Salary Sacrifice Vs Owning Vehicle

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  [Deactivated] on 15/08/2017 - 23:12

  +1

  85/week = 4420/year … seems like a bargain.

  Make sure you understand how it works and where they rest of the money is coming from.

  Which option would you recommend - sell my car and go on salary sacrifice? Or just stay put?

  I would take as many salary sacrifice cars as possible and rent them as uber cars.

  • 

    cuppaciano on 15/08/2017 - 23:19

    It is a special package subsidized by our work as a perk so it is 100% legit! However, it is restricted to own use and 1 per person lol

    But does selling my car worthwhile tho? It would be a much easier question if I had a much older car.

    • 

      JIMB0 on 15/08/2017 - 23:31

      You'd need to look at the details, are you allowed to drive it enough kms and the does car meets your needs (ie. big enough to replace your Corolla etc.). Also how long you plan on staying with the company? It wouldn't be worth having a second car around that is costing you money in rego/insurance/depreciation when your not getting any use out of it.

      • 

        cuppaciano on 15/08/2017 - 23:37

        KM - I'll need to check. But I don't do a lot of KM at all (98% daily commute).
        Car need - That's the good thing, I have the flexibility to upgrade/downgrade to suit my need every 6 months or so and considering that, still ~$85/week.

        You're right. I wouldn't keep my current car if I were to go for the leasing option. At this stage, I'll most likely to stay within the company for the nxt 3-5 years or so.

      • 

        2jzzzz on 16/08/2017 - 01:41

        +1

        @cuppaciano: so for $85 you could get a Mercedes or a Kia and no change in price?

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  pao2x on 15/08/2017 - 23:16

  Depreciation is always highest the day it rolls out the showroom and lessens as the car gets older

  • 

    cuppaciano on 15/08/2017 - 23:21

    That's correct. But also when a new generation is expecting and OEM starts running out current gen. (Like Polo)

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  poohduck on 15/08/2017 - 23:18

  +1

  As sp00ker said, but there is also the income tax you're not paying. If I understand correctly, the $85 each week is taken from your salary before tax, so you are taxed on an amount $85 less than what you get paid.

  It is so unjust that low income workers (the people who could really use this) can't get it. It's a world for the wealthy, still.

  • 

    cuppaciano on 15/08/2017 - 23:20

    If I understood you correctly, the tax saving is another pro to the salary sacrifice option?

    • 

      poohduck on 15/08/2017 - 23:22

      Yes. it's a way of lowering your taxable income; a win win for you. As sp00ker said, $4420 each year. Say you earn $80,000 each year, but you are taxed on $75,580. That's pretty simplistic, and I don't know about fringe benefits tax.

      • 

        lubos on 16/08/2017 - 00:39

        +1

        FBT is where ATO will get their money anyway and more as it's being taxed at top marginal rate plus medicare levy.

        So $4,420 reduction on $80,000 salary will yield $1,524 less in income tax. But it will cost employer $2,077 in FBT. If employer is subsidizing this perk, then there will be another 47c on each dollar they are subsidizing.

        This is why low-income workers will never get option of perk like this. It's too expensive for employer and the only reason to do this is to make compensation package a bit more complicated for employee so employer has better chance to retain staff for longer.

      • 

        anzacpaul on 16/08/2017 - 13:16

        @lubos:

        Not for profits are exempt from FBT aren't they?

        Asking because i'm in a "low income" role at a NFP, and salary sacrifice around 30% of my wage each week.

      • 

        lubos on 16/08/2017 - 15:07

        @anzacpaul: My gut feeling would be that non-profits are not exempt because FBT was introduced to discourage employers from providing non-cash benefits. If non-profits would be exempt from FBT, then I can imagine there would be a lot of abuse. E.g. rich people employing themselves in their own NFP and avoiding personal income tax.

        So if there are exemptions for NFP, it must be very very tight. I'm not an accountant so I have no idea. Sorry :)

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  empty456 on 16/08/2017 - 04:46

  Well, if you sell your car, is the money going somewhere worthwhile or are you just going to spend it away on whims? Also, if you change jobs in 3-5 years' time would you be able to fund a car purchase without batting an eyelash?

  So much depends on your current situation and what you want to achieve/what you need. We have similar privileges at work but don't take it up because for us it doesn't make sense.

  I doubt that your car's depreciation would be a huge factor — it is already an "older" car with damage, as you say. The fact that it drives fine means it is sufficient for your needs. Does it currently cost you more than $85 a week to run it, and how much do you expect to cough up for a car in 3-5 years' time if you need to repurchase one?

  • 

    [Deactivated] on 16/08/2017 - 07:19

    Does it currently cost you more than $85 a week to run it

    Almost certainly - $1000 rego + ctp, $500 maintenance (tyres, servicing, random repair) $700 comprehensive insurance, $2000 petrol=$4200 post-tax dollar, compared to $4420 pre-tax dollars.

    • 

      empty456 on 16/08/2017 - 08:06

      We drive newer/bigger cars and our rego isn't $1k; our comprehensive insurance isn't $700 either. Petrol is $40 a week. Post tax and pre tax figures are deceiving because the figure sounds big but the amount your tax is reduced by isn't really all that much.

