $k which I can put towards buying it out.

Sounds like you paid too much for rubber. Shouldn't cost that much for a Focus. Did you go through the dealership? That could be one reason.

Novated Leases work as follows:
1 year - can reduce the residual to approx 65% of the purchase price
2 years - 56%
3 years - 46%
4 years - 37%

These are limits imposed by the ATO.

If you sign a novated maintenance agreement, check and see if it is reconcilable. If it is, you can have funds left when it is all said and done. My company is a little shady in that they do not return these funds, unless you ask for them. I am sure there are others out there similar to mine.

[BrisVegas]

Sounds like you paid too much for rubber. Shouldn't cost that much for a Focus. Did you go through the dealership? That could be one reason.


As if I'd take my car back to Fraud Service!!! I shopped around a bit for tyres and got a good deal I reckon. Mine takes an odd size (same as Mazda SP23) at 205/50R17 93W, so there aren't too many cheap options that are load rated sufficiently. I don't see tyres as an area for compromising, especially now that I have a wife and kids. I got Bridgestone Potenza Adrenalins for $260 each and scored the free flight promotion they're got going currently.

I checked my lease and the surplus funds are returned to me at lease end.

[rebjon]

Sounds like you paid too much for rubber. Shouldn't cost that much for a Focus. Did you go through the dealership? That could be one reason.

Novated Leases work as follows:
1 year - can reduce the residual to approx 65% of the purchase price
2 years - 56%
3 years - 46%
4 years - 37%

These are limits imposed by the ATO.

If you sign a novated maintenance agreement, check and see if it is reconcilable. If it is, you can have funds left when it is all said and done. My company is a little shady in that they do not return these funds, unless you ask for them. I am sure there are others out there similar to mine.


Might be those expensive run flats...

I did realise the residual was so high....

[Johnny Canuck]

As if I'd take my car back to Fraud Service!!! I shopped around a bit for tyres and got a good deal I reckon. Mine takes an odd size (same as Mazda SP23) at 205/50R17 93W, so there aren't too many cheap options that are load rated sufficiently. I don't see tyres as an area for compromising, especially now that I have a wife and kids. I got Bridgestone Potenza Adrenalins for $260 each and scored the free flight promotion they're got going currently.

I checked my lease and the surplus funds are returned to me at lease end.

I'll check with my tyre guy and find out what a decent price is on them.

They kill you with odd sizes.

VWs are pretty bad a lot of the time. One of my clients is looking at $1700 just to replace the rubber on his little Golf!

Tyres are super important, especially with the wife and kids in tow.

What is the free flight promo? Where is this? I need rubber for the wife's wagon, maybe I can get a flight to champs!

[BrisVegas]

http://www.bridgestone.com.au/flight/default.aspx offer ends 22 Aug

I'm taking the flight for a golf weekend in either Sydney or Melbourne early next year!

A friend of mine owns a Yokohama franchise and he reckoned I got a good deal, better than he could do me on Yoko C Drives or db Decibels.

[Grunt]

Is 45% for 3 years, or has been for my last 3 Novated lease cars. Kilometres done also make a difference as you pay less FBT when Salary Sacrificing as the Km go up. I do 25000km per year.
The limits are

<5000
5001-15000
15001-25000
25001-35000
35000 +

I will get out my paper work tonight if you want more info. But my Mondeo costs me roughly $600 per fortnight including FBT. Fuel, Service costs and a set of Tyres are included in that 3 year lease. Any unused service/Fuel costs are refunded at lease end.

[Grunt]

http://www.bridgestone.com.au/flight/default.aspx offer ends 22 Aug

I'm taking the flight for a golf weekend in either Sydney or Melbourne early next year!

A friend of mine owns a Yokohama franchise and he reckoned I got a good deal, better than he could do me on Yoko C Drives or db Decibels.

I put the Yokohamas on the Focus just before I sold it.