Novated lease - is it worth it?

Discussion in 'Accounting & Tax' started by IpNoob, 26th Apr, 2020.

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  1. IpNoob

    IpNoob Member

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    Hi all,

    Hope you're coping well with the pandemic.

    I've been thinking about novated lease and I'm not sure if it's worth it. Below is my current lease information:

    Vehicle price: $25,000 - 2nd hand car.
    Lease term: 4 years
    Lease repayment: 46 monthly instalments of $544.69 = $25,055.74
    Residual value: 37.5% of $25,000 (as determined by the ATO for 4 year leases) = $9,375 plus gst of $937.50 = $10,312.50

    So if I want to own the vehicle when the lease ends, I would need to make a total payment of $25,055.74 + $10,312.50 = $35,390.74.
    That's an increase of around $10k compared to original price of $25k

    So is my calculation above correct for the car itself?

    The salary sacrifice company advised me that I can save around $9-10k of vehicle running costs on taxes (after taking into account of fbt) over 4 years but I think they intentionally don't mention the residual payment.

    If the calculation above is correct, I would save around $10k over 4 years and pay extra $10k for the vehicle which makes it break even.

    Personally I think it's not worth it if this is the case. I will end up not being better off and my mortgage servicability over 4 years may get affected. Also the pay out costs before the lease ends are high as well.

    What do you think of novated leases?

    Cheers,
     
  2. Owlet

    Owlet Well-Known Member

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    Minimal benefit unless you are on over 180k salary and/or work for not for profit.
    You are looking at a second hand car anyway - buy it outright with cash and you will be ahead.
     
    Last edited: 26th Apr, 2020
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  3. Hamish Blair

    Hamish Blair Well-Known Member

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    Better to do 2+2 years as break costs lower if your circumstances change.
     
  4. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Your serviceability will be significantly affected. Novated leases are a bit of a disaster for servicing purposes. For this reason alone I'd never touch a novated lease.

    You're paying $10k extra over 4 years to own this car. I assume the lease includes fuel, servicing & registration. How much would you normally spend on this sort of thing? In my own case it would be less than $10k, but I don't drive as much as some people.

    Here's my formula for financing a car...
    1. Buy a cheap second hand car with a view to driving it for 5 years. Pay cash.
    2. Every time you spend money on the car (fuel, servicing, registration), put the same amount in a savings account.
    3. In 5 years you'll have enough money in the account to buy a decent car.
    4. Repeat.
     
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  5. bunkai

    bunkai Well-Known Member

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    There is some benefit but you get the vast majority of the total benefit with only a one year lease - then buy out the car. Locking in for multiple years is not smart and serviceability gets nailed either way (hence go for a one year lease).

    Make sure you manage your own expenses such as insurance.

    It would probably, depending on your salary, to lease the 25k for one year. Make sure you all the major maintenance that is due and then keep the car for a few years after paying it out.

    You may also be able to claim work related km - which you can't do with a novated lease.
     
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  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    The present economy indicates why a NL or any form of car package may be appalling

    1. Lose job, you now have a car and debt and nobody paying the car finance
    2. Counts agresssively to debt servicing (as the term is short) for the car repayments and all outgoings
    3. The salary sacrifice income to pay the debt isnt considered income but your package salary reduces. So both 2 and 3. double count for servicing. Ouch
    4. Try selling a car in this economy. Dealers couldnt give Holdens away 2 months ago. Prices are falling fast. Look around suburbs and see all the for sale signs from jobless looking to cash in their car.
     
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  7. PeterT

    PeterT Active Member

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    Great commentary @Peter_Tersteeg and @[email protected].

    I have always wondered when the car-finance debt bubble might implode. My feel is there will be a real pressure point on the "other side" of Covid19, once the govt starts to turn the taps off. .

    Interesting article from Top Gear's Chris Harris last Friday. (Remember, this is a guy who makes his living road-testing cars which are, by and large, unaffordable to the average Joe. At least, I think that's the most entertaining part of what he does, anyway). And he seems to think that (in the UK, at least) there's a bubble waiting to pop...
     
  8. bunkai

    bunkai Well-Known Member

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    Assuming your not applying for finance in the next twelve months....

    Run the numbers on a 1 year lease. Make sure you include all of the major servicing and maintenance that will be due (e.g. 4 tyres, brakes etc)

    You get most of the total benefit of a 4 year lease in a 1 year lease.
     
  9. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    You get most of the total benefit of a 4 year lease in a 1 year lease.[/QUOTE]
    The balloon could be a debt issue. It's a liability
     
  10. Never giveup

    Never giveup Well-Known Member

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    @IpNoob how are you? Did you take on the Novoted lease?