Can anyone explain the benefits of leasing a car rather than buying one?
Wife says it's beneficial in lowering her tax liability but I can't see the benefits of paying for a car we won't own.
Leasing Cars - What Are The Benefits?
Comments
Does she mean:
A novated lease is a type of motor vehicle lease common in Australia that allows a business to lease a motor vehicle on behalf of an employee, with the responsibility for the lease lying with the employee and the lease payments being made from the employee's pre-tax income.
Speak to a good tax accountant.
/thread.
How do you assess whether a professional is good or not if you don't learn enough about the subject to understand it?
Not doing your own tax/conveyancing/accountancy/legals/doctoring/electrical work is often good advice.
Discouraging people from learning about these things via questions to friends or on the internet or via a book is poor advice.That is pure nonsense. Asking for financial advice from anonymous randoms on bargain websites who have no idea of your unique financial situation is just plain stupid. There are so many variables at play any advice given could be utterly worthless, even dangerous, despite good intentions.
How do you assess a professional, well at least you can bloody well identify them & check their qualifications for starters…the OP hasn't got your bona-fides for the financial advice you've given sight-unseen below.
If the OP reads this thread they will see the main benefits listed (paying car expenses out of pre-tax income) and some of the downsides.
They will be better informed to decide if it is something they wish to pursue with the attendant costs of professional advice, or not.Pop over to the car for $80k thread for an example of a professional with a financial planning qualification employed by a major bank to see what kind thinking some professionals have.
The most cursory investigation suggests spending $80k on a car for a 21yro at their first job isn't very prudent, yet it is the course being pursued by that financial planner.
Spending ten minutes with Google almost always puts you in a better position to evaluate the advice of experts.
You can own it by paying the buyout after the lease period.
If she means novated lease, she pays the repayments from her gross pay, before tax.
This reduces her taxable income, and she will pay less tax.
Defintely speak to a financial advisor or accountant to see if this sort of lease suits your personal needs.
It wasn't for me. Locked you in, used to require a certain amount of kms which may have meant long trips for no reason,residual payment required at the end, payments higher than buying a second hand car.
I've been led to believe that financially there isn't a lot of difference in it, but haven't actually done the sums. It kinda makes sense too, the lease company needs to take some profit, you won't get to pick bargain fuel prices, tyres or servicing but you will pay for those things with after tax dollars if you don't lease.
Lease company makes profit on the interest rate.
You allow for a budget for the number of kms driven.
E.g. if you're not going to need a set of tyres before end of the lease, it's not budgeted for.Fuel cards are issued, so you can still get cheap fuel depending on the cycle. No, you won't be able to use el cheapo stations, but the fact you're paying for part of it out of pretax offsets this anyway.
The KM requirements have changed as well.
It's best to find a calculator online that allows you to punch in all the numbers, most have pre-determined numbers which skew the numbers a lot. I tried it the other week and they allowed $1300 for insurance when I can get it for half that!
End of the day, if the numbers work for you cash flow wise then great. Pick the right car and it's worth a whole lot more than the residual payout too, so you can come out on top there.
The big thing for me is that you are paying finance on the entire cost of the vehicle rather than just the bit left after your trade in. Also the lease company add lot of extras eg paint protection, car mats, dash cam that you don't need, of course you can choose not to include these.
I have had novated lease for my last 3 cars. I normally make all the calculations of buying the car outright or buying the car through the lease to compare. When doing the calculation I also take into account the savings of putting the price of the car into my homeloan setoff account if I take the lease. I think it works out better when buying brand new cars but I have also used it in the past to buy second hand car. Generally for a new car you get a fleet discount price plus you don't pay gst, then you save on gst for any other running expenses. Definitely worth doing the calculations for your personal set of circumstances, plus most novated lease companies have a calculator to work out what the affect of the novated lease is on your take home pay….
Good Luck!It s useful if you must have a new car, don't have the cash flow to manage it out of your finances, and do enough business driving to warrant it.
Otherwise, just claim all the expenses back at tax time.There have been a number of threads about novated leasing previously, but in summary and to clear misinformation
The savings come from
*Not paying GST on the purchase price (but you have to pay it on the residual at lease end when you buy out the vehicle)
*PART of the costs coming out of your pre-tax salary (ie salary sacrifice). This is the really big saving. You always pay with after tax dollars the taxable value of the car fringe benefit the employer is technically providing you plus GST on this employee contribution. Anything you spend on top of this comes out of pre tax dollars.
*Paying ex-GST operating costs
*Potentially large discounts with the fleet company's buying power. Note you can always go in any negotiate your own quote, and dealers will be a lot more competitive off the bat because the leasing company will tell you if the price is worse than their pre negotiated discounts with their suppliers.
*Being able to keep the funds you would've spent on the car outright, sitting in your savings or mortgage offset accountThe leasing companies make their money through
Financing and interest
Insurance
Claiming supplier rebatesI've looked at quotes from a few different companies and the best one I've seen and dealt with is LeasePlan. Unfortunately for you, you're stuck with whichever leasing company your employer nominates you don't get to pick and choose. Whoever you go with, make sure the full vehicle purchase price is broken down to the most granular level of detail, and that the interest rate is clearly specified.
You are allowed to trade in a vehicle towards a novated vehicle which reduces the amount financed and the FBT base value of the vehicle, but the maximum contribution I believe is about 20% of the new vehicle's value. Not sure if all leasing companies will let you.
As mentioned above there used to be an assumption built into the statutory formula method of valuing car fringe benefits that more kms = higher implied amount of business use. But they changed the rules a few years back so now it doesn't matter.
In general terms, the higher your marginal tax rate and the cheaper the car, the more benefit you will get out of novated leasing. But speak with your own accountant about your specific circumstances, it isn't for everyone.
Source: I'm an accountant and I oversee novated leasing at my company
Edit / wrote this on phone late at night: the taxable value of the benefit is the after tax amount deducted and that includes GST component remitted to ATO by the employer, with the balance of the pre and post tax deductions paid to the leasing company
you need to work out your own financial situation, as to if it of a benefit
there are also different types of leases.
benefits some people