      If the OP never leaves his job then of course it makes no sense not to take the car lease. But if he sells his current car he is likely to need another one in a few years and that will likely offset the costs. Unless he was planning to buy another car anyway.

      • 

        [Deactivated] on 16/08/2017 - 08:20

        We drive newer/bigger cars and our rego isn't $1k; our comprehensive insurance isn't $700 either. Petrol is $40 a week

        What's your point? Even if the numbers are half what I posted (and I highly doubt they are, I think you're just confabulating to make a point), it still comes to $2800/year in pre-tax dollars (without any depreciation).

        Post tax and pre tax figures are deceiving because the figure sounds big but the amount your tax is reduced by isn't really all that much.

        Numbers are numbers. They're actually not deceiving, just a matter of understanding what you're looking at.

        But if he sells his current car he is likely to need another one in a few years and that will likely offset the costs

        It's a valid point, but the best I can tell the OP will lose about $1k selling a 2013 corolla now and buying another 2013 corolla in a year. He'll save that much on the leasing in the 1st year. So it's just a question of how long he plans to stay in the job >2 years, he's a ahead (with some hassle of changing cars). <2 years, it's probably not worth the trouble/saving.

      • 

        empty456 on 16/08/2017 - 08:29

        @sp00ker:

        I am not "confabulating". We drive a 2015 SUV, rego is 736.54 and compre is $581.

        I am not trying to argue with you; just bringing up points that OP might miss.

      • 

        [Deactivated] on 16/08/2017 - 09:08

        +1

        @empty456:

        I am not "confabulating". We drive a 2015 SUV, rego is 736.54 and compre is $581.

        So your annual post-tax cost is still $3817 - before any depreciation.

        I am not trying to argue with you; just bringing up points that OP might miss.

        You're making a stupid point.

        The OPs deal is awesome, if he sticks around in the job.

      • 

        empty456 on 16/08/2017 - 12:04

        @sp00ker:

        I apologise for my stupidiy. It sounds like you've been deeply offended by it.

        OP doesn't "need" a new car. Therefore any extra he spends is money he doesn't need to be spending. Also OP's $85/week doesn't include petrol, so by the same token our post tax cost is less than $2k.

        If the OP wanted opinion on whether he should buy a new car or just salary sacrifice the car lease, then certainly my answer would have been different.

      • 

        [Deactivated] on 16/08/2017 - 12:41

        @empty456:

        I apologise for my stupidiy

        No need to apologise, you were born that way.

        Therefore any extra he spends is money he doesn't need to be spending.

        Not sure where you're getting the 'extra' from. He's getting rid of one car and replacing it with another, which should have lower costs, so there should be a saving.

        Also OP's $85/week doesn't include petrol, so by the same token our post tax cost is less than $2k.

        You're right, the OP didn't mention whether petrol was included in the $85/week. I would assume that some petrol allowance is included, given all the other running costs are included. At the same time he didn't mention whether $85/week is pre-tax or post tax. I'm assuming that it's pre-tax, otherwise it's a crappy deal.

        If the OP wanted opinion on whether he should buy a new car or just salary sacrifice the car lease, then certainly my answer would have been different.

        The answer would be the same or a new car.

        It might be a different answer, if he doesn't have a car, doesn't need a car, but we're telling him to get one anyway, because it's cheap.

      • 

        empty456 on 16/08/2017 - 12:47

        @sp00ker:

        Sorry, I will not get a new car myself just because it is cheap. I may be stupid but I am not that stupid.

        How do you know for sure that the new car is going to have lower costs? He hasn't mentioned anything about his current costs.

      • 

        [Deactivated] on 16/08/2017 - 12:52

        @empty456:

        Sorry, I will not get a new car myself just because it is cheap. I may be stupid but I am not that stupid.

        Apparently you can't read either. I didn't tell you to get a new car, just because it's cheap. I told you to get a new car, because it'll cost you less than your current car.

        How do you know for sure that the new car is going to have lower costs?

        The assumption is that the new car will cost roughly the same running costs as the old car, but the pre-tax dollars will make it a good deal.

        At the same time he didn't mention whether $85/week is pre-tax or post tax. I'm assuming that it's pre-tax, otherwise it's a crappy deal.

      • 

        empty456 on 16/08/2017 - 12:57

        @sp00ker:

        Maintenance is cheaper on a new car but rego and insurance are generally more expensive, and vary greatly depending on the model. A 2013 Toyota is cheap by those standards.

        Pre tax and post tax dollars aren't the whole story here.

      • 

        [Deactivated] on 16/08/2017 - 13:05

        @empty456:

        Maintenance is cheaper on a new car but rego and insurance are generally more expensive

        Your postcode and age are a bigger factor on your CTP and insurance, than the age of the car. Those costs aren't going to change dramatically between a 2013 and 2017 car.

        Pre tax and post tax dollars aren't the whole story here.

        It's the biggest determinant. We also don't know the OPs marginal tax rate. He could only be making 18k/year … which would make the pre-tax/post-tax discussion meaningless.

