Does anybody here salary sacrifice/lease a car? If so, what income are you on to make it worth while? Is it even worth while?
I hear so many difference's in opinion, the savings are great. I can trade it in after, get something else and the money I got back from my tax funds my next car etc etc.
I don't earn too much - I am struggling to see any benefits in doing this? ie if I lease a 20-40k car?
The way I see it is, is I am still paying for a 20k-40k car, WITH interest :\
Just confirming my original calculations - the way people spin it is its like you get the car for very little cost.
The way I see it is - you pay XX per month/week/what ever. Don't actually ever own it and continue to do so and keep trading cars….Or in the event you want to buy a brand new car and keep it indefinitely it can work out a little better due to tax money saved.
My understanding:
You will save on GST on the purchase and running expenses
You will save on your income tax as it's paid from pre-tax income; less taxable income = less tax
But:
You will still be paying ridiculous interest like a normal car loan
I would say it benefits those who NEED a new car and are either in the top tax bracket or will use it to drop down a tax bracket.
If you were going to buy a new car anyway it makes sense
You can always buy the car after the lease term for the residual (both novated and standard leases)
"I would say it benefits those who NEED a new car and are either in the top tax bracket or will use it to drop down a tax bracket."
Also can be of benefit for those a lot of kilometres.
Benefit does go down as income goes down.
I always hear people say is better if you drive a lot. But can someone explain why this is the case?
It can still be beneficial for people making 60-80k. The key is to find a 'cheap' car (15-20k range) and drive a lot (25k km).
The main problem is the fees and charges normally kill the deal (even if the headline interest rate seems reasonable).
I fall within this bracket - I personally struggle to see any value behind it and can probably make better tax deductions on other things.
I fall within this bracket - I personally struggle to see any value behind it and can probably make better tax deductions on other things.
Packaging a car doesn't stop you from making other tax deduction, unless you mean that you have work related car usage that you can deduct in other ways (log book, cents per km, etc)
pretty sure the number of kms you drive don't matter anymore
yeah i think since theyve changed it, the benefit is very similar between low kms and high kms
very similar between low kms and high kms
There's probably a $3000 difference in the benefits of packaging a car drive 25k km vs a car driven 5k km.
@sp00ker:
The only possible benefit here is GST savings, as mentioned the km's don't affect anything. To save $3000 you're saying you spend $30000 on running costs for the extra 20000km.
$1.50 per km. That's a lot of running costs.
$30000 on running costs for the extra 20000km. $1.50 per km. That's a lot of running costs.
Indeed. Go back and read what I actually wrote.
All the running costs are pre-tax. So on top of the 10% GST, you're saving ~30% tax (maybe more).
@sp00ker:
… and you're paying the top marginal tax rate on 20% of those costs. Go read FBT rules, and how they apply to novated leases.
and you're paying the top marginal tax rate on 20% of those costs.
20% on the cost of the car, the fbt stays the same regardless of your running costs. So if you drive more and your running costs are higher, your savings will be greater.
Go read FBT rules, and how they apply to novated leases.
I have. If you want to pretend like you know what you're talking about, go right ahead, but at the moment you're sounding like an idiot.
It does, because if you drive more your running costs will be higher - more petrol, tyres, maintenance.
If you are the sort of person that buys a new car every few years because things your thing, then it can be worth while. But if your plan is to lease then keep, it works out marginal unless you can drop a tax bracket in the process.
basically these salary sacrificing providers make money through charging you a higher interest rate, at the end of the day, there's probably minimal financial benefit (if at all).
Kind of on topic - What do you think is a reasonable amount of money to spend on a car when earning 60-70k?
I am struggling to see any value in going past 10k, all my other cars have been 3.5k-5k.
That said I am in the market for a new (used) car valued approx 10k, probably wouldn't be worth salary sacrificing, even if i spent a little more.
on that kind of salary, i would be going for a late model camry, low maintenance & reliable, also don't need to stress when it gets scratched up.
In a perfect world, I would want a "higher" car, so i can tow my dirtbikes out to the bush (hobby!).
A sedan would probably do it, as it has in the past but its annoying having to be careful all the time and hope the tracks are not too rutted to park the car.
That said, i never really thought about a camry - there affordable, parts are cheap, fuel efficient, plenty of room and I would assume its going to be average to above average in the comfort department. Definitely something to consider!
at that budget, it would be difficult to buy a higher car unless it's an early model that's done a lot of kms, then you might have some hefty maintenance costs going forward.
@JetLi: If parts are not too bad price was, the labor doesn't bother me (I will be doing it myself), but yes I agree with you. There will be some costly maintenance in one way or another. Might just happen a little sooner then if I bought a car with less km.
It depends on more than just your income - lots of other factors, mainly what your goals are and where you see value. Also what your outgoings are for living expenses are, what your disposable income is, your savings, how much you want to put away etc.
