Novated Lease.

[mickq]

Do the novated lease.

Ive done all the figures in the past, and if my company didnt offer me an even better deal, I would have done novated.

One other big benefit of a novated lease is that to buy the car at the end of the lease will often cost much less than the car is then worth at the time. If that is so (and I reckon it will be true for the XR6T as there is a whole bunch of people who love it but cant afford the new price) you can pay the final balloon payment and then sell it the next day and in doing so make quite a bit of profit. Maybe $5-6k or even more. (Too hard to say yet, but it will definitely be in high demand. Its on its way to being a cult car).

So factor in $5k profit from doing that.

When you take $5k off the total you will pay under a novated lease, then it becomes even more profitable. (I imagine you should multiply that $5k by 2 so its like pre-tax dollars, unless you plan to declare to the ATO that you made a profit on it. I wouldnt bother).

Lets say at the end of the lease (depends on how long you lease it for - you didnt say) you can buy it for $24,000. It may be worth $29,000 on the second hand market.

So you decide to sell it and then buy the latest 2007 XR6T Turbo 900hp AWD beast.

Pre-tax:

$75,000 paid over term of lease

+$24,000 to buy car at end

= $99,000 total spent.

But you sell it for $29,000 the next day, and forget to tell the ATO this.

that's $5k profit post-tax, or the equivalent of $10,000 profit pre tax.

So:

$99,000 (total spent)

-24,000 (money you got back from sale)

-10,000 (also from sale, but pre-tax equiv of the $5k profit you made)

= $65,000 actual cost at end of lease, pre-tax.

So halve it (so its in post-tax dollars), and you have $32,500 total cost.

Divide that by 3 (years) and the total cost is $10,833/year.

that's a rough estimate anyway, based on how Ive seen novated leases pan out in the past. (Not to mention its 2.15am and Im half asleep and couldnt be bothered checking everything closely!)

Edited 25/01/04 03:16 PM by mickq

[richdave]

I'll try and do a few calcs and see the effect of deprectaiting the car and claiming 80% as business use for a comparison.

I did work out that if you depreciate the car at the maximum rate of 22% over 3 years and have running costs of about $3500 pa, and you use it 80% for business, then you would have a net tax reduction of about $8.5k over 3 years.

Not sure if this is valid but hows this for logic:

$3.5K x 3 = $10.5K + $26k depreciation = $36.5K over 3 years

$36.5k - $8.5k tax reduction = $28K net cost over 3 years.

Then add the LOST interest on the $50k which would be $3850 at 5% compound over 3 years net paying 50% tax on the interest.

Brings the total cost to $31850.

If you lease the same car it costs $39K aftre tax.

Then deduct the interest that you have earned on your $50k of $3850.

Brings the net cost to $35150.

If what I have done here is valid, then it seems that If you are using the car for business purposes it is cheaper to buy the car out right and write off the running exp on your PAYE tax. The saving would be about $3.3K over the 3 years

If on the other hand you cannot write the costs off against your tax. The total cost to you would be $36.5K plus the lost interest of $3850

Brings the net cost to $40350 which would make the novated lease cheaper but not by much...only about $2.5k over the 3 years.

Most folks can't pay cash for a $50k car so the benefits of novated/salary sacrifice are much more pronounced when comparing a private lease/loan paid solely from post tax earnings. More like $9000 over 3 years based on the assumptions used above.

You need someone smarter than me to work out the detail on this I'm afraid.....did I mention I'm no accountant...

I know.... see a REAL accountant... :lol: :lol:

I have a headache now....

[richdave]

So factor in $5k profit from doing that.

This theory probably holds true weather you depreciate the car or buy the leased car for its residual.

unless you plan to declare to the ATO that you made a profit on it.

I believe there is no tax payable on the proceeds of a private sale of a motor vehicle.

Edited 25/01/04 03:36 PM by richdave

[whatever]

mmm, very interesting.

I was thinking private use only. The term was going to be 36 months.

I have been following all the leasing threads therefore got some ideas about it.

Maybe it will be good for me to ask more indepth with my accountant why he thinks cash is better. I will try and argue with him based on the info I got here. I will post anything I find out.

[whatever]

I know what the difference is now. In my calculation of the novated lease, I forgot to add the residual value, $20,000.

Once the residual value is added, the difference between the two is not so great. More things for me to consider now.

[Mondie]

If what I have done here is valid, then it seems that If you are using the car for business purposes it is cheaper to buy the car out right and write off the running exp on your PAYE tax.  The saving would be about $3.3K over the 3 years

If on the other hand you cannot write the costs off against your tax.  The total cost to you would be $36.5K plus the lost interest of $3850

Brings the net cost to $40350 which would make the novated lease cheaper but not by much...only about $2.5k over the 3 years.

Dave,

You are spot on here IMO, a novated lease creates a tax deduction for a car & expenses for people who dont have business use. If you do have business use, then l find borrowing the money (against the house) gives me a loan at house interest rates and the added flexibility of not being tied to leases etc. it works better for us and works out cheaper for me as we have 75% business use.

Having said that there are other considerations depending on your financial situation. Novated leasing can significantly reduce your taxable income and so bring your income into a lower marginal rate. if you have negativley geared investments then this will obviously reduce what you get back. Novated leasing can also reduce your income in the eyes of the banks depending on their lending model, and so reduce servicability if you are going for further loans for home or investmanet propertys. Obviously both of these outcomes reduce the appeal of leasing significantly to some.

So there is more to consider than just what is cheapest, you also need to take into account how leasing will affect whatever else you may have on the go now, and into the forseeable future.

[AMoffat]

The lease thing sticks with me:

I am a government employee, all the health service unions did a deal with the government, to partially fund pay rises 18 months ago, the 17K that you are allowed to salary package is split two ways. So my pre tax benefit is $8,500. At present it doesn't seem worth doing.

[richdave]

...my pre tax benefit is $8,500. At present it doesn't seem worth doing.

If you can salary sacrefice $8.5K pre tax, depending on your income(tax bracket) it is worth about $16.3K in POST tax terms.

And IIRC thea healt sector get a FBT exemption too so you are better off than most by a long margin. I dont get the exemption and pay about $17k in POST tax dollars for my lease (inc running costs) of that about $4k is to cover the FBT.

Leasing a "T" getting a FBT exemption, and getting gov't pricing would be a phenominal saving IMO. A mate of mine has access to gov't pricing and could get a "T" for less than I could get a N/A

I suggest you talk to a competant accountant.

[aniken]

Who dug this one up? :lol:

I'll have another go.

What are the options for leasing as a private driver (no business usage whatsoever, and no involvement of my employer in any way, shape or form)? Say, a Typhoon for 2 years.

[Miyagi]

I wish I could get my head around what you guys are saying... my car is currently a CHP thru Ford Credit... I know I'm getting a fairly sh*t deal and as I've now moved to a larger company I suspect I can roll my car into a novated lease plan...

I need to get myself a good accountant methinks...

Also, my G/F is a nurse so I imagine she's considered in the health sector?

What you guys said interests me... but I struggle to get it! :(