How Is Novated Leasing at All Worth It?

Jaspa7 on 10/12/2022 - 11:08

In the scenario that Jo Blow wants to buy a $70k car, which he can afford outright, with a $120k salary…

Yes, his taxable income comes down to around $108k meaning he saves around $4k on tax/year BUT…

Novated leasing costs him around $1800 per month.. so over a 3 year period, not only does he fork out $65k, at the end the company still claims he owes another 35k if he wants to buy the car..

Yes you don't have to pay for fuel, servicing or insurance… but no way that comes to 10k a year? (travelling 15 000 kms)
am I missing something?

Also, has anyone done it for an electric car? How does that work? Do you get some sort of discount because they don't have to pay for fuel? Do you get 'free' access to fast-charging networks?

Financial

Comments

  • avoidfullprice on 10/12/2022 - 11:15

    the company still claims he owes another 35k

    The residual value is set by ATO

    am I missing something?

    Cashflow, and if he pays his cards right, benefits from other income based tax deductions.

    He needs to watch out for stage 3 income tax cut for FY24/25, but my crystal ball tells me the govt will introduce a tax reform before that hits

  • MS Paint on 10/12/2022 - 11:27
    +1

    To be fair it's been at least a week since this question was asked

    • Mcuser on 10/12/2022 - 12:20
      +3

      you the thread police lol

  • wannagrababargain on 10/12/2022 - 11:33
    +1

    The car is financed so you missed the interest cost in your list. Plus the lease company takes out a monthly leasing /admin fee usually for their service. If you get a quote it all should be itemised per month.

    Also there are different methods of calculating. Fully pre-tax is usually not the most optimal method. Most tax effective method is the "Employee Contribution Method" where pre- and post- tax deductions are applied. Also you can sometimes make a personal contribution at the start (kind of equivalent to a deposit), up to a limit, something like $10k max - which helps the overall savings as your financed amount will be lower. Comprehensive insurance is included and mandatory for most leasing contracts however insurance thru the leasing company can often be a lot cheaper than retail insurance.

    So whether it's still worth it after all that is still not a straight forward calculation.

    • Jaspa7 on 10/12/2022 - 13:58
      +1

      70k @ 5%.. yeah okay it's about another 3.5k.. which brings it to around 6.5k per year you're paying for fuel, insurance, admin, servicing etc.. still not really worth it..

      The rest of it looks useful.. didn't know, will look into it, thanks :)

      • wannagrababargain on 10/12/2022 - 19:24

        I think you should check your maths there but regardless the 6.5k you would pay anyway regardless of if you had the car in a lease or privately - fuel, tyres etc costs the same, no one is 'overinflating' those costs, it's just a budget based on how many kms you tell them you think you will do and the budget gets reconciled to the actuals every April - if you underspend you get money back.

        The question of whether is it "worth it" needs to be "worth it" comared to what? To do an apples to apples comparison you would have to calculate if it's worth it vs privately financing the same car. Of course it's likely not going to be "worth it" compared to an outright purchase - but that's true of any finance arrangement so it's not a direct comparison anyway. A completely different question one might ask is it "worth it" to buy a new car, the answer is probably not, which I am guess you are slowly realising. Some magical way to buy a new $70k car without losing your shirt on depreciation doesn't exist.

        • Jaspa7 on 10/12/2022 - 21:00

          I'm aware of your last points, but it's not the question I'm asking.. I wouldn't be buying a brand new car either, seems smartlease will let you do used cars.. so loosing out less on depreciation.

          back to lease vs outright..
          math checks out.. $1800/month = 65k over 3 years + 35k balloon payment at end.. means paying 100k for a 70k car = 30k or 10k per year.. vs paying outright, you'd miss 70k x 5% interest = 3.5k.. so that means out of pocket 6.5k per year.. (even though you're now paying 4k less in tax, the company benefits from that, not you)

          Insurance is about $1.5k
          Fuel @ 8l/100km for 15000km = 1200l
          @ $1.8/l roughly $2k (which i'd say they shouldn't be charging you for if it's an electric and they don't pay for the elec.)
          Tires, shouldn't be spending more than 1k per year
          Maintenance, maybe another 1k per year?

          Yeah, okay.. comes out about equivalent.. but now you've just shifted 4k/year from govnment taxes to a private company

        • Gotchas on 10/12/2022 - 23:21

          1 year lease makes it better then outright

  • tsunamisurfer on 10/12/2022 - 11:59
    +8

    I was in the same boat.