Im in a similar income bracket to you but when i was earning about 50k i bought a car for 7k with savings and i still have it now (earning 70k) and am not looking to upgrade in the short term yet
Cars have been a hobby for me, so I have switched out through a few over the years. But now I am getting a little older and want something comfortable, practical and economical.
To put it in perspective, the cars ive bought recently have been no more then 4k. So spending a little more then double on what I would normally spend seems crazy nuts to me (the ozbargain mind kicking in here - 10k). But if its going to be nice to drive and I am dropping extra rego's/insurance becuase of it. Its worth it.
But jumping to the next cars valued at 15k+ I can't bring myself to do it comfortabley. I had a car valued at 20k a while back, and while I loved driving it. I couldn't help but think, looking at it was a pile of 20k cash I could spend on XX/YY. Needless to say I bought a 4k car to "daily" which I ended up liking more just due to not having to worry about it as much. 20k car was sold and thus began the life of cheap cars.
A few questions.
Were you intending to buy a car with borrowed funds anyway?
How many km do you travel per year?
What is your marginal tax rate?
Previously had a Fully Maintained Novated Lease. 2011 FBT changes have made it less attractive for me to go again.
I have money saved up, no need to finance.
Not that many - split between a motorcycle and a car. Would maybe get 10,000-12,000 between them. Maybe a 3,000/10,000 split in km's.
I am in the 32.5% (32.5c) range.
Tax wise you will save the difference between the Marginal Rate and the FBT rate(flat 20%) if using the Statutory Method.
You may get:
Cheaper Insurance through Leasing
Discounted Vehicle purchase
Discounted Maintenance Cost
Discounted Fuel Cost
On the face of it…..it's…
I understand one of the attractions of leasing is not paying GST on the purchase price for a new car. So, is leasing a used car not a good idea as there is no GST involved anyway? (Say a 30-40k used car, on a 160k salary)
From my understanding if you buy a used car from a dealer, there is GST. So I assume that will be taken off the purchase price.
You don't pay GST on the depreciation (Purchase Price - Residual Value).
GST can be deducted if purchased from a GST registered Owner. e.g. Dealer or Company owned. This can sometimes offset the higher cost of a dealer car. If you buy privately, then there is no GST payable on the residual at the end of the lease.
It's not an easy question to answer.
Generally if you're going to finance a car anyway the novated lease can be a way to access cheap finance. Last time I got a quote from the leasing company it had a 4.99% finance rate on a new car (though if you dug into it there was also a $5/month hidden fee baked into the lease payment.) It also can be a way to get cheap comprehensive insurance through the leasing company. There are potential 'savings*' to be made with tax (provide you use the correct ECM method etc) however a large portion of these savings can be eaten up by various fees imposed by the leasing company.
*Savings in this context means the difference in overall monetary position compared to the same car self-financed and self-maintained with 100% post tax money
Honestly it's not really a thing for people who are actually interested in cars. There's a lot of fine print, most lease agreements will dictate where your car must be serviced, tyres changed and make you use a fuel card. It's for people who want zero hassle.
Valid points - I don't care about "zero" hassle. I just want to use the limited money I have efficiently. As I am coming to the point where I don't really care much about having a "sick" car anymore xD
How about an Xtrail or you could just buy a ute or van? They will all work to tow bikes.
Just as an example.
https://www.carsales.com.au/dealer/details/Nissan-X-Trail-20…
I thought about them, alot!
Some cheap examples out there. But I checked out a fella doing a clutch change on one on youtube - It put me off the car completely otherwise it would have been a good compromise. That said he was working with jack stands - I have a proper lift…so might still be on the cards.
Was also considering Forester XT Premium's with the 5 speed manual, but feel they are poor value - for a decent one most people ask about 18-20k and they move bugger all off my on the spot cash offers (Keep it!).
Have had a ute - Liked it but want something with four doors with better ground clearance, re a van. There just not for me.
There's been a lot of threads around this previously
A lot of good advice above but a lot of people with their wires crossed as well
Novated leasing can provide benefits even if you are on the 32.5% tax rate. The rule is the higher your marginal tax rate and the cheaper the car, the greater your benefit from novated. This is because cheaper car has less FBT. Employers will not pay FBT on your car, so you need to contribute to its running costs from your after tax salary an amount equal to the 'taxable value' of the car fringe benefit, plus GST as an employee contribution to reduce taxable value to zero.
Yes there is an interest rate element of novated lease, but if you take a car loan, take the money out of your savings account / offset account, that's interest too
The main savings of novated are paying for some of it from your pre tax salary, saving GST on purchase price (you will have to pay GST on residual at lease end but that's often less than half the purchase price), paying your operating costs on ex GST basis, and to a lesser extent leveraging the buying power of fleet company to get good price on vehicle purchase and servicing.
