Novated Lease Anyone Done It?

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  trex on 06/12/2016 - 10:56

  +1

  Novated lease can get a good way to finance the purchase of a vehicle but do be aware that:-

  1. FBT on Novated lease is usually passed to the employee. FBT is currently at a rate of 49%, calculated on the taxable value of the vehicle, minus any post tax contribution made by the employee. Taxable value of the vehicle is based on the market value of the car when new. The market value is reduced by a third if the car is more than 3 years old. Tax saved from your personal income tax needs to be compared against the FBT cost. It doesn't make sense to save say 30% on your personal tax only to pay 49%.

  2. In Novated lease there is a substantial lump sum payment at the end of the lease. Alternatively you can extend the lease by re-leasing the vehicle at the end of the original lease.

  The fleet provider should be able to generate a lease proposal that gives the monthly lease amount with estimated FBT. I usually assess this cost along with the savings from personal income tax against the cost of the vehicle to get the effective interest cost that will be paid for this lease. If it's more than other financing options, I would just skip the Novated lease option.

  • 

    Trying2SaveABuck on 06/12/2016 - 11:37

    Yea i thought so it is one of those sometimes it's cheaper and sometimes it isnt im going to run the figures and see how it goes

  • 

    [Deactivated] on 13/12/2016 - 07:32

    Most novated leases on vehicles would use the ECM (Employee Contribution Method) to offset any FBT payments. To my understanding, this means that you would need to pay 20% of the new price value of the vehicle as after tax payment before you could start any pre-tax savings. I just bought a new Honda Jazz for $17500 drive away on a five year novated lease. The value of the car is $16000 (taking off rego/green slip). I have to pay $123 per fortnight ($3200 P/A) as after tax payments before making pre-tax payments. My budgeted payment is a mix of post and pre tax which reduces my take home salary by $260 a fortnight. This payment includes: car finance/rego/insurance/servicing/fuel/tyres and may vary as its only a budget but is working well so far. After the 5 year lease expires, the residual will be approximately 25% of the purchase price. Mine will be $4400 which isn't bad for a 5 year old Honda Jazz. As a side note, the car came with a 5 year warranty included.

    The leasing company will try to add on as much stuff (such as additional insurances) as they can, question everything.
    I have no experience with fleet partners as my employer uses a different company for their novated leasing.

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  Taegukgi on 06/12/2016 - 12:10

  I'm on my second novated leased vehicle now. Had no issues with the first one and actually made some money on it. Can't think of a better way to drive a new vehicle every five years.

  • 

    Trying2SaveABuck on 06/12/2016 - 13:17

    what car did you get if you dont mind me asking?

    • 

      Taegukgi on 06/12/2016 - 13:20

      2016 Hyundai Santa Fe.

      The only bad experience was the negotiating of the deal with the dealer. I should have just accepted the quote that the leasing company provided me. Would have saved a lot of time and frustration.

      • 

        Trying2SaveABuck on 06/12/2016 - 13:42

        cool thanks for you feedback!

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  2ndeffort on 09/12/2016 - 11:03

  +3

  I've been buying cars with Novated Leases for the last 10 years. Both my wife and I have cars on leases. One of the key things to note is that all maintenance costs (rego, insurance, petrol, servicing) come out of 'pre-tax' money. This means that you pay for these before they take before they work PAYG income tax out of your pocket. What this means is that for folks who pay a lot of income tax and do a lot of driving this can be an effective way to run a car or 2.

  The biggest tricks I have found out are:

  • Dont trust the leasing company, they will tell you 'leave it all to us', we are experts and can get you the best deal' etc. Every car I've bought I have negotiated myself and then got them to pay for it. The business where you tell them what car you want and they just tell you when to pickup the keys involves them getting all kinds of kickbacks from everyone in the chain, all of which you are paying for. I normally get a car $1-2K cheaper than their 'trade Wholesale' rate just by driving a hard bargain, buying at the right time of the month/year and not having to pay the kickback the lease company has with the car dealership.

  • Read the fine print. i once had a lease sent to me and when I read it, my monthly payment involved me paying for 5 insurance policies, 4 of which were setup to protect the financier in case they had to repossess my car. There was one in case I was made redundant, there was one in case they repossessed it and when they sold it at auction it didnt return enough to payout the debt etc etc etc. I enquired and they admitted all were optional insurances so I told them to take them all out and just leave the comprehensive car insurance. Each to their own, you might feel safer with some of the insurances but check first, dont just sign up as if it is a software agreement etc.

  • Buy a car that depreciates slowly. Not all cars depreciate at the same rate, some hold their value better. The rules the tax office setup have an average rate factored in for how much the car will devalue. If at the end of the lease the car is worth less than what you can sell it for you have to makeup the difference yourself, you cant just hand it back (as some people believe). If you are clever and pick a car that depreciates slower than average and holds its value better (Toyota 86, Subaru WRX etc) then if you sell at the end of the lease for more than what you owe the lease company you get to keep the difference tax free. I walked away with nearly $7K at the end of my WRX lease a few years ago!

  • 

    superseijin on 24/12/2016 - 08:55

    Hi, I'm not doubting you as it seems you have been through it however, I would like to confirm that there is no capital gains tax if you sell the car for more than what you owe the lease company?

    Thanks.

    • 

      chumlee on 24/12/2016 - 09:04

      The vehicle depreciates at a set amount each year under ATO guidelines. When you sell the car it depends if the sale price is above or below the written down value determines if you make a loss or a gain. It has nothing to do with how much you owe the lease company.

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  malone63 on 12/12/2016 - 15:45

  If you are looking for new vehicle the Novated Lase may be the way to go. You are still paying for it, and you must have the money to spend for the vehicle anyway.

  I have been looking at it but I prefer my vehicles a good second hand. I prefer to own mu cars, but each to their own.

  As with the colleagues at my work, some will never go back to it, and some have. Good luck

  • 

    superseijin on 24/12/2016 - 08:57

    +1

    If your racking up the KM's on your car which means fuel, services, tyres and any other expense doesn't think provide the tax benefit than owning your car?