Novated Lease.

[replicant]

Just some observations...

FBT is effectively at the highest marginal tax rate ie 45% based on a formula which takes into account the purchase cost of the vehicle. This means if you are earning below $150,000 per annum the effective tax rate via FBT is actually higher than your marginal tax rate. Even if it comes out of your pre-tax dollars and there is potentially some extra FBT if your kilometres don't meet certain minimum thresholds.

Fortunately, the XR6T is below the luxury tax threshold so you are subject to additional taxes that if you have a car with a purchase cost in excess of around $58k (something like that although the actual number escapes me)

Leasing includes an effective interest rate which takes into account the risk - in theory if you could finance the car against a lower borrowing rate ie you levered against your mortgage the lending rate would be lower.

The lease company will have priced a car to recover all of the costs plus the interest in its formula including the FBT - lease companies make money and are good at understanding the costs. Usually there will be a limit to the number of tyres as this is priced into the equation.

Also if you do decide to take the plunge and buy a house with a mortgage, the lender will take into account your outgoing which include the lease costs which may restrict the amount you can ultimately borrow. Getting out of a lease early can be costly so it's important to understand these costs as your circumstances can change (eg I recently had to relocate with work and move to another country which would have been messy if I'd had a novated lease - fortunately I didn't as my vehicle was fully funded and the lease remained with the company so my replacement got my six month old BF XR6T which was just "run in" - he's apparently very happy to replace his old banger with the T.)

Be careful of the end of lease "true up" this is when some costs eg fuel actually cost more than the estimate (this means you get a bill at the end). Even though I lease a car it still means I use the coupons from Woolies/Coles to reduce my pump price as it will potentially save me money if the actual costs are less than the estimate (in theory you could end up with a negative true up ie they owe you money).

Novated leases mean you still carry the costs for the duration of the lease even if you change jobs. That means if you should lose your employment or ability to earn for various reasons eg illness you still have the liability for the lease payments.

And finally if you don't want the hassle of having to find the best prices or the risk involved with insurance etc then leasing can be a good way to have someone help you manage the costs of ownership and the hassles. I'm pretty glad someone else does and my situation means that I have a lease that the company funds without giving me the risk of having a novated lease - esp in a situation that I may end up moving somewhere else where I can't take my car with me.

At the end of the day, it's worth understanding the costs and working them through - each individual situation is different and it's worth the time to make sure that a lease works for you. That said enjoy the motoring and if a lease works for you in terms of saving and risk then enjoy the T! I certainly loved mine until I reluctantly gave it back to move to Sydney - so I have an XR5T on it's way although when it actually turns up is another story completely...

[gogo]

Just some observations...

FBT is effectively at the highest marginal tax rate ie 45% based on a formula which takes into account the purchase cost of the vehicle.  This means if you are earning below $150,000 per annum the effective tax rate via FBT is actually higher than your marginal tax rate. Even if it comes out of your pre-tax dollars and there is potentially some extra FBT if your kilometres don't meet certain minimum thresholds.

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Provided you do both pre and post tax sacrifice, you do not pay any FBT - at all (as per a previous post - posvided you meet or exceed the target kms bracket)

[markxr6t]

Some novated leases are more flexible than others and I think Steve's is quite flexible.

For example, I tell my package provider (McMillan Shakespeare) how much to take out of my salary, not them tell me, and I'm yet to see a lease out to full term and have never suffered any financial penalty from a finance provider (just pay the balance owing, obviously).

As for mods,I don't think the people that process your reimbursements or charge card expenses would consider that "Bosch 968 injectors" and "Tremec T56 Transmission" are anything but normal vehicle repairs and running costs.

Novated leasing is basically a relationship between you, your employer (and the ATO), a finance company and a package provider. Rarely have I come across someone from one of these camps who actually understand the others' roles so its important that you make sure you do, to make it work best for you.

