Novated Lease Scam or Savings - My Calculations

apaul on 18/03/2024 - 23:08

I have been thinking purchasing an electric vehicle (EV) and exploring the potential benefits of utilizing novated leasing to take advantage of fringe benefits tax (FBT) savings. To assess the savings , I conducted a thorough calculation based on the purchase of a BYD Atto 3 extended range model. For calculation purposes, I assumed a cash payment of $50,000, inclusive of a $3,000 government rebate for the car.

Under a 5-year novated lease agreement, I would be required to pay $18,000 annually for 5 years, with a residual value of $15,000 at the end of the lease term. Therefore, the total amount paid to the novated lease company over the 5-year period (assuming I decide to purchase the vehicle at the end of the 5th year) would be $18,000 x 5 + $15,000 = $105,000. It's important to note that there is no Goods and Services Tax (GST) applicable on novated leases.

While I would receive tax deductions on the $18,000 annual payments over 5 years, totaling approximately $30,000, deducting this from the total amount paid ($105,000) leaves me with $75,000 as the effective cost for the vehicle.

Factoring in additional expenses such as registration, insurance, Compulsory Third Party (CTP) insurance, electricity, and tire costs, totaling $10,500 over 5 years, the total cost of the vehicle under the novated lease arrangement amounts to $64,500.

Therefore, since there is no GST applicable on novated leases, it becomes apparent that I am effectively purchasing a $45,000 car. This underscores that the novated lease option is not a means of achieving savings, but rather a disadvantageous financial arrangement.

IMO, novated leases revealing it to be a rip-off rather than savings.

or am I missing the huge savings ???

Poll Options expired

  • 298
    Novated lease = rip off
  • 78
    Novated lease = Huge financial benefit
  • 8
    No idea , I trust what leasing company say
Financial Novated Lease

Comments

    • boomramada on 18/03/2024 - 23:21
      -7

      I'm not sure why people keep asking about this, this is a covered topic all over the internet, Cash is #1, then this or a bank car loan.

      • Kongzi on 18/03/2024 - 23:37
        -5

        People like to have hope

        • May4th on 19/03/2024 - 07:54
          +14

          because of the FBT exemption on EV, it swings things a bit more in favour. do the maths to see if you would benefit rather than rely on an old maxim

          • smoothymcmellow on 22/03/2024 - 09:36
            +6

            @May4th: My example at a really high level to back-up your comment, I didn't believe that novated lease would be cheaper until I did the math and had people review it:
            $64k drive away EV on order
            My out of pocket payments total to $41,800 which includes servicing, rego, insurance, one set of tyres
            Residual at end of 5 years is $18k
            So the total I will pay for this car over 5 years is ~$60k

            So it already makes sense before you take into count the opportunity costs, that $60k out of my offset is another $18k of interest over those 5 years (at current rates)

            Of course circumstances vary, your taxable income level is important, but the cash if king sentiment is really wrong when it comes to EV novated leasing

            • Drakesy on 22/03/2024 - 13:53
              +1

              @smoothymcmellow: NGL the numbers don't really add up.

              Although lets not forget that $60k car is now worth $30k.

              • smoothymcmellow on 22/03/2024 - 14:42

                @Drakesy: yeah I did all my calculations on 30k value at end, EV depreciation is crazy

          • LSGH on 22/03/2024 - 10:54

            @May4th: agreed, because it would all be pre-tax under an EV lease….its attractive, when it used to be pre-tax and post tax..forget it…OP, make sure to check interest rates as some lease providers are higher than others

      • opt on 20/03/2024 - 15:02
        +10

        Don’t know about EVs as I have not leased an EV yet, but I have novated leased two ICE cars pre-covid with a 3-year lease term and drove around 30,000km a year. I sourced my own cars at a lower purchase cost than what the lease provider was offering, removed all the unnecessary addons promoted by the lease provider (e.g: paint/wheel protection, income protection etc.) , then arranged my own insurance. After buying back the car at the end of the lease and calculating all expenses down to the cent (my partner is a CPA), I was 2~5k better off than buying the car with cash and paying running costs with post tax money in both instances. I hear EVs are even better due to FBT exemption.

        Cash is #1, then this or a bank car loan.

        No, Cash is not always #1 for everyone. It comes down to individual circumstances, so stop making blanket statements without any context.

        • WhatWouldBiggieDo on 20/03/2024 - 17:10
          +1

          When you add in that EVs are paid for out of you pre-tax salary, it swings even more in favour of novated lease vs cash

        • gromit on 21/03/2024 - 22:48
          +3

          "Cash is king" is as ignorant as people that say "rent is dead money". It has always been an over simplified generalisation that is most definitely not always true and usually used by people that cant do the math.

