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 ...
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
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.
Good answers ... thanks Paul@PFI. I agree with you. MRO - I am on top tax bracket and car would be used approx. 30% for company use.
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?).
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.
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.
Crunch the numbers. For me was cash but I have a high work usage. If you are planning to get a loan keep in mind it will limit your borrowing capacity. Also consider running cost increase between different cars.
