Finance Question

Deadman · 13-08-2005, 10:10 AM

Hi guys,

Please move this thread if it's in the wrong area, but I couldn't work out where else to put it...

Basically - this is a finance question about financing a car I use for work, and was basically looking for some tips.

In my job, I get a $15,500 car allowance for the year. Now I know I can apply for a tax variation so it's not taxed - but then I obviously need to claim the same amount ($15,500) on my tax at the end of the year so I don't have to pay tax on it (others with a car allowance or similar thing will understand).

I recently bought my XR6 for $26,000 on a HP for 5 years with the goal to own it at the end of the period. However - because it was so cheap, the depreciation I can claim on it at the end of each year is rather small (i think it's around $5000 this year, and shrinks by about $900 each year after). Meaning i'll struggle to make the $15,500 worth of deductions at the end of the year. Therefore I might have to pay a bit of tax back.

Ofcourse, my other alternative is to upgrade to a more expensive car (i.e. $50,000 approx) and therefore be able to claim quite a bit more depreciation on tax - however, the catch here, is the repayments skyrocket and it's something I'm wary about.

Anyone have any suggestions on how they do it? I mean, I know some people only have the cars for 2 years then trade up - are there much better benefits to doing it like this?

Sorry if this is a bit of a n00b question - but I've never had to deal with a car allowance before this job and I'm just trying to get my head around what options are out there so I can work out what will best suit my needs...

If anyone has ANY suggestions or advice on how they do it - I would REALLY appreciate it

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Thanks very much

billyb35 · 13-08-2005, 10:57 AM

I don't think the benefit you would get from a tax deduction with the depriciation would outway the cost of the increase in the repayments?

Mike Gayner · 13-08-2005, 11:04 AM

Well I'm really not an expert on tax and finance and whatnot, but the way I see it, if you like your car you should stick with it. It's unlikely that the tax you have to pay back would amount to the same figure as you would end up having to pay if you were to upgrade your car and pay higher repayments every month. Factor in all the aditional costs of selling and then purchasing a car and I think you'll certainly be better off keeping the XR6.

Of course this all hinges on how much you like your car. I'm sure there are smarter people on this forum who will have much better advice than what I just offered

**Falcon Coupe** · 13-08-2005, 11:11 AM

It's economics, you need to work out the tax saving vs the higher repayments, im looking into now, i am 2 years into a 5 year lease but i want to swap the car for a diesel.

Deadman · 13-08-2005, 11:53 AM

thanks so far for the posts guys... that's what i was thinking, really, I got the car at a steal so I don't want to part with it.. I just know some people have cars for 2 years and continually trade up - and I was just curious if there was some secret / tip which would make it worthwhile..

At the moment my repayments are $531 a month... I assume for a $50k car they would be roughly double that ($1080 or so a month at a guess).. and I'd probably make back another $4-5k a year in tax depreciation... Which would be an extra $400 claimable on tax... Hrmm, seems like i'll have to look into it... BTW - i am not pretending to know a great deal about what I am doing - hence why I am posting here

I'm happy with my current deal, but thought if I could upgrade to a $50k car (Typhoon would be on the cards) it would be worthwhile looking at my options

:

Anyhow, if anyone else has advice on this stuff with anything they might have done, please let me know if you have time. Thanks again to those that have posted - was along my line of thought

Cheers

cogdoc · 13-08-2005, 04:04 PM

Totally depends on your situation. You need the advice of a good accountant, and I suggest you pay for some professional advice. You are spot on with the maths, at around $50k you are at the grand ish a month for a repayment. You need to factor in the length of the contract, and any residual payments at the end. This can really catch you out as new cars devalue so much, especially the flash ones. Remember with petrol on the rise performance cars will possibly be a real liability in 5 years time.
Does your allowance include fuel? You need to factor in other car costs, rego, servicing, tyres etc. I get 2 grand less allowance, but all my fuel is covered by work, so it's a great deal. I HAD to have a GT and had a secondhand AU for three years till I got stable in my job, and worked out how leasing/HP, etc worked. The GT does cost me money in rego and parts, but it's a big reason why I do the job I do. You need to be sure you want to stay in your current role for the lease term, or at least in similar jobs with allowances. That is a BIG thing when you start buying 50k plus cars.

If like me you drive round a lot for work, then having a nice car makes it all so worthwhile. Get some serious advice. Will possibly save you a fortune in the long run.