Low interest rates (maybe 1% higher than mortgage), GST free payments, pre tax $ (so for most of us its costing 70% it normally would) and an opportunity to make a profit at residual time make it a winner I reckon.

[Slymeat]

Some novated leases are more flexible than others and I think Steve's  is quite flexible.

For example, I tell my package provider (McMillan Shakespeare) how much to take out of my salary, not them tell me, and I'm yet to see a lease out to full term and have never suffered any financial penalty from a finance provider (just pay the balance owing, obviously).

As for mods,I don't think the people that process your reimbursements or charge card expenses would consider that "Bosch 968 injectors" and "Tremec T56 Transmission" are anything but normal vehicle repairs and running costs.

Novated leasing is basically a relationship between you, your employer (and the ATO), a finance company and a package provider. Rarely have I come across someone from one of these camps who actually understand the others' roles so its important that you make sure you do, to make it work best for you.

Low interest rates (maybe 1% higher than mortgage), GST free payments,  pre tax $ (so for most of us its costing 70% it normally would) and an opportunity to make a profit at residual time make it a winner I reckon.

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If you puchase the modded item and gain a receipt they are happy to reinburse as it is your money anyway, they will not pay it directly for a modded item as it against some tax act go figure.

[baboon]

Yep I use smartsalary for my toyota echo which cost 20k and I've leased it over 3 years, with a residual of 9k. Smartsalary are great, they are helpful and some of the people that work there are happy to hold your hand through all the form filling processes.

I have put down an estimate of 20 000kms per year which puts me in the 15-25k Km bracket at 20% FBT. I am under an Employee Contribution Method, which means I dont pay any FBT because part of my lease repayments are POST tax dollars, whilst the other is PRE tax. Of course the POST tax component is calculated from your estimated KMs.

Last year I did over 25 000KMs which means all year I should have been paying only 11% equivalent FBT, POST tax. However, as I've been paying the 20% all year, I get a refund of the difference (20% - 11%) at end of FBT year.

This is great! But you can be tricked (as I did) that you think you'd get the whole difference deposited to you bank acoount. Instead, the amount is taken out pre-tax dollars first, then refunded at post tax. I still came out on top as I didnt have to pay any tax that fortnight!!!

The residual I pay at the end of the 3 years is 9k. I have the option to sell the car and repay my debt (possibly making a profit) or I could keep the car and Salary sacrifice the remainding 9k, it all starts over again. More benefits.

As people have already mentioned, any payments on the car ie. car insurance, car servicing, tyres, oil, petrol are all GST free as the employer pays the GST component. A further benefit can be gained when you claim these costs, which means your paying them using pre-tax dollars. In turn reduces your taxable income. In a way old Jonny is helping you pay for your car. Its all good!

By the way I am better off by about $2500/year, its great.

Edited 05/10/06 08:18 AM by baboon

[Paradoxx]

that's very helpful, thanks for your input everyone

I will be going ahead with this as I will be better off by about 3000 a year... assuming I fulfill the kms (shouldnt be too hard)

[XR06T]

did you irganise it steve or did your employer do for you?

[Paradoxx]

I have organised it through Smart Salary (they have financial advisors) they basically sent me the forms and I fax the relevant bits back. They are paying out my loan today, so I will have the balance in my account today also. This gives me two months before payments start coming out of my pay (2 month deferred).

I am very impressed by the process, it has been very fast and thorough, and any questions I had were answered and easy to understand.

I'll let you know how the next couple of months go.

[Blonk]

And they will back you back 100% of the GST for the car, the payments and the fuel............ every month..........

[RAPHOON]

As Mark said to me before he reckons it will be well worth it as the car has done most of its depreciating already. The residual after 24 months is $12,937 +GST and its hard to tell what the car will be worth after that time but I reckon I should still be able to get closer to 20k (maybe between 18 - 19k) if I decide to sell it after.

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Considering the age of the vehicle and the use of deminishing value depreciation, this may be a good option for you.