Novated Leasing - Your Thoughts?

[PG2]

I/We are currently looking at buying a new car and someone suggested Novated Leasing.

I was wondering for those people who have financed their car this way what did they think of it.

I am not asking for advice for my own personal circumstances, I have an accountant for this, just what they thought of it for themselves - would they do it again, how did they find dealing with the residual at the end of the loan, even if they did save some money was it worth it, etc?

[IanC]

I take it you are meaning a lease through your employer. That is fine as long as you remain happy at that employer and do not see an opportunity to go to a better job. If you leave you may have to renegotiate the lease or pay it out.

[Crazy Dazz]

As an accountant, I have looked at hundreds of proposals over the years.
Even BEFORE the changes to FBT you had to really crunch the numbers because MOST novated leases were an absolute rip-off.

Sure, they make it simple for you, give you a fuel card, cover all your servicing etc, but in the process they usually try to steal all the advantage for themselves.
At the end of the day, do the numbers, make sure you're comparing apples with apples.
Also, do your homework on the company, some are notorious for slugging you at the end of lease.

[LooLoo18]

I'm about to finish a 4 year lease with Orix Leasing on a FG XR650TH the residual at the end is $9500
I'm thinking its worth more then that I have put 90,000ks on it so I'm think should be able to get about $14,000 for it

Like Crazy Dazz said they do make it easy for you with fuel,sevicing etc all included

You also get a good price on the car with fleet discount etc and no GST
we have noticed with Orix if you don't use the preferred dealer they slug you $250 for admin fees ( what a load of crap ) but we have found the dealer will pay this for the deal

I like leasing for the ease of it and will be doing the same again in Oct
Also depends on income etc if its worth it or not

[Polyal]

Im looking at this in a year or so time. For any bean counters out there is this logic right.

If I got to selectus and look at a $40,000 car over 3 years on 25,000kms per year the fortnightly rate is ...$571. Total of $44538.

If I get a car loan @ 12.99% (straight off NAB) the fortnightly payment just for finance over three years is $625.00. Total finance cost of $49750.

So from what I understand the benefit of leasing is its pretax, so you can lower your salary for gov assistance such as FBT etc. That figure also costs all fuel, tyres, servicing, insurance and rego aswell.

Ill have to do a spreadsheet or something to fully compare them, with leasing you have a buyout aswell to factor in too.

It confuses me a bit but I havent actually spent much time to properly compare. Interested in people who do it and how it works for them.

[b0son]

12.99% is a rubbish rate. Should get 7% or there abouts.

[chrisandsharon]

Originally Posted by LooLoo18

You also get a good price on the car with fleet discount etc

Is what we thought. We backed out of a lease just before the paperwork went through and opted to buy privately years ago on a dual cab. As soon as we went private the price went up........was a dealer in Penrith - 'that's a heavily discounted price mate'.
Yeah whatever we thought. Phoned a few dealers and a Gosford dealer beat penriths 'heavily discounted' lease price by over $2000.

We're on a lease now and am a little in front. I like the convenience of a novated lease more than anything else. Each to their own, agree with Crazy Dazz's post.
If your not sure see an accountant and go right through the lease figures. Good luck with it.

[marcyeo]

I have had a novated lease on 2 previous cars, the current one I decided on a finance/loan.
Decision was because of the freedom the loan offered to me - I could pay it off whenever I wanted, no residual at the end, and no residual meant not feeling like I needed to trade the car up at the end and start a new lease either (which I always felt was a novated lease's soft scam to keep you going).
The monthly repayments on a loan are much lower, but then factoring in the tax savings as compared to a novated lease - on a new car, you wouldn't service or change the tyres very often, and for me not travelling many km's a year, didn't amount to much tax savings at all, bar the obvious fuel costs.
In the end I chose the loan mainly because it offered much more flexibility to pay off the loan and car when I felt like it, with no residual.

[LooLoo18]

Originally Posted by chrisandsharon

Is what we thought. We backed out of a lease just before the paperwork went through and opted to buy privately years ago on a dual cab. As soon as we went private the price went up........was a dealer in Penrith - 'that's a heavily discounted price mate'.
Yeah whatever we thought. Phoned a few dealers and a Gosford dealer beat penriths 'heavily discounted' lease price by over $2000.

We're on a lease now and am a little in front. I like the convenience of a novated lease more than anything else. Each to their own, agree with Crazy Dazz's post.
If your not sure see an accountant and go right through the lease figures. Good luck with it.

