Is Getting a Novated Lease a Good Idea?

hubs1982 on 06/09/2020 - 12:05

Hi, about to start a new job in a few weeks time and this is the first time I have been offered a novated lease.

Situation is we own a family car for school runs and to get to the shops.

New job will require a separate vehicle as the office isn't accessible by public transport. Commuting means I will be doing roughly 15kkm every year.

Looking at getting an SUV (preferably new @ 38k to 40k, but happy to go for one that's 2 or 3 years old @ 30k).

We are able to purchase the vehicle without finance.

I have been searching around the net but am unable to come up with a definitive answer as to whether NL will be benefitical from a tax point of view. Taxable income will be hovering between the 2 top brackets (depending on whether I go for the NL or not).

I prefer not to approach the nominated NL company as no doubt they will be throwing all the pros about NL at me. I know that the perfect answer would be to speak to an accountant, but all I really want to get is some real life experience from fellow ozbargainers with similar background as to whether NL has worked out benefitical or not.

Thank you!

Financial

Comments

  • The OzBargainer on 06/09/2020 - 12:29
    +1

    A few things I had trouble with a novated lease:
    - The lease amounts coming out of your pay, affects your take home - Banks cannot determine your actual take home even if you claim this was a personal loan
    - The percentage of the loan is always hidden with admin fees and other charges
    - The leases are fixed term, meaning you have to finish up the entire term to pay for your vehicle. The amount for entire lease has to be paid even if you want to leave early.
    - You got to keep track off all the bills and expenses

    • blwnhr on 07/09/2020 - 08:27
      +1

      The other thing to watch out for is the balloon payment at then end.

      A colleague and I were buying new cars at the same time. His was low km used, mine new. He bought novated lease, I bought dealer finance. I travel about 10,000km/yr, he about 15,000km. Mine included 3 years free servicing, his did not.

      We ran the numbers together, for him NL worked better as the lease cost includes fuel, tyres and servicing.
      For me traditional finance because over the lease period I would need to pay for 2 services ($600) and maybe a set of tyres.

      His car was a bit older and also had higher servicing costs, therefore NL worked better.

      Without knowing anything except the OP's first post, I would say if you purchase new with some free services included you'll be better off paying cash, NL will offer little to no benefit.

  • [Deactivated] on 06/09/2020 - 12:33
    -2

    If you are only doing 15km a year, suggest looking at other forms of transport.

    • bobbified on 06/09/2020 - 13:19
      +1

      only doing 15km a year

      OP said "15kkm", not "15km".

      • endotherm on 06/09/2020 - 14:08
        +3

        15kkm = 15Mm

        • [Deactivated] on 06/09/2020 - 15:40

          Is that million?.

          • endotherm on 06/09/2020 - 18:46

            @[Deactivated]: Under the Metric System a number is generally supposed to be represented by the next base-10 multiplier word followed by units of measurement. "Thousands of kilometers" is a misnomer, you are saying thousands of thousands of meters. You can easily say (1000*1000=1 million) millions of meters or using the correct multiplier name "Mega", meaning a million, so Megameter is the correct term (note the capital M, a small m would be milli-).

            As with a lot of things to do with language, we get lazy and allow exceptions because it is "easier". What is supposed to happen with fluids, for example, we use millilitres up to 9, changing to centilitres at 10ml, a decilitre at 100ml, litres at 1000ml, Decalitres for 10's, Hectolitres for 100's and so on. We commonly say Centimetres, but won't say centilitres. Why? There's no real logical reason.

            We already know kilo, mega, giga, tera etc from computing (hard disk sizes), you just have to learn some terms for smaller units of measure (milli, micro,nano, pico, femto…) which you might also be familiar with from other usage e.g. electronics.

            |Factor| Prefix|Symbol |
            |10^24|1E24| yotta |Y|
            |10^21|1E21|zetta|Z|
            | 10^18 |1E18 |exa |E|
            | 10^15 |1E15 |peta |P|

            10^12 1E12 tera T
            10^9 1E9 giga G
            10^6 1E6 mega M
            10^3 1E3 kilo k
            10^2 1E2 hecto h
            10^1 1E1 deca/deka da
            10^-1 1E-1 deci d
            10^-2 1E-2 centi c
            10^-3 1E-3 milli m
            10^-6 1E-6 micro µ
            10^-9 1E-9 nano n
            10^-12 1E-12 pico p
            10^-15 1E-15 femto f
            10^-18 1E-18 atto a
            10^-21 1E-21 zepto z
            10^-24 1E-24 yocto y

  • spackbace on 06/09/2020 - 12:48
    +1

    There's brokers/companies who will actually do the sums for you and hit you with the figures between finance and lease

    Alternatively have a look through the Toyota novated lease calculator and see what it comes out at
    https://www.toyotafleetmanagement.com.au/novated-lease/calcu…

    • the4thzodiac on 06/09/2020 - 18:30

      hey @spackbace, is there an online car price calculator that works out the final drive away price, including stamp duty, GST (etc) breakdown, and which can also work it backwards when the drive away is known/entered?

