Finance Novated Lease Vs Car Allowance Vs Company Car?

Novated leases are troublesome particularly if the are long and you change employer. However, you can get most of the benefit of a longer novated lease in a 12 month term. You need to watch out and make sure they don't add hidden fees or inflated effective interest rates as this would blow savings out of the water.

So I would suggest - depending on your timing for serviceability:

1. 12 month novated lease - cheapest car suitable. Buy your own insurance - agreed value. Interest rate should be less that 7% including fees. Source your own vehicle and check that residual is 65.63% of purchase price (checking for no hidden on top costs).
2. Pay residual and treat as private car from year two onwards.

 

All forms of vehicle finance are negative. Cars are a depeleting asset and all forms of finance count against servicing - as even a car that appreciated (eg V8 SS Commodore has a assessable adjustment) . All sal sac cars are also negative income as you pay for an asset you never never own one part of.

A $20K allowance and a 1995 Hyundai Getz may give positive income....Looks great to lenders to. Depends what you are actually seeking.

 

Is it normal to have such a substantial vehicle allowance? That's roughly equivalent to paying for and maintaining a $50,000 car, then owning it instead of having to give it back. It's a far better option than the company car in this particular scenario.

Go grab a $20,000 Hyundai i30, redraw for cheap money and pocket the $20k pay rise. Run away from the novated lease, there's absolutely no benefit for you in this situation.

 

An allowance that exceeds vehicle operational costs (based on logbook !!) is just salary. Some employer dont tax it (incorrect) which can lead to a tax issue.

Typical year one (full year) operating costs for a 90% work use owned new i30 ($26K) would be under $10K and reduces thereafter with minor fixed price service costs rising annually. ($300 first two years then $800 Y3 etc.

The catch most ignore is the depreciating value. After 3 years it may have 75K on clock and be worth $12K. Cost to replace it needs to be factored in assuming you wish to avoid impact of borrowing in your servicing and borrowing capacity calcs.

 

There are more generous lenders out there than Suncorp.

 

This. Also, i30s are great Unless you have a euro-luxury itch to scratch which often involves doing it the expensive way.

 

I am in the exact same position and I have run the numbers and I'm about to return my "salary sacrifice company car" and purchase one in my own name with a loan.

My numbers work out much better doing it myself as my company have a calculator where they depreciate the car by 20% per year, estimate KM, estimate fuel at $1.60 per litre and then charge a 9% premium. I pay $260 per week (pre tax) - about $13,500 per year and I don't own the car.

If I purchased the same car myself over 5 years, it works out that I'd pay around $400 per week but claim it back at 42% (I only use my car for work) and end up around $30 better off per week after my tax return. I'll only keep it for 3 years and then my wife will drive it as her car. Right now, I've paid off 80% of the car to my workplace over 4 years and they will sell the car for around 45% of its value (they will need to pay tax on the profit as they've over declared the depreciation). Pretty much screwed me out of 25% of the value of the car + $30 per week over 4 years.

Novated leases work in a similar way but you can purchase the car for the amount that you've paid off the principle. They do however, screw your serviceability. Essentially the bank sees the novated lease as ONLY the payments for the car and they then deduct all running costs from your income so you're getting hit for it twice.

 

Don't forget FBT is in novated lease calcs - usually offset by requiring after-tax contributions.
However if you change employer with novated lease you revalue the car and hence reduce FBT
A-T contributions required and repayment amount.

Costs of running the car yourself for business % of use will be tax deductible increasing the allowance back up from 13.5k.
Also with the cash allowance as suggested you can always choose a cheaper car or keep it for longer period (if meets business rules etc) and pocket additional $ to assist servicing. See brokers for more specifics here.
Can choose car that best suits you.
Disadvantage is you have risks, all costs etc.

Given situation you've mentioned I'd suggest take the cash!

 

You only need to give the bank the costs of the finance lease not the salary packaging if you want it to be apples to apples.

 

That doesn't work in my salary sacrifice. It's just a set amount deducted from my pay and says "car allowance". It's on my pay slips.

 

From someone who’s done it....DO NOT GET A NOVATED LEASE...IT WILL BUGGER YOUR SERVICABILITY!

 

And most banks would probably use this not the actual lease you have signed...

You can get most of the benefit of a novated lease with a short one year term - total lifetime lease savings are much less in later years and long leases have lots of risk when it comes to employment changes (may not be able to renovate!!). So if you aren't applying for finance in that 12 months. All good.

 

As someone who actually works in novated leasing, i can't tell you how wrong this assessment of a novated lease is; i would be steering WELL CLEAR of someone in the finance industry who described any aspect of a novated lease as "double dipping." Stick to mortgaging & let people who know what they're talking about answer questions about novated leases...

 

Yeah, but the post you replied to specified a "novated lease," which is not what you're talking about; sure, your employer might simply list the whole thing as "car allowance" on your payslip, but if you're actually novating the lease, then the packaging company would be able to provide a report/statement that breaks down the running costs, & shows them separately to the actual finance payments, so the bank can see clearly what is what; the company i work for provides this all the time.

 

Wow - welcome to Property Chat. You seem lovely.

I was speaking about how LENDERS look at novated leases when assessing MORTGAGES.

But please...go on.

 

I'm with Jess on this one. Car finance is appalling for the effects on servicing and loan capacity. Largely due to the short term cashflows. In terms of servicing impact its like having a half million dollar loan. Novated finance, HP, chattel mortgages etc are all similiar for this impact. Downsides can also include being stuck with a car and its financial costs if made redundant. The debt is on the employee. Car dealers and salalry packing companies dont do it but I would argue anyone considering vehicle finance ask their mortgage broker to use the finance calcs and asess the borrowing capapcity before and after to compare the effects.

There can be tax merits to car packaging BUT consider the annual net cost as a cost to hire a vehicle that you wont own. Over 4 years its costly. And over 10-20 years its even worse. Many people rol;l from car to car. The reason is largely since for all their outlay they never end up owning anything.

 

Also with Jess, you're taking her out of context. When assessing a mortgage, lenders take a very conservative approach to a novated lease.

1. They take the full costs as post tax. The don't recognise the partial deductibility of the lease payments.

2. Despite the lease incorporating all the running costs for the vehicle, the lenders still expect to see a declaration of transport costs that aligns with expectations. If you declare a living expense figure too low, they use the minimum figure regardless. Hence home loan lenders do effectively 'double dip' when assessing an application that includes a novated lease.

The effect of a novated lease on a persons home loan assessment is devistating. It's not necessarily reality based, but lenders risk departments have always been lacking in this.

Given a choice and with home loan serviceability in mind, take the car allowance. Lenders will see this as income which will increase your serviceablity.

 

Not sure it's worth using your first post on this forum to dig up a 5 year old discussion to argue with.

 

I'm with @skarpethinn on this one, a novated lease is NOT double dipped if you get the full report.
You can get breakdown of the actual vehicle repayment and expenses.
Vehicle repayment can be input as liability same as a loan
And ongoing expenses with the expense.
Lumping the whole 'novated lease' commitment from payslip into the liabilities will give you a double dipped result.
But it still definitely impacts your borrowing capacity due to the loan repayment, much more than a home loan due to the shorter loan term.

 

My thoughts exactly!