Novated lease calculations

[devank]

Hi,
I am trying to work out if it is worth going with Novated lease or take the money out of my investment property and buy it outright.

I received a cost-benefit analysis but I am a bit sceptic about their ‘assumptions’. I would like to do the workings myself. I am wondering if anyone has done the analysis by themselves.

Once I collected all the costs and issues involved then I will create an excel and post it back.

Regards,
devank

 

[tobe]

the main calculation I was concerned with when I took out my novated lease was;
If I use up some of my equity to purchase a car, i wont have that equity available to use as a deposit for the next investment purchase.

If I take out a novated lease, the repayment will be higher than interest only repayments of the same capital from equity, so my serviceability for the next investment purchase is reduced.

In terms of calculations of tax, that is a secondary consideration, and I couldnt see a great deal of diference, at my tax rate anyway....

 

[devank]

As promised I have attached the excel working to compare Noveted lease Vs paying from an investment loan.

It looks like, for a person who is on 38c tax rate bracket and does less than 15Kms, no benefit on a fortnightly basis but there is a benefit at the end of three year lease.

You can change the values in cyan background to suit your own situation.

Let me know if anyone needs any clarifications. Also please let me know if I made any mistake.

* I claim no responsibility if you make a decision based on this *.

regards,
devank

 

[shannons]

Morning devank,

Your assumptions look fairly correct from a 'Novated lease' side of things.

Just a few points,
- 3 year novated needs to be 46.88% residual to be 'bona fide' (ATO correct), increasing your residual a little.
- FBT isn't based on the financed amount, it is Purchase price less the stamp duty and the registration, reducing your post tax a little.
- Don't forget with a novation, you save the GST on everything but the insurance and registration\CTP, reducing your overall costs.

So overall, good job.
regards
Shannons

 

[shail]

Hi,
or take the money out of my investment property and buy it outright.
devank

how do you do this? can you still claim interest on this for tax purpose?

 

[Indifference]

how do you do this? can you still claim interest on this for tax purpose?

No, Shail, you can not claim the interest for tax purposes, hence why many ppl elect to salary sacrifice through their employers and get a novated lease, in order to get a tax offset.

My view is, if you have to borrow money to buy a car, then you probably can't afford it. Better to have a bit of delayed gratification and buy it outright with cash (which can come from good investments)

 

[shail]

Thanks.
wondering then, why anyone wants to use the equity to buy a liability and not an asset?

 

[Indifference]

Thanks.
wondering then, why anyone wants to use the equity to buy a liability and not an asset?

Because that is how 95% of ppl get by in this world...

 

[shail]

Because that is how 95% of ppl get by in this world...

Thats very droll!

 

[devank]

how do you do this? can you still claim interest on this for tax purpose?

Sorry I should have explained a bit more. By no means I was advocating to use the equity to borrow more and buy a car.

What I meant was, say you have an offset account offsetting the investment loan, then take it from that offset account. Hence, the interest payments would be higher after the money is taken out.

In my case, I rent. So all my income go into the offset account. Depends on the offset account's balance the interest charge varies.