      • spackbace on 06/09/2020 - 19:29

        Not to my knowledge

        There's stamp duty calculators, but nothing to calc license fees

      • FoxJump on 06/09/2020 - 22:49
        +2

        Given driveaway price:
        - You can calculate rego online, it's based on car weight mostly.
        - For CTP you can get quotes online for the car and that gives you an idea of what that is worth.

        Once you've subtracted Rego, then remove the GST using maths, then subtract the CTP and the remainder should be the price of the car.

        I think that should do it.

        • the4thzodiac on 07/09/2020 - 11:15

          Thanks FoxJump.

          Yeah, dealers seems to have a sales software application that does this, but I haven't found one online that caters to the differing levels of Accessories / GST / Stamp Duty (state based?) / LCT / etc built in (sounds like it can be done in Excel/Google Docs if we have all the parameters/variables).

          Another thing, I recall GST only applies to some line items as well (?).

          • FoxJump on 07/09/2020 - 11:42

            @the4thzodiac: I think GST doesn't apply to rego but it applies to everything else.

  • FoxJump on 06/09/2020 - 13:12
    +11

    Check ozbargain for all the other million novated lease threads.

    Tldr: do a one year novated lease on a new car and then buy it out at the end. Be sure to include the second years rego and insurance and ctp in the budget, claim it before the end of the lease.
    Always ask interest rate and then cross check with balloon payment calculators online, if it doesn't match ask them where the hidden fee is. Get your own insurance, agreed value to the payout figure from day one. (Lease repayments X12 plus fees plus residual plus GST all from post tax). Decline fuel cards. Fill at Woolies Caltex with Egiftcards and do a manual reimbursement. If they want to force you to take fuel cards, quote ACL/ACCC where they can't force you to take a card of line of credit, that ought to shut them up or at least not charge you to have the cards - but don't use.

    If you have a spouse that works and can also NV lease then there's a bit more you can do for the second year with them. Check existing nl posts of mine.

    Nb: I'm not a financial advisor, just a cheapskate.

    Tldr tldrr: yes.

    • CheapSticks on 06/09/2020 - 13:40

      great tips

      • FoxJump on 06/09/2020 - 14:00
        +1

        Thanks. I was always wary of NL and avoided them, except for the last car we bought I really looked into it. OCD looked into it. And optimised it to the max!
        it all worked well during the first NL of it under my employer, and then after moved it to the wife's and I was about to move it back to me with a new employer for the third year when it all fell to shits and I had to just buy it after the second.

        Basically, with maternity leave, your NL payments get stopped from your work pay as they cant (or are too lazy to) use the mat leave govt payments for NL payments; and then the third NL provider stuffed up and didn't ask for some paper work in time off the second, and the second NL had typos and things just weren't going to happen in time for when the payment was due.

        Doh

        • Orico on 06/09/2020 - 15:54

          Is there an interest rate involved with all novated leases or do they just chuck on extra costs here and there and keep the cost price of the car the same?

          • FoxJump on 06/09/2020 - 16:05

            @Orico: There is
            1. An interest rate from the financier. A NV company may also be the financier
            2. There may be a kickback from the financier to the NVL as percentage of the loan and added to the loan and paid by end of the loan.
            3. There's a loan setup fee.
            And the above is just for finance!

            On-top there can be:.
            4. Monthly fee from nvl
            5. Monthly fee to manage the nvl provided insurance
            6. Monthly fee and/or per use fee of fuel cards (some bundle this into your fuel budget without telling you clearly)

            And I'm sure there can be more!

            • DoctorCalculon on 06/09/2020 - 21:53

              @FoxJump: Can you claim the cost of servicing your vehicle via log book, and also the cost of annual registration fee as part of your NVL setup?

    • thatonethere on 06/09/2020 - 15:33

      The leasing companies seemed to have wised up on the buying rego in advance trick. I tried that this year and was rejected.

      Also get them to remove tyre allowance and the various things like dent removal and rim insurance.

      • FoxJump on 06/09/2020 - 16:07

        Ah ha. Well Orix didn't mind when I did that :)

    • Polt on 06/09/2020 - 16:02

      Tldr: do a one year novated lease on a new car and then buy it out at the end.

      Why do you recommend one year specifically?