      • inamberclad on 22/03/2024 - 12:36

        Cash is #1, then this or a bank car loan.

        context is always needed. using your own cash might be cheaper than debt funding a car purchase, even if you get a really good interest rate (i heard macbank made big gains into home and car loan markets by that method) in addition to the tax concessions currently available

        but if you have the opportunity to put your own cash in an initiative that returns higher than the cost of a car lease/loan, then that's where you should send your cash

  • MS Paint on 18/03/2024 - 23:26
    +68

    Novated lease companies are super greedy with their interest rates, as you have discovered. They focus on their profits, not your savings.

    Years ago, when big businesses employed staff to run salary sacrifice and novated leasing inhouse, then there were great advantages in financing that way.

    Novated Lease Scam or Savings

    Also, FFS, stop using the word SCAM out of context like seemingly most posts around here lately. The only scam in novated leasing is scamming yourself by not performing any due diligence or have any understanding of what is in the contract you are signing. You seem to be on top of it so well done I say.

    • bnh on 20/03/2024 - 17:18
      +3

      Leasing company might charge you 10% rate out of your pre tax salary which turns out for some to be 6% of their post tax.

      With home loan rate ranging between 5-6.5%, it looks quite ok as you can still put your nett salary to pay off your mortgage.

      Plus the fbt exemption on EV.

      However if you dont have mortgage and have cash sitting in your bank account adding more taxable income to you, then cash is a better option.

  • miwahni on 18/03/2024 - 23:39
    -6

    The effective cost of the vehicle is whatever the residual is - up until that point you're renting the vehicle, not paying it off.

    • R-Man on 21/03/2024 - 21:05

      ozb math 🧠

  • avoidfullprice on 18/03/2024 - 23:53
    +11

    $18000pa on lease package with a deductible expense of only $2100pa? There is something wrong with the quote itself….

  • Pelicannn on 19/03/2024 - 00:09
    +23

    It really depends on individual circumstances, and also different leasing companies charge different fees but for what it’s worth, in my tax bracket it absolutely makes sense to salary sacrifice an EV.

    Also sorry but your repayment figure seem way off. A quick quote through smartleasing for me says a BYD ATTO 3 extended is approximately $350-400 per fortnight or $9,100 - $10,400 per year based on Victoria Think you need to check your numbers.

  • shiny1 on 19/03/2024 - 00:40
    +105

    Are you sure you have the correct numbers? I just signed a novated lease for a BYD Seal Dynamic ($50,000 car) and the summary is that I get docked $400 a fortnight from my paycheck for 5 years and then make a final payment of about $15,000 to keep the car. Forget what other people say on here - the only number that matters is the one that's gone from your bank account.

    Novated Lease = 26 fortnights x $400 x 5 years = $52,000. Add $15,000 final payment = $67,000. That's 5 years of payments related to my car.
    "Cash is King" = $54,000 drive away + 5 years' worth of insurance, registration, maintenance, electricity, etc.

    For convenience's sake, you could say insurance and rego is combined $2,000 which makes it $10,000 for 5 years. Everything else can add to $67,000, so they end up costing the same. But for me, I have a mortgage, and I actually save $13,000 on home loan repayments since I don't pay $54,000 immediately; the bulk of my money sits in the offset which helps repay my mortgage.

    I actually used a calculator for this, thanks to user changyang1230, and the "Cash is king" option ended up costing me $96,000 (including interest accrued from home loan). But the equivalent calculations for NL was only $76,000 - a $20,000 difference!
    https://docs.google.com/spreadsheets/d/1CtpBXmuhRW3HrBjqJqnP…
    *Personal note - the calculator was reasonably accurate, especially since I already had a quote from the leasing company. Toyota Fleet Management has a calculator as well, which is better than the other ones online. I think people get too hung up on the interest rates. In my opinion, just look at the monthly payments to do comparisons vs cash.

    There may be a thing or two I'm missing and I'm simplifying here. I also didn't account for job security or solar charging etc.
    Regardless, NL worked heavily in my favour because of:
    1. The cost of the car
    2. My income
    3. My job security
    4. The GST and EV tax dodge
    5. My mortgage offset account
    6. I don't care that "i DoN't OwN tHe CaR" - it's not even a thing

    I want to drive the point home that when you compare NL vs Cash - do it over a fixed period of time e.g. 3 years or 5 years and factor in all costs including mortgage repayments, since that one seems to be often overlooked.

    • DoctorArd on 19/03/2024 - 05:24
      +2

      Excellent summary, we were looking into this and the main consideration became the comparison between the tax advantage vs money offsetting our mortgage. In the end we couldn't afford any of the EV's that suit our current wants but I'm hopeful in five years time we'll be towing a camper trailer off road behind an EV that is powered by our solar panels!