Yeah when I did my current lease I went and did my own dealing and got a better fleet price then Orix and then a $1000 back on card as a friends of ford bonus
It just depends on what the preferred dealer has in stock etc

[Magna]

Originally Posted by Polyal

So from what I understand the benefit of leasing is its pretax, so you can lower your salary for gov assistance such as FBT etc.

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!

[Magna]

Originally Posted by BHDOGS

time for the welfare mentality to end were giving him more tax payer money becoz he chooses to lease a car what a crock of **** no wonder the countrys broke.

he's still paying tax, just less of it.

[LooLoo18]

Originally Posted by BHDOGS

time for the welfare mentality to end were giving him more tax payer money becoz he chooses to lease a car what a crock of **** no wonder the countrys broke.

Im paying $45,00 tax bill this year if I can get out of paying some of that ( $3,000 ) I will

[Crazy Dazz]

Originally Posted by LooLoo18

Im paying $45,00 tax bill this year if I can get out of paying some of that ( $3,000 ) I will

Be VERY careful.
With the changes to FBT, the savings are slim.

When the leasing company gives you two numbers, and says "this is how much you're saving," it's bogus.

Don't get me wrong, for decades it has been a huge tax windfall to salary package a leased car. I did FBT for a LONG time, and we always pushed business clients into leasing their cars. With the change to FBT, that has been cut drastically.

Novated leases have always been a problem, because the leasing company gouges you big time.

As for the "discounted" price? Bwhahahaha. It's exactly the same as those "President's Club" cards that "guarantee" you discounts.
If you are completely incapable of negotiating with a dealer, then yes, a leasing company will get you a discount off sticker price. Never as good as if you haggle hard.

The joke of it is that if you actually use your car for work purposes, you are usually better off not salary sacrificing, and instead actually claiming a tax deduction.

People also need to understand that (contrary to popular myth) you are NOT entitled to buy your car for the WDV coming of lease. Some leasing companies allow it, but if your employer is properly advised they shouldn't. (It creates a further FBT liability, which most people forget about.)

Also, some leasing companies REALLY stick it to you at end of lease. For starters, you are liable for any damage (not wear and tear) so they can make you pay for relatively minor scratches, dents, and stains. THEN they auction the car off, and if it doesn't cover the residual, you may have to pay again. Previously they always set the residuals very low, but with less fat in the deal post FBT changes, they are now making the residuals more realistic.

The rotten thing about the FBT changes is that previously if you drove the car a LOT, pushing down the residual value, the benefit you got from the lower FBT rate was even greater. (People would jump in their cars and drive around the south-west just to get up to the next FBT threshold.) Now that doesn't apply, so rack up big miles and you could get stung.

Personally, I wouldn't even bother looking at a novated lease anymore.

[The Yeti]

I just went through this and many of my colouges have novated leases, I sat down with my accountant who advised me to take withholding tax out of my car allowance, then I'm safe come June 30, from there choose a concervative residual. (Ive just done a personal loan at 6.45% with 25% payable in 3 years) Ive always had a company owned car until now so this is a new world for me.

So instead of getting 20k (work pays fuel & tolls) as a tax free some to manage a car, ive taken it as a 20k pay increase taxed accordingly, I use the car for between 87 & 92% for business on any given week I keep a log book and I know I'm safe come tax return time because I took the hit up front , unlike the guy in the office next to me who had to pay 4k last year

Yea its a concervative way of doing it and there is probably more sneaky ways of doing it but that's how I'm doing it

Im sure some are going to say im an idiot, but thats how im doing it

[SSVPom]

Originally Posted by The Yeti

I just went through this and many of my colouges have novated leases, I sat down with my accountant who advised me to take withholding tax out of my car allowance, then I'm safe come June 30, from there choose a concervative residual. (Ive just done a personal loan at 6.45% with 25% payable in 3 years) Ive always had a company owned car until now so this is a new world for me.

So instead of getting 20k (work pays fuel & tolls) as a tax free some to manage a car, ive taken it as a 20k pay increase taxed accordingly, I use the car for between 87 & 92% for business on any given week I keep a log book and I know I'm safe come tax return time because I took the hit up front , unlike the guy in the office next to me who had to pay 4k last year

Yea its a concervative way of doing it and there is probably more sneaky ways of doing it but that's how I'm doing it

Im sure some are going to say im an idiot, but thats how im doing it

It's pretty much how I do it too.