      • FoxJump on 06/09/2020 - 16:13

        The aim of the game is more expenses pretax. The post tax component is fixed, so all you can do is bring forward expenses. Such as .. Principal!
        So, on a 1 year NVL the principal paid is 35% Yay! [cue: huge monthly payment]

        Secondly, if you have to terminate the lease prematurely, you're capped at only 12x repayment.
        Thirdly, the interest rate they charge you is relative to how the finance companies expect the interest rate to be by the end of the lease. So .. if the rates is expected to go up in 5 years and you go to a 5 year lease … they'll sting you more.

        Thirdly, by having a smaller payout figure, you can insure through your own organised insurance provider rather than theirs, saving on their monthly fee to manage their insurance, saving maybe depending on your NCB or other perks you may have. [ie: ensure agreed value exceeds payout figure as at day 1]

      • FoxJump on 06/09/2020 - 16:20

        And .. if on the second year of ownership you transfer the NVL to the wife … then boom! Another year of paying 35% off the remaining previous 65% principal!

        And if on the third year you change jobs and transfer the NVL to yourself again … boom! a third year!

        My third year failed as things couldn't get organised by mistake-ridden second NVL and third NVL company.

        And because 2nd and 3rd NVL charged a high (7%) interest rate compared to NVL 1 (5%) the savings of going to the third year would have been only about $1500 .. and that's including a set of tyres; and with covid killing off trips and going to the office - I would have lost money on the third year. so prolly a good thing it didn't happen.

        • Polt on 06/09/2020 - 16:59

          Thanks for the detailed responses, very enlightening. I'm still not sure I follow though - can you help me understand the benefit of taking a 1 year term and another 1 year term under your wife's name vs taking a 2 year loan yourself? I think there's something about NVLs I'm missing… One thing I am clear on is maximising pre-tax expenses!

          Also where are you taking the 35% from?

          • FoxJump on 06/09/2020 - 22:43

            @Polt: The govt sets a residual value of how much of the principal must still remain in your NVL finance at the end of a NVL. For a 1yr NVL the residual value of the finance amount must be 65.63%. [though some dodgy NVL round down to 65% - to your advantage]

            Bouncing over to the wife means that now it's HER car .. and HER lease - and so she gets 1 year with a residual of 65.63% - which is off the back of MY residual of 65.63%. If I get her NVL to buy it from my NVL without me in the middle, they charge each other GST and I'm not liable to pay the GST from the buyout figure of the first NVL.

            Also, the amount post tax you pay is 20% of the 'cost' of the car. The cost being how much the car 'cost' you at the beginning of your NVL. Which means, for the first NVL it is RRP minus discounts plus options plus gst or something or other. For the second NVL (the wife's) her cost of your car is NVL1's residual.

            So, assuming a cost of 50k for NVL you have:
            NVL1:
            - Cost 50k.
            - post tax contribution: 10k
            - residual $32815

            NVL2:
            - Cost: $36095 (inc GST) (I think)
            - post tax contribution: $7219
            - residual: $21534 (65.63% of the first residual)

            Bouncing to the third year back to you only works if you change employers and NVL company. I happened to change jobs. So was gonna try it out. But .. each time you start a new NVL there are some fees like the finance setup (not too bad) and some NVL charge a % of the financed amount as a cut - this is the one that hurts!

            Eventually, it stops being worth it.
            In my case it was BARELY worth it for the third time around. It was defo worth it the second time around.

    • FoxJump on 06/09/2020 - 16:17

      There's also a dodgy trick I didn't get around to doing. It involves moving income from one FY to another through the use of a NVL.

      Say your NVL starts on the 17th of June FY1, and ends the 16th of June FY2 .
      Budget a higher than normal expenses, think … 5 tyres, 100000km worth of fuel, 3 services, etc … say you're going on a huge roadtrip, etc.

      Then, when the budget reconciliation occurs at the end of the lease they will give you back the unused money - which will be paid back in the next pay run! which would probably be July on FY3

      And voila!

  • Quantumcat on 06/09/2020 - 13:25
    +1

    My experience talking to friends and family who have done it, is it SOUNDS like it will be really financially beneficial but with all the fees and such it only ends up being a tiny bit better than having a car loan, and worse than buying it outright. The only reason you might do it if you can afford to buy it outright is the convenience factor of the cost coming out in regular payments and not having to budget for things like insurance, rego, maintenance.

  • ihavok on 06/09/2020 - 13:53
    +1

    Congrats on the new job. The only way you will know for sure is to take the time to do the math. I've seen a few spreadsheets posted before (perhaps on another forum).

    Basic points:
    - If you are lucky enough to have access to multiple leasing companies, you can get them to price-match each other to get a better deal
    - Leasing companies make good money with each contract. And they are pretty good at hiding their profit margin in their quote to you. Some things may not be obvious such as their admin fees, the cost of finance for the contract (the underlying novated lease loan)
    - If you can afford to buy the car outright, be sure to compare that option vs going with a lease (like what would happen if you put that money into your mortgage's offset account instead, etc).
    - In general, shorter lease periods save you more money than longer ones. Leasing companies usually resist signing up for shorter leases (like 1 year)
    - For ending the lease, often times you are better off paying out the balloon figure to own the car outright. Then selling the car privately.

