Car Leases...Tax-Effective?

[ffc1883_1996]

I've narrowed my lease options down to ... Operating Lease (bit like a finance lease, but includes operating costs)

You should have a chat to LeasExpress. My dad and I have each used them - both of us are happy clients.

Actually, I'm an ex-client really. Their funding comes from Macq Bank so for me to take out an operating lease with LeasExpress would most likely break my new neverevereverdealwithmacquarieagain rule.

 

[klublok]

So in relation to GST, would you be able to claim that for a second hand car? Do they even charge GST for a second hand car?

 

[Cales405]

So in relation to GST, would you be able to claim that for a second hand car? Do they even charge GST for a second hand car?

Yes & Yes.

 

[TheDoctor]

So in relation to GST, would you be able to claim that for a second hand car? Do they even charge GST for a second hand car?

Assuming you buy the car from someone who is registered for GST.

If you buy a second hand car from John Smith down the road, then usually - no.

 

[BayView]

to take out an operating lease with LeasExpress would most likely break my new neverevereverdealwithmacquarieagain rule

I used to have this mentality when I was stiffed by yet another Bank.

I'm running out of Banks.

They don't care if I have a sook or not, so I've learned to get over it (them) and move forward.

So, I've decided to be a Bank whore and go with any who will give me the money I want, when I want.

My goal in life is to get soo big that my (lack of) business with them will hurt them and they will come running.

Keep dreaming and plotting.

 

[ynnug]

if you see the AUD rising, you would steer clear of imports.
the GM card can be used for imported holdens remember.

.

Anyone know if the GM card can be used to buy vehicles under business? That is do not have to pay GST etc? I know the terms and conditions say that to earn the points on that card you have to be an individual and earn points on personal expenses. Say I earn the points with my personal expenses and then buy the car through a business, can I use the GM card credits?

 

[JIT]

Hi there,

I've had a re-think on this...isn't it better to just use any surplus equity available in residential property, for example, to finance a car purchase instead of chattel mortgages/commercial hire purchases/finance leases/operating leases?

Here you have low interest rates, interest only (variable or fixed), tax-deductible loan (if the car is used for business purposes), GST refunds, depreciation, and most of all, you are not having to pay any principal down...ie. instead of paying down principal on a tax-deductible loan you can use the extra cash to pay down a non-deductible loan instead, ie. PPOR loan...?

So this way, a 55k car today would cost you at a 5% home loan interest rate, $2750 pa (excluding maintenance/insurance/petrol), before tax, and after tax at the highest marginal rate about $1200 pa...or $23 per week...(not including GST/depreciation benefits)...that's cheap isn't it?!

Say it's 110k car, that's $43 per week?!

Rough numbers of course.

 

[DavidMc]

Hey JIT,

Yes, it's much cheaper using resi finance.

However, I've just bought a $60k car. Would prefer to finance that and have my 60k back for a deposit on a nice IP.

I've done novated lease before and understand how they work.

After all your research, what is the main difference between these and Chattel Mortgages? It's very hard to get a straight answer on the net, thought it would be easy.


Regards,

David.

 

[DavidMc]

I can see on a website

"A Chattel Mortgage is another option for Businesses looking for immediate ownership with the added benefit of claiming back the GST within the BAS period of purchase."

and

Novated Lease - "This is a three way agreement between a employee, the employer and the financier. The repayments are deducted from the employee's Gross Taxable income to reduce the amount of Tax that you are required to pay"

I'm assuming under a Chattel Mortgage you can still get a fuel card to pay for all expenses and these are taken out of your pre-tax pay?

 

[JIT]

Hey JIT,

Yes, it's much cheaper using resi finance.

However, I've just bought a $60k car. Would prefer to finance that and have my 60k back for a deposit on a nice IP.

I've done novated lease before and understand how they work.

After all your research, what is the main difference between these and Chattel Mortgages? It's very hard to get a straight answer on the net, thought it would be easy.


Regards,

David.

David,

This thread then continued on to this one:

http://www.somersoft.com/forums/showthread.php?t=54788&highlight=business+cars

But, after finding out that cars could in fact be purchased CF+ve, I have since lost my enthusiasm for cars, and am still driving around in my old Toyota!

