Alternative tax break. Novated car leasing?

Hi all,

With property prices heading South and likely to remain stagnant for years to come, who has thought about a novated car lease as a tax break? Now I know it's not an investment, but at least it's a tax break and you get to drive around in new wheels(if that's your thing).

Now never having leased a new car before, I have been contemplating the idea. Now say theoretically, somebody is on a $170K (excluding super)per year salary and their work offers them a novated car lease, can anybody think of anyreasons why you wouldn't take one up?

Plan is to potentially by a nice Mercedes in the $70-80K range. Thoughts?

Now I know I could put that money into shares, properties, but this post is specifically about a tax break on a novated lease and whether this is a worthwhile exercise for those that have done it or doing it.

Thanks.

 

One year lease gains most of the benefit without the downsides. Important to understand and negotiate the details, lease companies load the costs.

Does damage serviceability.

If you can claim km business use, it could be an alternative.

 

FBT
Impact on servicing can be harsh. YOU are the borrower. The short loan really hurts borrowing.
You never own anything - Its long term rent (The tax saving may equate to equity being forgiven)
Luxury cars have a higher FBT cost impact on the package

I would seek tax advice on the proposed package AND then consider all the other issues

 

Novated lease makes more sense at higher tax bracket & then again at >$250k when Div 293 tax kicks in.

Also on an $80k car you're already paying about $4k in luxury car tax....

Do the math on annualized total cost of ownership using Novated Lease financing, paying LCT, at lower tax bracket (ie. at only 37c) and the "tax break" doesn't look so significant....

 

Total cost of ownership ? With a NL you just borrow a maintained car and dont own anything.

Arguably for many salary packages a expense fringe benefit for a cruise holiday may make just as much sense as a company car.

 

One of the worst things you can do to your serviceability.

Also ask yourself if this is simply an indulgence? Would you spend $80k on a car if it wasn't wrapped in a tax deduction? My observation is that often novated leases aren't actually any cheaper, their just sold in a manner that makes it look cheaper.

 

Always remember YOU sign the lease and are fully responsible. Lose or leave your high paid job and you still have to continue the lease payments.

Most make the mistake of buying a more expensive car than they would otherwise have done. Even with tax savings they are paying more and their nett position is worse.

And if the agreed value is not recovered by the sale price at the end of the lease, you are up for the shortfall.

 

shop for your own car and shop for your own finance. Then compare packaging companies for the fees. Dont sign for it all with one mob they’ll hide plenty of overheads.

 

And note you borrow the whole amount, at silly rates. Would you borrow 100% to buy a car? Really, is that clear a thing to do ever.... That's where NL stops for me, limited net tax advantages are not enough for so many other expenses. For the average worker makes no financial sense. Do the real mathS and work it out. The sales pitch will not show you the real numbers.

 

A couple of guys I work with use novated leases, both seem happy with the process, one at least clocks up a huge amount of km's

From MAXXIA

Your employer takes some of the cost from your ‘before tax’ income

With a novated lease, all your maintenance and running costs are budgeted for, with funds set aside from your salary each pay period. These can cover costs such as:

• Registration
• Servicing
• Maintenance
• Insurance
• Fuel
• Tyres
• Car washes.

Options as the end of your lease approaches.

These include:

1. You can your trade car in and use the money from your trade in to pay the residual amount, then enter into a new lease for a new car.
2. You can “re-lease” your car – that is, enter into a new novated lease to pay the residual amount. You keep your current car and we set a new budget together.
3. You can pay the residual amount from your savings and keep your car.
4. You can sell your car and use the money from the sale to pay the residual amount.

 

Regardless of the scare factor - you can potentially save 4-5k with a one year novated lease on a same:same basis. Pretty easy really...

 

My thoughts: Terrible idea!

 

I don't like Mercs either

 

the sweet spot is small loans where most of the value comes from being able to claim back operating costs..

 

Sorry can you clarify a little more on what you mean mate?

 

If you're a car guy then sure - I'd just check that it isn't going to crush your serviceability for the period of the lease (i.e. get your loans in order) and that a lease is going to be more effective than the other options from a tax perspective.

If you're not a car guy then I don't think you'd be able to justify it and at a principal level buying an expensive car to reduce your tax by losing money does not work. Depreciation is a beast too!

 

I rolled 2.9% (actual figure on lease payment calculator) from Jag into a lease a few years ago. At that rate i’d rather put my money to work then sink it into a car.

 

It has the potential of saving tax provided it is done correctly. it is important that comparison is performed between what all the costs will be if you go and buy on your own and the costs with NVL provider as mentioned above by @The Y-man Recently I came across someone who was paying close to 11% through novated leasing.

 

If you want full controll and have a significant other or friend an associate lease may be a better option. At least you have full control over expenses, which vehicle, etc.