Novated Lease; Is This Concerning?

cheapanddirty on 24/07/2023 - 13:40

So… am well into the highest tax bracket, going for a 70K Electric vehicle, so on paper a novated lease would work ok for me.

In the quote there are a few numbers that I can't work out though. In case I get screwed, could this be subject to your scrutiny please:

First of all; would this mean that after the 2 years of the lease, I will end up with a car that is 1,700 AUD than what I owe to the lease company? Is this normal / avoidable?
Projected Value $38,100.00
Residual Value $39,800.63

Is this normal, I don't fully understand these numbers. Does it mean I will get an extra bill at some point? What is that Net Change?

Pre-tax Salary Sacrifice
$24,323.28
Taxable Value
$13,980.00
Gross-up Rate
1.8868
Reportable Fringe Benefits Amount $26,377.47
Net Change $2,054.19

As always; super-thanks to who can help. This would be my first lease car and I definitely don't work in finance or accounting :)

Financial

Comments

  • avoidfullprice on 24/07/2023 - 13:49
    +4

    I don’t usually see projected value on a novated lease quote.

    Residual value is fixed, as that is based on purchase price and the ATO schedule percentage of that price, plus GST

  • avoidfullprice on 24/07/2023 - 13:52

    What is that Net Change?

    Again it is not a term i see on Novated Lease quote. But in the context of your quote it is the difference between your pre-tax salary sacrifice and reportable fridge benefits amount

  • toomuchdogfur on 24/07/2023 - 14:11

    First of all; would this mean that after the 2 years of the lease, I will end up with a car that is 1,700 AUD than what I owe to the lease company? Is this normal / avoidable?

    If the projected value is correct, then yes, your car will be worth less than the residual value. This means that, if you choose to give up the car to end the lease (instead of paying it out to keep the car) you will end up paying $1,700 as well.

    However do note the projected value is just an estimate. If your car is in better condition than expected, if you sell privately and/or if the used car market continues to be as strong as it is, you might end up selling your car for more than the projected value (in which case you will pocket the difference between your sale price and residual value).

  • Gunnar on 24/07/2023 - 15:00
    +3

    am well into the highest tax bracket

    Sure you are buddy… If you earn that well then presumably you have had a good accountant for years who you go to for financial advice?

    • djsweet on 24/07/2023 - 15:18
      +4

      why? I know a people who are fresh out of uni (<1yr) in the second-to-highest bracket. Some of them don't even know how super works, let alone navigate FBT arrangements and novated leasing. Hardly unbelievable that someone could make it into the top bracket without ever seeing an accountant or knowing how financial stuff works. And please.. use the official ozbargain spelling guide! advice advise.

    • dtc on 24/07/2023 - 15:33
      +4

      yes, pay an accountant $400 instead of asking basic questions for free and have people provide their knowledge and experience, which you can spend a bit of time double checking and then you go back to the car leasing company to ask the right questions

      I dont know why everyone thinks people on $200k have this whole network of tax and financial advisers. If its a novated lease then OP is probably an employee who has very simple tax requirements.

      • Gunnar on 24/07/2023 - 15:51
        -2

        You don't even need to be on that high a tax bracket to look at how you reduce your level of income tax which is why you seek financial advice from people who actually know the ins and outs of your specific financial situation (e.g. an accountant or financial planner)

        • cheapanddirty on 24/07/2023 - 16:54
          +3

          A financial planner.. mate they sell you super, insurance and investment options… and charge you for the service :)

          • ChrisLevo on 24/07/2023 - 17:50
            +1

            @cheapanddirty: Only if you get a bad one.

            Ours has been brilliant for over a decade and worth EVERY cent we pay him.

            YMMV…

            • Wonka on 25/07/2023 - 08:08

              @ChrisLevo: I’ve been listening to the book It’s Your Money by Alan Kohler recently, it’s great. He is a big supporter for professional financial advisers and has a section on how to find one and get the best out of the relationship. One point he made was the difference in fees for the compounding effect of the investments and ensuring that the investment management costs are understood as a dollar figure, not just as a percentage. You’ve gotten great value out of your relationship, how did you navigate this?

            • fredblogs on 27/07/2023 - 20:53

              @ChrisLevo: Can you give some examples of how he's saved or made you money?

      • cheapanddirty on 24/07/2023 - 16:53

        thanks, this is exactly it

    • cheapanddirty on 24/07/2023 - 16:51
      -6

      What a dumb response, always some spiteful jealous people around here

    • meowsers on 24/07/2023 - 20:07
      +2

      Not everyone has an accountant, even those who make mid six figures. If you are PAYG there really isn't much need unless you have investment properties or cant do basic reading.

    • cheapanddirty on 25/07/2023 - 11:10
      -2

      I actually gave this some thought. Such an interesting comment if you think about it.
      Two options here;
      - You genuinely think someone anonymous would go through all the effort of writing a fake post on a forum, with the numbers and all, to flex on a non-existent salary to other anonymous people? That is a strange way of thinking?
      - You feel sorry for you own situation, tell yourself everyone else is in the same boat too and whoever isn’t, needs you to tell them how dumb they are. That also makes no sense, but would make you feel better.

      I would love to talk to you for an hour and find out what drove you to comment like you did. It hides an awful truth I think.

      • Gunnar on 27/07/2023 - 17:31
        -1

        Did I hurt you that badly for calling you out darling that you stewed over my post for close to 24 hours?

        • cheapanddirty on 27/07/2023 - 19:49

          Honestly, you seem like a dick

    • fredblogs on 27/07/2023 - 20:55

      I'm also in that tax bracket and also don't use an accountant, just H&R. Should I? What benefit would it bring?