      • 

        empty456 on 16/08/2017 - 13:10

        @sp00ker:

        We have two cars that vary in age by about 12 years and I can tell you that the rego and insurance do vary by about 20%. Same postcode, same person insured, same insurance company.

        I still maintain my stance. It depends largely on OP's needs and specifics, and not his tax $$. Which is why it is important to look at all factors no matter how stupid they seem to you.

      • 

        [Deactivated] on 16/08/2017 - 13:16

        @empty456:

        We have two cars that vary in age by about 12 years and I can tell you that the rego and insurance do vary by about 20%.

        20% variation isn't big - in your example, the 12 year old car would cost $580/year to insure (I really hope you're not paying $880/year for it).

        Either way, it's not going to make/break the deal for the OP.

  • 

    cuppaciano on 16/08/2017 - 09:02

    if you sell your car, is the money going somewhere worthwhile or are you just going to spend it away on whims?

    I'll pay it back to my parents, whom paid for the car initially.

    if you change jobs in 3-5 years' time would you be able to fund a car purchase without batting an eyelash?

    I can, and quite likely as personal situation probably changes

    Does it currently cost you more than $85 a week to run it, and how much do you expect to cough up for a car in 3-5 years' time if you need to repurchase one?

    The $85 per week does not include fuel usage. But based on my current usage I'd spend $35 a week? And my choice of future cars would have to be fuel efficient.

    The Toyota is doing fine, but not exciting (not that I expected it to - after all it's a Toyota). Do you think I can sell it with the damage? Or need to fix it before?

    • 

      empty456 on 16/08/2017 - 11:03

      Maybe it could help to add up your current costs (rego/insurance/servicing) per year and see how they match up to the $85/wk you'd have to pay? For us the figure was about half the amount we'd have had to lease per week and it didn't make sense for us to be coughing up extra just to be able to drive new cars… It is really up to you.

      As for your car, you can sell it as is but it will obviously reflect in the price. Like I said, if you were planning to buy a car anyway, it makes sense to take them up on it but if you're happy enough with your car, you'd have to figure out for yourself if it's worth the extra amount and uncertainty. Repurchasing a car is easy if you did not have to work around a budget/will be buying brand new, but if a couple years down the line you would need to buy one, it isn't a walk in the park to find one at a sweet price point with no guarantee there's nothing wrong with it. At least with your current car you know what's wrong.

      P.S. Salary sacrifice as already mentioned, is pre tax so obviously will be advantageous as opposed to spending post tax dollars. But in reality it is still less money in your pocket, and that "advantage" looks good on paper but the effect on the tax you pay is I would say negligible. There are calculators on ATO that you can use if you were so inclined.

      • 

        Euphemistic on 16/08/2017 - 12:55

        I did the sums a few years ago too. A late model SUV (not even new) was going to cost around $150/week and at the end of the lease we'd still be up for around $15k residual.

      • 

        empty456 on 16/08/2017 - 12:58

        @Euphemistic:

        Exactly. We did the sums too and ended up sticking with our cars.

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  Euphemistic on 16/08/2017 - 09:03

  Sounds to good to be true. I don't know how any one can lease a car to you for that little. Or is it a part payment for private use of a work vehicle? Some govt departments do this. The car is provided as it is required for work, and if you pay part of the total lease (up to $100often) you can use the car on the weekends etc. if your position doesn't need a vehicle in that arrangement, then it would be expected to be available for anyone in the business to use while you are at work.

  What sort of business are you in?

  • 

    pegaxs on 16/08/2017 - 09:12

    I was thinking the same thing. $85 a week for a new car every 6 months. Doesn't sound right or there is something else at play in that deal…

    • 

      nafe on 16/08/2017 - 10:09

      Probably need more details around the actual costs, what it covers, whether it's just paying to hrie the car rather than leasing it (which it sounds like). Company probably has a big fleet of cars which get flogged out so they turn them over a lot.

      • 

        Euphemistic on 16/08/2017 - 12:51

        I'd still be surprised if any company turns over cars at 6 months too.

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  bargainswarrior03 on 16/08/2017 - 16:12

  Hi OP,

  I am assuming you are salary sacrificing under a notated lease? I have considered this as an option but decided against it.

  A few considerations which others have not raised.

  1. Balloon payment.
     At the end of your lease you have to pay a "balloon" payment. Which is usually much higher than your weekly $85 payment. This can be several thousands. So I would get an idea of the exact car model you want and estimate how much you could be paying for at the end of the lease.

  This payment will tend to increase the shorter your lease. Once you pay off the lease, you have effectively paid off the vehicle. A novated lease is essentially a lease to purchase arrangement.

  If you are organised and manage to sell the vehicle before this balloon payment is due then this will not be an issue

  2. Impact of possibly switching employers before end of leaser
     So your employer is actually agreeing to take on the liability for this deal. If you change jobs you need to ask your next employer whether or not they will take on an existing salary sacrifice deal. Some employers may not want to. This could impact you getting your next job.

  3. 6 months novated lease
     Check if this is even possible as I do believe the minimum term for most novated leases is 2-3 years.