    There are a number of other tips to help you min/max your lease (removing hidden/unnecessary charges, etc), but get the basics right first and google the rest later.

  • jtc13 on 06/09/2020 - 14:00
    +1

    I had 2 different potential novated lease options at the two major companies I worked for.

    Company A - standard novated lease on salary sacrifice. Seemed like a good idea once my salary hit $120k+ per year and I did not really quite get there so never did the lease. In hindsight I think even if I hit 120k not really that beneficial.

    Company B - Novated lease but with the added bonus of the company employing me contributing 30% of the running cost of the package. This clearly worked in my favour when I purchased a new car. I was very happy with this lease and purchased the remainder of the car when I left the business.

    I would only ever go for a novated lease if it was as good as company B. If you are offered standard like company A just skip it and get your own 2nd hand car with a long warranty like Kia's 7 year warranty. You can buy at the 3-4 year mark with the knowledge you still have 3-4 years warranty cover. It will be much cheaper option in the long run.

  • bmerigan on 06/09/2020 - 14:27
    +2

    I ran the figures and a lease was WAY more expensive for me than buying a car with home loan equity.
    I think it's better than a car loan though.

    • dust on 06/09/2020 - 18:07

      Not sure that's a good comparison. I think that setting alight random amounts of money in your wallet is better than a car loan!

      • bmerigan on 06/09/2020 - 18:31

        Hahaha, indeed, but it's a very commonly used option

  • DBBROS on 06/09/2020 - 14:34

    Didn't workout for me . But have seen people giving good reviews for the lease company I was with.

  • WreckTangle on 06/09/2020 - 19:59

    How do novated leases affect family tax benefit?

    • FoxJump on 06/09/2020 - 22:46

      They seem to calculate based on adjusted taxable income:
      https://www.servicesaustralia.gov.au/individuals/services/ce….
      in that they say that adjusted taxable income includes reportable fringe benefits. From memory, splitting a NVL with pre and post tax components means that there's no FBT payable because of the post tax amount … so .. I'm not sure if that falls under the reportable fringe benefit section of the adjusted taxable income.

      tldr: dunno

      Call the ATO theyre usually pretty friendly in answering tax questions. Also, getting a private ruling if you need to is pretty easy too. Just a call, and a form, and waiting a few months away.

  • 82norm on 07/09/2020 - 09:23

    Buy it with cash. Forget the headaches of all the paperwork and trying to figure out if you’re in front or not. With so many variables, options, job uncertainties how would you ever know?

    • Tiller76 on 07/09/2020 - 11:55

      So you're offering to lend us the cash on 0% interest rate??? Thanks, 82norm for President!

  • Kabal on 07/09/2020 - 10:45

    If you can afford it I can’t see why you would jump through these bizarre hoops organising 1 year leases and having to use their stupid fuel cards etc. just seems like so much effort. I understand being able to buy a car outright is not something everyone can do and I would probably go through these games if I was in that position.

  • Whisper Quiet on 07/09/2020 - 13:17

    Another soccer mom or dad getting a SUV / 4x4 that's exactly what we need on the roads… People need to stop buying these big cars if you don't use it for its intended purpose. You're a nuisance on the road. Causes more accidents on the road and in parking areas because people can't see around or over these things. Probably be an unpopular comment but it's a serious pet peeve of mine. Found out through my friend at Mazda that less than 5% of people who buy any style of 4x4 actually use it to go off road or drive anywhere but city or suburban streets. What's the point

    • Kabal on 07/09/2020 - 14:21
      +4

      Honestly the ship has sailed on this complaint. This is all anybody wants to buy and you just have to deal lol

      • Whisper Quiet on 07/09/2020 - 19:52
        +1

        No lol I'm fighting it! Most people I know agree but do have one mate who bought a new X-Trail for some reason. He's short so maybe it helps him see the road better :)

  • Candour on 07/09/2020 - 16:53

    look up john cadogan on the net and his advice on novated leases. he also claims to find you the best deal.
    I read his car reviews and respect him fearless lack of bias and consumer focus on cars.

  • giveback on 07/09/2020 - 17:57

    If you have the spare cash for a separate vehicle, why not just buy it outright? Any form of lease is going to be more expensive unless you want better cash flow.

    If that's the case, NVL would be a good idea and typically works out to be cheaper than car loan especially with all the tax benefits.

    If I were you, I would also have a chat the new company accountant and maybe you'd find out a better way to optimise the tax benefits. At the end of the day, you'd want to crunch the numbers with an accountant.

    All the best!

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