Vehicle Leasing Options

[PrimeCommercial]

Any know the intricacies of the different option of leasing a car? I'd probably be able to squeeze 40%-50% usage for business.
I know the bare basics but looking for more info on things like Lease/Novated Lease, Commercial Hire Purchase and any other (if there are any) of the structured products finance companies have.

My basic understanding is that.....

...a Lease is paid out of your after tax dollars and is claimed in your tax return. You have the option of claiming cents per kilometre determined by the size of the engine or you can keep a log book for 12 weeks, work out the % used for work and claim that percentage of all expenses, I'm assuming only interest expense component too not the principle part of the lease payment.

...a Novated Lease is paid out of pre tax dollars and includes an estimated amount for running costs (tyres/fuel/servicing). Because its all paid from pre tax dollars there's nothing to claim but it does come back and bite you in the ar$e with FBT which is calculated on the price of the car and the km travelled. From what I understand a cheap car doing heaps of km's works out really well on a novated lease (little FBT to pay).

.....a Commercial Hire Purchase (I am even more iffy about my understanding of this but..) your dont actually pay any principle amount in the monthly fee because its defined as a rental/hire payment, therefore the whole amount is tax deductible. From what I understand the monthly payments are more than other types of finance because the owner/finance company wears the capital loss of the vehicle but is able to depreciate the vehicle on their books, As you dont own the vehicle you cant depreciate it. At the end of the term you can hand it back or purchase it.


So how'd I go? am I completely off base? and what circumstances and why would any of these or other options be better than any other?
Is it best to just buy a vehicle outright? Are they all subject to GST? if not will it make a difference?

Cheers

 

[lisag]

Hi shady, we have just started using Novated lease, you probably know about them here is there web, but you may have seen it already. This will be our first financial year with a lease car. Will have a better view at tax time. Have had no problems, very easy and helpful.
Give them a ring as they may be able to answer your ?'s.

http://www.sgfleet.com.au/novatedleasevehicles.aspx

 

[BayView]

If you are a PAYE earner, I don't think it is possible to have a novated lease - you need to have a business or be a contractor of some sort.

From a pure financial point of view, buying a cheaper second hand car with cash is far better on your cashflow and longer-term wealth creation.

Be very careful of the attractiveness of leases.

Many, many people - at all levels of income - go down that road just because they can.

They often have the mentality that because they can claim a car, they will buy a substantially more expensive one and get part of the cost of it as a deduction. They think they are getting a more expensive car for less money. They are, but they are still spending more money on a liability.

The key phrase is part of the deduction.

You still have to find the cashflow to support the whole amount to begin with, and then you will get some of it deducted off your end of year tax bill.

Only some of it.

The classic example is the tradie with the $50k ute parked out the front of the building site, or the real estate agent driving around in an SLK. I see this scenario all the time.

While their cashflow might be able to support the vehicle - through their deductions - they are seriously impeding their progress to early riches.

I'm not saying don't lease a car, and I'm not saying don't lease a nice car. I'm saying think really hard about what level of finance you are going to sign up for.

One of my very good mates was whining to me a few years ago about how tight things were in his business. Sitting in the driveway were 2 leased cars worth $100k!

It's very hard to go back once a lifestyle has been established, and he was a great example of that at that time.

 

[Buddybee]

I had a Novated lease a few years ago when I was a PAYG employee for a large Australian blue chip company. I was in a monthly paid middle management position, and Novating was the way to eliminate their company car fleet.

I have a friend that currently works for Telstra and he is a fortnightly paid PAYG worker and he has just gone down the path of novating in the last 3 months. I think that novated leasing restrictions for the most part depend on your employer's policy. I do know of other employers that won't allow novated leases for PAYG employees and weekly/fortnightly paid employees.

One of the restrictions our Novated leasing company had was that the vehicle either needed to be new (any price) or if the vehicle was second hand the purchase price needed to exceed either $28K or $30K - I don't remember which.

There is another option available (if you are self employeed) - a Chattle mortgage. Bascially a finance company loans the money and you buy the vehicle in full. You then make monthly repayments for a pre-determined period of time (usually 3 or 5 years) and then pay out the residual balance. You have the ability to claim 100% of the GST in your next BAS return, and gain the buisness deduction of the mortgage expense (exc. GST each month)

Cheers
Buddybee

 

[PrimeCommercial]

Been looking into this. Its hard to find in-depth examples or information on the various options. Its usually all just glossy brochure stuff laced with key phrases that dont really tell you much.

buying a cheaper second hand car with cash is far better on your cashflow and longer-term wealth creation.

I should have mentioned that as another option. Paying cash that is, not the buy a second hand car bit. I'm in a position where both my brothers are sales managers at large car dealerships, so once you add on the huge rego transfer fees on top of a secondhand car my buy price on a new car is almost the same.
The car is the same whether we pay cash or lease it.

 

[deejay]

Novated leases are available to PAYG employees, but you need your employer's cooperation. The bigger the employer, the more likely they'll have an arrangement with a salary packaging firm. If so, they will send someone out to explain it all.

Novated leases do not have to bite you with FBT. There is an option called Employee Contribution, where you pay most of the lease cost from pre-tax and a little extra from post-tax. It's much cheaper than reimbursing your employer's FBT, and if you pay it, the ATO classes the car as not subject to FBT.

Novated leases work very well if you drive over 40,000kms per year (results in the lowest post-tax contribution) and also if you get a car under $20K. We bought a $15K car and what we're paying out of pocket is about the cost of fuel, rego, repairs and insurance only. It's basically like getting the car for free. People come unstuck when they use the system to go and get a $70K sports car.

The other pitfall is whether you plan to stay with this employer for 3 years. Novated leases are theoretically portable, but in practice, it's at the discretion of your new employer.