Company car vs cash

Discussion in 'Money Management & Banking' started by hillsguy, 5th Mar, 2019.

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  1. hillsguy

    hillsguy Well-Known Member

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    Hi all, need some help making a decision ...

    I have been offered a new job with either a fully maintained company car or net cash of $11K (after tax and factoring in my tax rate).

    I have an existing car and looking at numbers based on k's I travel each year, rego, insurance, maintenance, etc... I come up with $7,500 per year.

    This excludes depreciation. My car is 9 years old and I suspect taken most of the hit on depreciation. If I sold private I could obtain $18K to $20K which I could invest.

    Company Car Option
    PROS
    No headaches
    No $ variables with repairs
    No opportunity to save $'s for extra care, wash, etc...
    Can invest the $18K to $20K from sale of existing car
    CONS
    Can't deviate from fleet vehicle choice

    Cash Option
    PROS
    Drive existing luxury car (yes - it's a Lexus)
    Opportunity to run for less than $11K and save rest
    CONS
    Surprise repairs
    Selling car at some point and discovering the REAL depreciation !

    At this stage I am leaving towards a fully maintained company car but appreciate others input or comments here to help me validate my thinking.

    Thanks so much ...
     
  2. MRO

    MRO Well-Known Member

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    What is your marginal tax rate?
     
  3. MRO

    MRO Well-Known Member

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    What percentage of use is business use compared to personal?
     
  4. sqe

    sqe Active Member

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    Company car vs cash has borrowing capacity implications. If you plan on buying/refinancing in the next few years, you can borrow much under the cash scenario
     
    albanga likes this.
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A company car can be costly for something you never ever own. You are basically just renting it but as its not your car you cant claim a cent in deductions. And it ties up borrowing capacity if its a novated lease. You can also be stuck with the car and the debt if you part ways (redundancy, sacked or you quit)

    If the privately owned vehicle is used for any work relates purposes (eg client travel etc) its deductible where spending on the company one for washing etc isn't.
     
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  6. hillsguy

    hillsguy Well-Known Member

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    Good answers ... thanks [email protected] I agree with you.

    MRO - I am on top tax bracket and car would be used approx. 30% for company use.
     
  7. Rex

    Rex Well-Known Member

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    Cash every time, unless you're going to be doing like 50,000+ km per year. Plus this cash money contributes to your income on paper which helps out with borrowing capacity (maybe a broker will correct me if I'm wrong?).
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    That said, a vehicle which is actively used to produce income can make a sound investment. eg a trade vehicle, van or similar. Or an on the road sales person's car etc.

    But in these cases the most effective vehicle is one which best does the job for the least operating cost. Choosing a high cost luxury car may involve far higher cashflows to pay for it and limit the deductions since a cap applies to depreciation calcs. That said buying a Great Wall ute may have a poor life vs a more costly Hilux which has a longer life span.

    I apply the same to car allowances. A car allowance that exceeds the expected deductible operating costs is not efficient as it is just taxable income. And after July this year if the allowance isnt subjected by the employer to withholding tax (or a variation) it could become non-deductible.
     
  9. albanga

    albanga Well-Known Member

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    Cash for mine
    Think about what an 11k net cash increase would do for servicing!
     
  10. Heinz57

    Heinz57 Well-Known Member

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    11k seems low for a car allowance? Usually 20k+
     
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  11. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    An allowance should really only be as much as the expected deductions. Its meant to be taxed unless a PAYG withholding variation is obtained. Get $20K allowance and have a five year old Camry with a low work use and it may lead to a tax shortfall and if you lodge late it may take almosta full year before it becomes evident. So you owe tax on 2 x $10K Ouch.