    I had the money to buy a car outright but looked into NL as an alternative.

    From a position where you have the money, NL is not worth it at all. You have to pay elevated interest rates for a loan you didn't need and an assortment of fees.

    It would probably make sense if you didn't have the money and had to borrow money in the first place.

  • prisonmike on 10/12/2022 - 12:37

    Don’t forget the savings on GST via NL. You can claim it on most if not all vehicle related expenses e.g. fuel, tyres, insurance and other consumables.

  • brad1-8tsi on 10/12/2022 - 12:43
    +4

    Buying a $70k vehicle every 3 years on a $120k salary isn't very smart money management. Even doing it as a NL isn't great despite getting all the running costs pre-tax and no GST on the vehicle.

    $120k less income tax and medicare levy leaves around $88k to play with. Take out vehicle depreciation, fuel, insurance, rego, etc of around $20k and you aren't leaving a lot for accommodation, food, entertainment and investment, etc.

    • Jaspa7 on 10/12/2022 - 13:55

      That 70k vehicle will last for 10+ years.. my current one is 12years and still going strong.. also, joe blow has a missus earning 80k and the variable half of his house is completely offset

  • Gunnar on 10/12/2022 - 12:46
    +3

    It’s a very personalized question that depends on your situation. Sadly there isn’t an easy answer to the question.

    Whenever I’ve looked into it, it hasn’t been for me because it was cheaper for me to buy it outright. Generally the determining factor was that I didn’t drive enough for it to be worth my while

  • Daabido on 10/12/2022 - 13:38
    +1

    Now that electric vehicles have no fringe benefits taxed within the novated lease, it makes more sense.

  • bobbified on 10/12/2022 - 13:49
    +1

    with a $120k salary…

    When you're significantly into the $180K+ bracket and paying 47% in tax, it's more worth it.

    • Jaspa7 on 10/12/2022 - 13:52

      I figured that

      • bobbified on 10/12/2022 - 13:56

        I got a quote a while ago and the savings on a $150K car were about $40K. That's a decent chunk.

        • Jaspa7 on 10/12/2022 - 14:11

          yeah don't trust the quotes they give me.. they over inflate things and completely ignore the fact that you still have to pay another half of the car's value at the end to own the car.. if you chose not to.. they walk away with your other 'equity' half

          • bobbified on 10/12/2022 - 14:23

            @Jaspa7: I didn't look into the breakdown too much, but the monthly payment was a bit under $4000/month over 5 years and I don't remember there being a balloon payment. The monthly repayments alone over 5 years ends up being $240K already and, even though that included the regular upkeep costs, I lost interest looking at that figure alone.

  • AndyC1 on 10/12/2022 - 15:10

    Sounds like OP should have a chat with his accountant so he can get a better understanding of how NL works and specifically for what OP is trying to achieve based on the posts above.

  • Sinnerator on 11/12/2022 - 09:32
    -1

    You can pay your novated lease with, gift cards ????

  • DarkOz on 11/12/2022 - 18:29

    Novated Leasing is only beneficial to people that:
    1. Need to finance a car anyway
    2. Earn enough to pay the 32.5/37/45 cents tax rates

    It used to be great but over the last 10 years I think the total benefit had been reduced by about 50%

  • FrugalDealHunter on 15/12/2022 - 09:36
    +1

    Depends on many factors and can be convoluted to calculate the benefits. However they can be there. I found the main savings came from reduced dealer delivery fees and tax for ex: I could save ~6k for an Outlander.

    the best way to find out the true costs was to get the difference of your take home pay before vs after NL * pay periods + balloon cost at the end. Interest rate doesn’t really matter. I found 1 yr lease term is the best so fees and interest don’t erode the benefits too much.

    Get them to exclude insurance (as their premiums are high), any lease protection insurance, road side, tyres, fuel cards (7/11 chopper beats their GST savings), basically anything you can shop around as you can find a better price than what NL will give. Include rego as it’s a fixed price that you can’t shop around.

    Also don’t forget the opportunity cost when paying with cash eg, cash not in mortgage / high interest bank account (eg, 70k @ 4.5% mortgage over 3 yrs = ~$9k)

  • Ajay13 on 19/12/2022 - 10:18
    Merged from Novated Lease Car - What Are The Pros and Cons

    Hi All
    First post for discussion.
    What are the cons of novated leasing? I'd love to hear from fellow ozb members who have taken a staff novated lease form thier company. Is it actually worth it ? Of so, what period did you lease it for ? And did you end up buying the car or getting a new lease.
    Totally new concept for me - apologies if this has been up for discussion before.

