Novated Lease for a car

L

Lamingtons

Does anyone here have a novated lease car?

What are your opinions?? Pros Cons?
Would i benefit if I am not in the highest tax bracket?

Thanks
 
My last car was done through a novated lease & wasn't too bad. The obvious advantage is that you pay for the car in pre-tax dollars, so pay less income tax. All petrol, repairs, parts, servicing, car washes etc is included in the lease. The more km's you travel, the more you save.

You get to choose your own car (usually new) and the interest rate is fixed for the life of the lease (3-4 years).

Disadvantages include that you cannot do a trade-in on a lease. If you underestimate your km's, you either have to do a trip or pay excess amounts. At the end of the lease there is an amount left to pay if you would like to keep the car, otherwise you can return it to the finance company. My example is I had to pay $7k on a car worth $12k. Another disadvantage is if you lose your job, you may have to payout the lease if you can't transfer it to your new position.

You would need specific advice to see if you would benefit or not. See your accountant or the company who does salary packaging to get this.
 
Last edited:
Thanks for that yoyoma.

I did ask the dude what would happen if I changed jobs etc.
I was looking at 3 year lease, however in the last 3 years i have worked at 3 places. But if i do a shorter lease it isn't that worth it I think.

I shall call him on Monday.
 
You are still up for FBT - so in many cases you'd need to be doing 40,000km+ per year to be getting a benefit.

Cheers,

The Y-man
 
Thanks Y-man, i've taken that into consideration as I'm not in the highest tax bracket. I should look at my expected mileage otherwise it looks like taking many trips up and down Sydney!
 
Lamingtons said:
Thanks Y-man, i've taken that into consideration as I'm not in the highest tax bracket. I should look at my expected mileage otherwise it looks like taking many trips up and down Sydney!
Click to expand...

Don't laugh! One of the staff here went to see "The Lion King" in Sydney... he was driving up to put on km's........

Cheers,

The Y-man
 
One disadvantage with a novated lease arises if the vehicle is off the road for a lengthy period of time (e.g. repairs after an accident) - you have to nominate the number of kilometres you wish to travel in the FBT year, and if you cannot do within the nominated range, it could prove to be quite costly (e.g. extra FBT payable). One way of getting around this is if you do 26,000km a year, nominate the '15,000 to 24,999 km' bracket - if you do 25,000 km +, you'll get a refund of FBT, and if your car is off the road and you do less than 25,000 km, you won't need to dig into the 'jam jar' to come up with extra money.

We've had a novated lease for almost three years now, and will probably go for another one when the current lease ends - but hubby is in the top tax bracket, and we do a lot of km.

Cheers
LynnH
 
I had a novated lease on my car before I left to go overseas. I was one year into a three year contract and the payout was huge. There were others in the company on their 2nd or third vehicle and their feedback suggested it was worth it.
 
The period of repair can be deducted from the total number of days in a FBT year. That means you do not pay FBT for the period which the car is in the workshop.

Normally the packaging company will advise you to pay the FBT using your post tax dollar.

I think it is worth to do it if you can do more than 25,000k per FBT year. Also It may be a good idea to package everything such as petrol, services, tyres with the car.
 
I had a car through a novated lease some years back. At that stage, an old bomb had just died, and we were looking at buying a slightly newer old bomb.

But the figures looked pretty good for buying something not so bad on a novated lease. The car was 2 years old with around 40K on the clock. The amount extra I had to pay was very well worth the extra car I got.

And I was already driving a lot of km, so doing over 25k was not a problem.

Seven years later, the car has $240k on the clock. But a V8 engine is not so good for the pocket these days.
 
I am a little late coming in on this thread but i have been looking at the novated lease product over the last week so i thought i would add my 2c worth. It may help others who are looking at the product. This is not tax advise so please talk to your accountant.

I will do 25,000km plus per year so it is worth looking at. I wouldn't bother if doing under these kilometers.

Do a google search and you will find a many online calculators although some are very approximate. You normally make a contribution in post tax dollars "contribution method" and at the end of the day, this saves a little money on the lease. Importantly, the contribution method seems to save a lot more for a someone in a lower tax bracket compared to someone in a higher tax bracket, and this can help offset the general disadvantages of using the product when one is in lower tax brackets.

My company deal with Orix exclusively and they advised their interest rate they use for the finance as 12 point something. With my calculations it seemed to be around 13%. There is also an annual management charge of around $300.

FBT is calculated on the vehicle value and the factor used decreases with the km's travelled. Therefore it works well with a cheap vehicle doing a lot of km's.

At the end of the lease term there is a good chance that your vehicle could be worth more than the residual. In other words you have paid the car down with pre-tax dollars and then you have the opportunity to make a profit. Not sure of the tax treatment to the profit.

The product works for me (even with the high interest rate) because of the other tax advantages. I do a fair few work km's so i was comparing it to privately financing a vehicle and claiming a percentage of business useage.

Regards
Able
 
Suggest reading article below and forget leasing !

I personally own my car outright and plan to keep it for at least the next 10 yrs. I bought fully optioned Beamer 4 yrs old privately and absolutely LUB it. I am in the top tax bracket however barely reach 14K's p/ year and with all the unknows of leasing figured it's not worth the headache. But the again I am married now and trying to pay off PPOR so car is not my #1 Priority anymore.

All the young guns in my company drive all these HSV Holden's and brag about how fuel efficient they are now, the big fleet discounts they have received and how they are saving tonnes of $$$'s via leasing. :eek: :eek: :eek:

http://theupdated.com/articles/car.html
 
Just remember if you have a novated lease you can't claim travel to inspect IPs - as the running costs are paid from pre-tax dollars it is considered "double-dipping" to claim mileage as well.

Also, it is often uneconomical if you do a lot of work related mileage which is claimable.
Marg
 
Just an update. I went ahead with this as my partner works out that he drives a lot.

We had the car since june 18th and there is about 9000kms on the clock already?! HOW? I don't know, i drive about 30km on weekends.
So we're now a one car household (cringe). It is fantastic for us so far.. i will report soon on what happens at the next tax time.
 
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