[SensationFG8]

My thoughts.

The interest rate they charge you for the underlying loan is inflated.
Everything is GST free, immediate saving of 10% on petrol, servicing etc.
When FBT went down the more km's you drove it was definitely worth it.
Now it's a flat 20% I'm not sure the higher interest rate of the underlying finance outweighs the savings by as much.
If you want to break the lease early for some reason it costs you an absolute packet of money!

[devilcv8]

The flat 20% fbt killed it for me. I commute just under 100km each way so easily did the kms to enable 7% fbt. Had a VE SS ute and after 5 years had 252000 on it. Got more than the residual from pickles, actually went for fixed price of $12,000 before hitting the auction floor.
The sums just don't add up for me now, so I've gone an old Calais and plan to run it into the ground. Nice and comfortable for the commute and less fuel as I dropped to a 6 instead of an 8

[Magna]

Originally Posted by Crazy Dazz

People also need to understand that (contrary to popular myth) you are NOT entitled to buy your car for the WDV coming of lease. Some leasing companies allow it, but if your employer is properly advised they shouldn't. (It creates a further FBT liability, which most people forget about.)

Also, some leasing companies REALLY stick it to you at end of lease. For starters, you are liable for any damage (not wear and tear) so they can make you pay for relatively minor scratches, dents, and stains. THEN they auction the car off, and if it doesn't cover the residual, you may have to pay again. Previously they always set the residuals very low, but with less fat in the deal post FBT changes, they are now making the residuals more realistic.

you're confusing a business lease with a novated lease. with a novated lease the payout figure is a contractual obligation to pay a certain amount at the end of the lease, you know exacly what you're up for at the end.

doesn't matter if its a burnt out hulk, the amount doesn't change unless you end the lease early.

yes, if you hand the car back without paying the residual and they auction it off then you DO have to pay the difference if there is one.

Originally Posted by Crazy Dazz

The rotten thing about the FBT changes is that previously if you drove the car a LOT, pushing down the residual value, the benefit you got from the lower FBT rate was even greater. (People would jump in their cars and drive around the south-west just to get up to the next FBT threshold.) Now that doesn't apply, so rack up big miles and you could get stung.

there is still a benefit in travelling more than 30,000 kms the ATO does allow a higher level of depreciation than the statutory percentages. therefore you can pay a lower residual amount if agreed to in advance.

[Magna]

Originally Posted by devilcv8

The flat 20% fbt killed it for me. I commute just under 100km each way so easily did the kms to enable 7% fbt. Had a VE SS ute and after 5 years had 252000 on it. Got more than the residual from pickles, actually went for fixed price of $12,000 before hitting the auction floor.
The sums just don't add up for me now, so I've gone an old Calais and plan to run it into the ground. Nice and comfortable for the commute and less fuel as I dropped to a 6 instead of an 8

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/

[new2ford]

Tangential to the topic, but coincidentally, I came across this in the news today. Long-term leasing:

http://radio.cz/en/section/business/...te-individuals

This translates to about $400 a month. Two years ago in CZ I had a 6 month lease from a leasing company for about $600 a month. Is such a system possible (or does it exist?) in Australia and what would be the economics of it? Presumably none of the manufacturers offer it yet.

I can imagine it has a foothold in Europe because the cost of car ownership is so high - just that most private individuals don't look at the real figures (just think about fuel and maybe service) so it's not significant to them.

[chrisandsharon]

Originally Posted by BHDOGS

wow you poor dears your paying 45,000 in tax sounds like you need that 3 grand back typical crock of **** tax dodges for the rich as usual while every one else gets ******

BWAHAHAHAHA.......poor 'dear'. So because he pays $45 000 in tax you think he is rich, is a tax dodger and everyone else is getting '******'. Righto


Do you think he could say the same regarding the family tax *dodge* .....oh sorry I meant *benefit* if he's raising a family or government handouts on an endless scale??????? You might find a single bloke/woman or couple paying similar tax are the ones getting ****** over, especially if raising a family. I could go on but wouldn't waste my time given your comment........and no I don't pay anywhere near that tax.

Good luck to this thread keeping on topic. I've had me 2 cents and won't be back

Cheers

[turbodewd]

Novated leasing - huge topic.