    • Hybroid on 19/12/2022 - 10:22

      Only you can assess if it's really worth it to you. For some yes, it's relatively hassle-free motoring for them (some include all services, repairs required, some fuel allowance etc) and could be cost efficient depending on financial considerations.

      For others, they don't like paying tons and tons and not owning the vehicle at the end, not being able to make modifications and/or having a huge balloon payment at the end to do so.

      Your company will have a novated lease company whom will have a specialist (read: salesperson) that you can contact and go through all the options available to you as well as draft up cost plans over X years.

      You can then cross-compare with purchasing your own vehicle and make an informed decision.

      • jv on 19/12/2022 - 10:26
        +3

        Only you can assess if it's really worth it to you.

        Most accountants should be able to do that too.

    • Ajay13 on 19/12/2022 - 10:25

      My calculation came to almost similar amount for a 3 year lease and a buy out after that (compared to taking a loan for a new car).
      But thanks, I will talk to the guy again !

    • prisonmike on 19/12/2022 - 11:10

      You can also claim gst on most vehicle related expenses albeit there is usually a monthly lease fee charged by the novated lease company. Depending on the NL provider you can also opt in to choose the insurance company which can be cheaper than the one they provide. Plus 10% savings.YMMV.

    • saver6969 on 19/12/2022 - 11:38
      +1

      It should now be more viable for electric cars given there is no FBT, but yes, you need to run the numbers and consider the complexity

    • avoidfullprice on 19/12/2022 - 12:17
      +2

      Totally new concept for me - apologies if this has been up for discussion before.

      No offence but at least search past discussions?

    • Drakesy on 19/12/2022 - 12:38
      +1

      if you're getting an EV it's pretty good.
      What i've found is that the tax savings are borderline when factoring in the excessive interest rates you're paying.

      It still works out cheaper to buy outright for me.
      The only gains is if you were going to finance it in the first place.

    • FoxJump on 19/12/2022 - 12:50
      +2

      Yaawn
      The 17th million post about the same topic.

      • MantistobogganMD on 19/12/2022 - 13:44
        +2

        and the 17th million time you've been unable to just ignore it and keep scrolling ?

        • FoxJump on 19/12/2022 - 16:42

          nope. probably the 3rd time i've been unable to ignore it.

  • cheaptech20 on 08/01/2023 - 23:37
    Merged from Novated Lease - Is It Worth It?

    I am intrigued by novated lease, but not sure how if at all it would benefit me noting the following circumstances:
    - 180k /yr salary in a job that allows salary packaging/novated leases
    - 2000-5000km /yr
    - Desired cars are in the $55-70k range
    - I have enough cash in a high interest savings account to purchase a car without finance

    Key questions:
    - What benefits are there (if at all) for novated lease if you would have otherwise bought the car in cash?
    - I am keen on an EV, would this reduce the benefit?
    - Any drawbacks to regularly rotating the car (i.e. new car every 5 years)
    - If it is beneficial in my circumstances, what pointers do you have?

    • altomic on 08/01/2023 - 23:42
      +5

      2000-5000km /yr

      no.

      here's a link for every previous discussion regarding novated leases

      • cheaptech20 on 08/01/2023 - 23:43
        +1

        I couldn't track down specifics in there such as implications for EVs

    • vince088 on 08/01/2023 - 23:55

      try a calculator https://www.maxxia.com.au/calculator/novated-lease

    • slowcoach on 08/01/2023 - 23:58
      +1

      EVs now have no FBT, so much better deal than ICE car. Big thread on whirlpool

      • cheaptech20 on 09/01/2023 - 09:40

        Do you have a link to that thread?

    • DBBROS on 09/01/2023 - 01:41

      I recently got quotes for a new Toyota kluger hybrid from two novated leasing companies. Decided not to proceed as the savings were very minimal.

    • Pelicannn on 09/01/2023 - 02:24
      +4

      Last time I checked, the tax savings were all but sucked dry by the companies who provide the packages. E.g Stratton had a $495 set-up fee, a $895 broker fee (or something along those lines) and a $31 admin fee every fortnight ($800 a year) on top of a stupidly high interest rate (at the time) (8%).