I'm just going to wait until I can afford the Gallardo !

But from memory, my understanding was that Chattel Mortgages were basically P+I loans for cars, with a ''residual value'' payment you set upfront. Eg. Car purchase price 55k, residual value 35k, 5 year term, means you pay P+I the 20k difference over 5 years, then at the end of the 5 years you have to pay the remaining 30k loan amount to take full ownership of the car, if you want to. You can adjust the residual value to increase or decrease your monthly repayments over the 5 years.

The GST refund is a one off refund of the 5k GST amount on a 55k car you get if you are self-employed or a business owner, on the first BAS you do during the car purchase period.

Being P+I, it's not cheap to service, and that's my main problem with it. And only the interest is tax-deductible (if used for business use, and it depends on the % you use it for) of course. But, you can depreciate the car, and this non-cash tax-deduction is the major benefit. The now obsolete 50% investment allowance made this especially so, and hence you got CF+ve cars.

As for fuel cards, I am not sure about this, but I don't believe Chattel Mortgages are available for employees, so not sure about taking it out of your pre-tax income. A contractor/business owner would just pay all car expenses on a credit card and then claim the % of business use as a tax deduction.

So... I much prefer IO loans via residential equity LOCs for this sort of thing. It's way cheaper, but at the expense of using up highly leveragable equity.

If you have plenty of LOCs sitting around doing nothing, and the car purchase price is only a small portion of this, then I would consider it. I probably would even do this over using cash savings upfront.

As for Novated Leases, to be honest, I don't know much about these. I thought you had to be an PAYE employee for this, and as I am self-employed now I have not looked into this.

Maybe you could explain how Novated Leases work?

Hope this helps.

 

[Cales405]

Lease Agreements mostly are used to keep a vehicle off a business' balance sheet.

As the vehicle is owned by the financier, the only place this will show up on your financials is as a rental on your profit & loss sheet

Whilst some comments on here state a CHP is better as you claim repayments, depreciation and GST, you need to remember that you can only claim the interest component of your repayment (not the whole repayment) whereas under a Lease agreement you claim the whole repayment as long as the residual fits with in the ATO's guidelines. (ie minimum 28.13% RV on a 60 month term)


The deductions end up being very similiar at the end of the day.

The choice is whether you want the vehicle to be an asset of your business or not.

 

[DavidMc]

Cales has summed it up quite well.

I've just gone with another novated lease. My calcs showed that a $60k car using resi finance (6.x%) vs a Novated Lease (9.x%) works out pretty similar after all the associated tax advantages.

The other main difference for me is that with a Novated Lease I can use a Motorpass fuel card and don't have to post receipts etc. The CM you had to do all the BAS stuff etc and I just wanted the simplest option (even if it was slightly worse off $ wise, seems neck and neck anyway).

Now, and extra $60k to play with... Maybe Brisbane.

 

[DavidMc]

As far as how one works, it's a P&I loan + expenses all paid out of pre-tax dollars.

Then you pay FBT on top of that which is a function of how many KMs you do. More KMs the better.

The tax office has minimum balloon amounts at the end of each lease depending on the lease length.

 

[redsquash]

Confused .purchase of business car


I will start a new business and am a novice.

I will buy a car($30,000) for my pty Ltd company.
Which is financially more sensible from a tax perspective?

Option 1 ...... Access funds from my Home mortgage( currently at 7%)

Option 2 ...... A 3 year chattel Mortgage at current commercial rates
.......... ( guessing around 9 to 11 percent)
Option 3 ............ Please advise .


Opportunity cost of accessing mortgage will be $2100 over 3 years
I have an accountant appointment next week.

I believe option 1 is best but would like some feed back before seeing the accountant.

I will do 100,000km a year, so resale value will be tiny after 3 or 4 years

 

[Aaron_C]

Since when do 3 year chattel mortgages for cars charge 9-11%? More like 6.5-7%...

 

[geoffw]

Redsquash- your accountant will advise- but it may be worth while for you to look at something like a novated lease, which has been previously mentioned. It can give you tax advantages which may make it more attractive than other options, depending on circumstances.