1. It used to be quite viable, now its very very marginal.
2. If you can obtain a 'finance only' lease go for it, this is usually not available to most employees. If youre a contractor (eg IT) then its viable.
3. If you earn under 80k I wouldnt bother as the benefits against your marginal tax rate arent great. Novated leasing favors those on 100K+.
4. If you are the 4WDing type you can possibly get an FBT free lease! These are the ducks guts, the catch being that you must almost exclusively drive it to and from work and it must be from the approved ATO list.

SUPER TIP: At the end of my last lease, just before it expired I bought $2000 worth of fuel cards and 4 tires. Loving the legal tax ripoff that this joke of a system is.

[vanman_75]

I do 50 k a year , if I got my ranger on lease it would have been300 out of my net all inclusive , but I bought it ( while they froze leases) twelve months in car payment is 200 a week , add 100+ fuel + service's600 a pop 3 times a year , rego , insurance, windscreen, tyres 1000 a year , lease is in front about 100 a week .. just my case , also getting a g6et for the missus and as a work car to do the other 20 k a year , considering we pay combined 100 k in tax a small benefit of lease is merely a tiny bonus I get a benefit , but that's not everyone s case , cheap car with minimal kms barely adds up and not worth it ...my 2 cents

[The Yeti]

Changed my mind

[PG2]

Hey

I have posted this question so that I get an idea from people who have actually done it (and not just from the 'experts'). I really do think that this thread could be beneficial to so many people on this forum.

To put it mildly and so that I don't get into trouble using inappropriate language, I WILL GET VERY UPSET if a moderator has to close this thread due to people arguing or going off topic with political views. I don't argue or put forward my political beliefs onto other people's threads that they have started - please don't do it a thread that I have started!

EDIT: If you want to argue take it to PM.

[furiousgibbon]

I've done novated leasing on 3 cars, with the latest being my F6. It was quite beneficial prior to the flattening of the FBT brackets, as I easily did 30,000km/year. The difference is much smaller with the F6, and it really only came out ahead of standard financing due to the amount of fuel I'm going to use.

Basically the cost of repayments is higher (due to FBT and slightly higher interest rates than I could get with secured finance) but the tax breaks on running costs (many ks a year and thirsty car) still put me ahead.

Don't let them bundle in the insurance as it's a complete joke ($1900 vs $680 elsewhere), and the 'lease protection' is a waste of money unless you keep no cash reserves and are concerned about job security.

[PG2]

Also, thanks to everyone that has offered their views from personal experience.

Just to clarify, this car will be my wife's private vehicle. If I do go lease it will have to be done through my work.

I 'plan' on keeping the car for five years. The last few cars we have had we have kept for at least ten years.

I 'think' that the car will only do about 15,000k a year. We are looking at a small SUV or even a hatchback (Focus Sport???).

[furiousgibbon]

based on that I think you'll find you will be worse off with a lease. There are some very competitive interest rates on secured finance at the moment, dealer offered me 5% in January which was tempting. With mileage like that and a fuel efficient car, you won't recoup the extra cost of lease interest rates and FBT.

Doing the sums can be a bit of a mind bender but it's worth doing to be certain

[turbodewd]

PG2,

you want to find out exactly how much Fringe Benefits Tax u will be slugged by.

Novated leasing boils down to this:

Do the income tax benefits outweight the FBT you get slugged with?

What do I mean by this?

All the vehicle expenses effectively become tax deductions at your marginal rate. The higher your income, the great the incentive to take out a NLease.

Ok, so you get 30% back of your, say, car insurance, or petrol expenses. But you get hit by FBT. And leases cost $500/yr

They are barely worth it. DO NOT trust the lease company figures. You need explicit sums calculated. Then you need to do sums comparing the lease to a normal car loan or an outright purchase.

Tread carefully.

[MOND30]

I started a Novated Lease on a new Grand Cherokee CRD in May 2012. Car was roughly $52k onroad with a few accessories thrown in. Total was $320 per week, they took the FBT amount (I think it's 20% of the car price annually) post-tax, and the rest was taken pre-tax.

After a change in circumstances I had to end the lease and sell the car in May 2013. The payout figure for the finance component was about $61k. Luckily they were still in high demand (few months wait to order) and I got $47k for it, but I still had to find $14k to finalise the lease.

Not sure if all lease companies operate the same way, but this alone is enough to make me hesitant in starting another one.