      I ended up getting a bit over 4% from dealer finance and worked out cheaper than above even with the tax benefits.

      FWIW, Paying $800 a year on fees is basically like tacking on an extra 3.5-4% in the interest rate on a $50,000 loan per year.

      They’re free to get a quote so I’d be interested to see if anything has changed. Post it up here and we can decipher it!

      P.s if you are going full hybrid I believe the novated leasing is much more attractive.

    • Euphemistic on 09/01/2023 - 09:28

      2-5000km per year? Not worth trying to save $ with a lease because you’ll be wasting a significant amount in depreciation for little benefit of actually owning a vehicle.

      If you’ve got a car and drive it that little you are wasting money. Just taxi/Uber or hire.

    • pegaxs on 09/01/2023 - 10:49
      -1

      2000-5000km /yr

      Walk, buy a bicycle. Anything longer than that, just use Uber/Taxi, or longer than that, just use GoGet or CarNextDoor/hire something…

    • blonky on 09/01/2023 - 11:53
      +1

      Q: What benefits are there (if at all) for novated lease if you would have otherwise bought the car in cash?
      A: you can pay over a longer term instead of up front, you will have arguably better buying power for better discounts, ex GST pricing saving 10%, payments come out of pre tax salary which lowers your reportable income and therefore less income tax (effectively saving you your marginal tax rate eg 32.5%), fuel and maintenance are packaged and also ex GST

      Downsides include paying interest which is typically set by the provider selected by your employer, your employer must pay FBT and will probably pass onto you in the package negating any savings (unless you have a lot of work related KMs), and if you quit you will either need to payout the lease or find a new employer willing to transfer over the responsibility

      Also take note of the comparison rates which factors in the hidden fees, not just the raw interest rate

      Q: I am keen on an EV, would this reduce the benefit?
      A: Yes as there is no FBT for up to $84.9k, you won't have that passed onto you. Overall it's likely you will still save $ with the novated lease (factoring in interest) vs buying outright with cash, even for private use. This also applies to plug-in hybrids until 2025

      • cheaptech20 on 09/01/2023 - 13:52

        Thanks so much blonky, this spells out my specific questions / circumstances clearly.
        I am currently juggling between a few options such as an Ioniq 5, Outlander PHEV and Tesla Model Y.
        I believe my employer uses Maxxia - anything I need to keep in mind (i.e. am I best off taking the default deal from Maxxia?)

    • Kaz0551 on 09/01/2023 - 12:38
      +1

      Tesla Y brand new, $71k

      Tesla Y on 3y Novated Lease (all running costs included for 3 years)
      Car Cost (based on reduced take home pay (after tax) on a 180k ish salary)
      Month $972.87
      Annual $11,674.42
      3Y term $35,023.25
      Residual $35,686.84

      Total $70,710.09

      Going novated you pay the same but with no running costs for 3 years. Win.

      • Euphemistic on 09/01/2023 - 13:39

        What are the running costs for a Tesla for 3 years? A few sparks and a cabin filter?

        • Kaz0551 on 09/01/2023 - 14:26

          Annuals… 3-4k a year?

          Service & Maintenance 5 Services Included $513.36 [5 over the 3 year term]
          Registration 3 Renewals Included $471.00
          Comprehensive Insurance $2,102.88
          Fuel 0 ltrs per 100km Electric $600.00
          Fleet Management Fee $360.00

      • sydney_kings on 09/01/2023 - 15:13

        Depending on your tax bracket, you should be ahead more than just running costs, an EV novated lease on higher tax brackets should also cover some of the depreciation costs on the vehicle

    • naruto128 on 09/01/2023 - 13:51

      Seems some leasing companies allow the home EVSE and installation to be packaged in as well.

      • cheaptech20 on 09/01/2023 - 13:53

        Sorry Naruto, what's EVSE? The charger?

        • pegaxs on 09/01/2023 - 17:30
          +1

          EVSE: Electric Vehicle Supply Equipment.

          Technically, the "charger" is in the car, the wall box or brick (EVSE) just supplies power to the vehicle at what ever the vehicle asks it to supply.

    • ozbargainsam on 09/01/2023 - 14:30

      There's a thread over on AusFinance

      https://www.reddit.com/r/AusFinance/comments/100j03y/novated…

      FYI: The top comment which is deleted was asking about if you're on the top bracket how the numbers work out.

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