  • donbot on 24/07/2023 - 15:35

    Why does an EV have a taxable value? I understood that below the Luxury Car Limit, no such FBT obligation exists?

  • thatonethere on 24/07/2023 - 15:57

    Yeah I've noticed with newer novated lease quotes I see at work they try to provide the future value of the car so you can compare it against balloon payments (as they lose customers from 'war stories' of giant balloon payments that exceed the value of the car). Tbh they can't really predict the value of the car in a few years.

    Especially EV's as the rate of new entrants into the market, improvements in tech will likely heavily devalue "older" EVs when they come out of novated lease in 3-4 years time.

  • achew on 24/07/2023 - 16:00

    OP - I'm in a similar position, but I have closed the deal.

    That appears to be a 3Y Lease that you've chosen, correct?
    If at the end of the first Lease period you have the option to Novate against the remaining figure, then it's generally a good idea to do that in the following pattern -
    3Y, re-novate vs remainder for 1Y, re-novate vs remainder for 1Y, then pay out remainder.

    If you manage to purchase a vehicle whose value is below the FBT threshold, all repayments will be deducted before tax netting you the best savings.
    Remember to request timely reimbursement for costs like highway/public charging costs and maintenance items. If you are able to include protection items (eg. ceramic coating) in your package, that's generally also a good idea. You may choose oherwise, but in the end you need to make decisions that will preserve the value of your vehicle and keep any maintenance that you must do (eg. washing, cleaning, etc) to an easy minimum.

    • cheapanddirty on 24/07/2023 - 17:31

      2 Yr contract. I was thinking it might be a good idea to then get another 2yr novated lease, because the car will be perfectly fine still and I have written off most of the devaluation already.

      • MS Paint on 24/07/2023 - 17:56
        +4

        and I have written off most of the devaluation already.

        What?

  • Drakesy on 24/07/2023 - 16:31
    +2

    So… am well into the highest tax bracket, going for a 70K Electric vehicle, so on paper a novated lease would work ok for me.
    In the quote there are a few numbers that I can't work out though. In case I get screwed, could this be subject to your scrutiny please:
    First of all; would this mean that after the 2 years of the lease, I will end up with a car that is 1,700 AUD than what I owe to the lease company? Is this normal / avoidable?
    Projected Value $38,100.00
    Residual Value $39,800.63

    The residual value is the amount you have to pay to own the car outright ($39,800 after your 2 year lease.)
    Projected value after 2 years is what the company thinks it'll be worth.
    That's after dumping $24k worth of pre-tax income into the car for 2 years. Else just walk away and hand them the car back.

    The key is to getting their exorbitant interest rate out of them.
    Novated leasing's golden days are long gone. The companies are now using it as a tax dodge to line their pockets disguised as a benefit to us.

  • burningrage on 24/07/2023 - 17:46

    With every novated lease, what you need to look for is the total costs for the entire lease period. Eg if your repayment is $800 per fortnight for 3 years PLUS balloon payment of $16,000, then Total Costs would be $78,400. Compare this with buying retail and you can see how much extra costs you will incur albeit pretax. As an advanced exercise, exclude all maintenance/rego related costs, and you can work out your "real" interest rates that most novated lease may not provide. Mine was closer to 20% interest per annum.

    Projected value in my opinion doesn't mean anything. If Residual Value = Balloon Payment, then that's the amount you would have to pay end of lease period.

    • avoidfullprice on 24/07/2023 - 20:31

      So the difference here is with novated leasing an EV is the FBT exemption, which you wont get with leasing other types of car. This is saving compare with buying off retailer

      • burningrage on 25/07/2023 - 14:14

        If you receive government benefits such as FTB/Private Health, this FBT exemption does not exempt you from the Reportable Fringe Benefit which adds back to your tax return Adjusted Taxable Income.

        If you don't get any govt benefit, the potential loss would be if you have Private Health subsidy.

        FBT for other cars can be eliminated by using ECM method (but you pay certain $$$ after tax)

  • achew on 24/07/2023 - 18:08

    Don't forget that on a NL you will pay stamp duties etc, but (dependant on state) you will not pay Road User Charge. The more you drive the vehicle, the more this will cost.

    So, if you drive lots on a NL and you've nominated a lot of K's (eg 60,000Kms) you make back a good penny in RUC savings :)

  • Eskeee on 24/07/2023 - 19:00

    I was looking for a rav4, I think novated leasing for myself isn’t worth it. They cut your FBT at the same time try to up sell as much as possible and make you wait the same amount of time vs going to dealers yourself. I can’t justify novated leasing my own case.

  • BewareOfThe Dog on 24/07/2023 - 20:28

    One issue with Novated Lease, is you can't claim any further related costs on travel etc, even though fuel comes out Post Tax.
    Furthermore Ts and Cs say you can't do Rideshare, Delivery etc under the agreement.
    My NL finishes in September, so if I don't find another job, I might become an Uber/Menulog driver.

    • jv on 25/07/2023 - 00:40

      I might become an Uber/Menulog driver.

      Why not a hairdresser?

  • Chewy2221 on 25/07/2023 - 12:45

    Last time I checked, the tax office allows depreciation of 22.5% per annum on motor vehicles. So your $70,000 vehicle will be worth ($70000 - (70000 * .225)) = $54250 after one year and ($54250 - ($54250 * .225)) =$42044 after 2 years. This is roughly what was quoted.
    You might also have a look at how many kilometres you are likely to drive. Last time I looked it favoured people who drive a lot rather than someone who just drives to work & parks the car all day.
    Good luck, you have lots to consider

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