You may struggle to get a novated lease if you only want to spend $10k. Most leasing companies will specify a car can only be a certain age by the end of the lease (it's about 7 years max at lease end I think)
Source - I'm an accountant with a novated lease
Additionally, it makes a bigger difference if your employer is eligible for FBT rebates or refunds, such as health departments or not for profit associations. This significantly reduces the FBT component of the cost (which they normally pass on to you).
Be careful in looking at all available salary packaging operators your company provides. My employer offers two, one discloses their ~5% interest rate, the other does not and in reverse engineering the quote it came out to almost double that.
One thing worth looking at is salary sacrificing a motorbike. They come under the category of a vehicle other than a car which means they are exempt from risidual FBT. ie you do not have to pay FBT on the between work and home component effectively making them FBT free in a lot of situations. Also applies to certain other vehicles that aren't considered passenger vehicles such as vans etc.
Ohhh, I never knew that - I recently bought a bike though and I am happy with it for now. Till the next upgrade, I will consider this option!
They come under the category of a vehicle other than a car which means they are exempt from risidual FBT. ie you do not have to pay FBT on the between work and home component effectively making them FBT free in a lot of situations. Also applies to certain other vehicles that aren't considered passenger vehicles such as vans etc.
I'm pretty sure this would only apply if your using the motorbike or 'other vehicle' for business purposes, eg driving between sites, driving between clients, carrying equipment.
Otherwise, it would be subject to FBT.
On a related note, cars get different FBT treatment if they are actually used for a business purpose. It's only good to use a statutory formula method for FBT, when you don't have any business use.
Yes but if you are required to "visit clients, do pickups etc" even if it isn't every day then you can be exempt from FBT.
The simple answer is NO. Instead, if you do not have the cash is to go for 0% or 1% comparison rate offered by a dealership. Watch and wait, if you can.
Really depends on your situation. I recently took out a Novated Lease for a car as I was borrowing my mum's car for work for the past few years, and I travel around 25K km every year, of which approx 90% is business use based on my logbook. Upon reading the Novated Lease thread on WP, I realised that due to my high % business use, there was another option called the Operating Cost Method to calculate my FBT (as opposed to the more commonly used statutory method of 20%). This worked out in my favour. My car is fully packaged (fuel, rego, insurance etc) so it all comes out pre-tax. The nominal interest rate I calculated from a range of quotes I got from my novated lease company worked out to be around 6-7% which was relatively okay. I 'trimmed the fat' on all other expenses they wanted to throw into the lease (eg. lease protection, paint protection, fuel card fee, roadside assist, and set my own insurance budget allowance - they wanted to charge me $2200 for insurance but I got mine down to about $900).
The novated lease allowed me to free up cashflow and allowed me to claim back fuel via reimbursements (which I get about 20-25% off via the BP amex deals when I stock up on BP gift cards) and other items which I have purchased at 'discounted' pricing courtesy of other Amex deals. I finally have my own car to drive (don't need to borrow my mum's ageing 13 year old car which is costing more and more to maintain with the increasing number of things that go wrong with it).
I took a 3 year lease, and the residual payment (aka balloon) is 47%. I purchased my car at around 25% discount, so taking into account depreciation over the 3 years by the time it comes to sell, I should be able to (fingers crossed) get a decent price for the car, or even more when I sell it privately, which essentially covers the residual payment or even a positive return (eg. residual is $20k, and sell car for $25k, you're $5k ahead).
If you're wanting to purchase a car just for the sake of salary sacrificing and using it mostly for personal use, then it may not work out as favourable. I'd recommend reading through the long WP thread and seeing a whole bunch of scenarios and see which one works best for you.
I'm not an accountant, but I got my accountant to verify all my figures and they said it checks out - this was before I decided to jump in the salary sacrifice/novated lease boat. I spent about 2 weeks researching about it, about a month discussing the ins and outs with the novated lease company, and 3-4 months finding the right car. In the end, it was worth it for me and it's been great so far. Hope that makes some sense and helps.
Thanks for the info. I’m looking into it now. The type of job I have no there are not many tax write offs. Last year I paid $20k in tax. Looking to reduce the tax bill. Will defiantly crunch the numbers when the quote comes in. What car did you get?
Of course you are still paying for a 20-40k car WITH interest. Nobody is going to give you a car for free. Leasing is definitely not as cost effective as it once was due to rule changes a few years ago, but it can still be worthwhile. I personally am not doing it, but know a few that are. It really does depend on your personal situation and you need to make the calculations for your own situation.
These days though after the rule changes, you will normally only end up marginally ahead. You still need to pay for all your running costs and loan costs its just that it comes out from your pre-tax income. So if you are not earning a lot (say less than 80k) then you will be in a lower income bracket and you wont get much, if any benefit at all.
Its not a car for free, if you are regularly buying a new car, or are looking to upgrade then it can be worthwhile and make it easier (all costs in one). But if you have a 10 year old car and think that this could save you money, then youre looking down the wrong street.