Questions re: leasing a car

Discussion in 'Accounting & Tax' started by Jmillar, 21st Nov, 2015.

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  1. Jmillar

    Jmillar Well-Known Member

    27th Jun, 2015
    Hi guys,

    Quick overview of who I am: 23 years old, I've got 4 IPs, and will be buying 2 more in Dec-Jan. I want to explore whether I should lease a new car once I have these bedded down. My income for 2015-2016 FY will be in excess of $175,000, and my log book shows about 75% business usage for my car, so a lot of the expenses are deductible. Below is a very basic example I put together that shows it can be beneficial to use your capital to buy appreciating assets (ie property) and then lease a car, rather than use your capital to buy a car (depreciating and non-leverageable asset).

    My questions:

    - I haven't taken into account tax benefits. What tax benefits does leasing have over purchasing? I'm guessing in my case, 75% of the interest ($9,687 x 75% = $7,263) would be tax deductible over the 5 year period if leasing. I'm assuming in both cases I can claim 75% of maintenance, petrol etc etc so there are no other differences there. Is this correct?

    - What is the best method of 'leasing'? I think there are a number of ways to do it (chattel mortgage, hire purchase, salary sacrifice etc etc) - how do I work out the bets method for me?

    - I have 2 friends who 'lease' - 1 has a chattel mortgage at 3.9%, the other has a hire purchase at 4.28%, so the 7.2% I used above seems excessive. Who is the best person to go through for car loans? Are there brokers who specialise in this?

    I need to bear in mind the effect that the loan repayments could have on serviceability moving forward, so I guess I'll just have to check this with my mortgage broker before going ahead, although as of next year, serviceability isn't much of an issue for me.

    Anything else I've missed?

  2. D.T.

    D.T. Specialist Property Manager Business Member

    13th Jun, 2015
    Adelaide and Gold Coast
    leon brown likes this.
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    18th Jun, 2015
    Leasing is hardly offered as a finance product for cars. Most leases are a form of HP with different names. The finance payments are not deductible but the interest and depreciation are. There are fleet companies who can provide a FMV (fully maintained) which uses exaggerated estimates that you pay for but when a shortfall hits you also pay for that.

    Its a very expensive way to use a car. You will pay $XXX a month for 4 years for something you never own. The deduction benefit may be very limited v's cashflows. ie a benefit of 35% v 65% loss of cashflow and borrowing capacity etc. What about GST etc ??