      • geekcohen on 19/03/2024 - 05:49
        -1

        I'm hopeful in five years time we'll be towing a camper trailer off road behind an EV that is powered by our solar panels!

        And how are you going to charge it when you arrive at your off road destination? I'll believe it when I see it.

        • eddyah on 20/03/2024 - 07:23
          +5

          Plot twist - they live 50kms away from their towing destination

          • serpserpserp on 21/03/2024 - 21:32

            @eddyah: Even if they lived 200km away, these days a good EV will get you there and back on a single charge

            • eddyah on 26/03/2024 - 19:14

              @serpserpserp: I have a model Y and I don't think it would make it (400km return is the effective range without a caravan).

              Probably not a 'good' EV by your standard.

              • serpserpserp on 27/03/2024 - 22:15

                @eddyah: Yeah maybe. Not the long range model?

                I know EVs can't always do great range. Maybe a 300km round trip!

    • redfox1200 on 19/03/2024 - 07:50
      +1

      is $400 docked from your take home pay or your pre-tax pay

      • SnowDragon on 19/03/2024 - 11:01
        +1

        EVs are except from FBT, so it's 100% pre-tax.

        • OzPeter on 16/05/2024 - 14:02

          We just got to know that the car EV or plug-in needs to be after June 2022 in order to a full benefits of FBT?

          • changyang1230 on 16/05/2024 - 14:14
            +1

            @OzPeter: Correct. First held and used July 2022 onwards. And also never been subject to LCT.

      • shiny1 on 19/03/2024 - 11:54
        +5

        Correction: that is post tax. The pre tax figures are closer to $600 per fortnight. I use $400 because that's the only figure I care about; it's the one that I see gone from my bank account.

        • uncompressed on 19/03/2024 - 12:25
          +3

          Exactly. I'm out of pocket by $200 a week for my Model 3 lease and that's all I care about even though the pre-tax deduction is closer to $400.

          I don't pay rego, insurance, or maintenance (wheels, washing etc) as it's all budgeted into the lease. If I buy a car, especially an EV, I would rather do it out of pre-tax income. A blanket "Cash is King" statement only makes sense if you don't factor in opportunity costs, for example, leaving the money you would have spent on buying the car outright in your mortgage offset account.

          • eddyah on 26/03/2024 - 19:16

            @uncompressed: The dummies on the internet would have you shop around and compare all the lease providers offering AND try convince you that the interest rate is the most 'important factor' to consider when getting a novated lease.

            It's not.

            As we all agree it's how much we effectively lose from our post-tax income.

            For myself it was around $220/week for the model Y base model.

            • Nom on 31/03/2024 - 22:43

              @eddyah: Surely that $220/week is determined entirely by the lease provider's interest rate ? This is why people say it's the most important figure - because all the other costs are basically equal between providers.

              If you used a provider with a lower rate, you might only need to pay $210/week.

              • changyang1230 on 01/04/2024 - 09:57
                +2

                @Nom: I’m the guy behind the spreadsheet shared earlier and had personally helped a few dozens of people with their quotes.

                The issue with looking at the interest rate alone is this relies on the NL companies being honest with their self reporting of this interest figure - and let me tell you that they are simply not.

                I have in multiple occasions seen company A which reports their interest rate being say “8%” being more expensive than a company B which reports an interest rate of “10%”.

                The problem is that NL is such a poorly regulated area such that they are trying to get away with these dishonest behaviour. One reason I have read behind such discrepancy is that often the interest rate is the figure charged by the financier (say, Macquarie charging 8% for five years), but the NL company then adds on another 50 dollars of commission in the vehicle lease each fortnight but conveniently does not tell you because they are not legislated to do so.

                Therefore, what the parent commenter is telling you is that in this environment rife with misleading reports, blindly believing in the self quoted interest rate may potentially lead you to inaccurately compare between different quotes. The better way to compare is to look at fortnightly “vehicle lease + admin fee” figure between two quotes, assuming that the car and the lease term remain the same.

                • Nom on 16/05/2024 - 21:48

                  @changyang1230:

                  often the interest rate is the figure charged by the financier (say, Macquarie charging 8% for five years), but the NL company then adds on another 50 dollars of commission in the vehicle lease each fortnight but conveniently does not tell you because they are not legislated to do so.

                  This is outrageous.

                  Nothing infuriates me more than a finance rate quoted as X% but then there are "fees" on top, so really the rate is Y%.

                  I had no idea the Novated Lease companies were partaking in this crapola.

                  • changyang1230 on 17/05/2024 - 00:13

                    @Nom: Banks are required to show “comparison rates” for their loan products precisely to avoid such misleading claims and hidden fees; unfortunately novated lease remains a bit of a Wild West when it comes to legislation around misleading advertising.

    • coffeeinmyveins on 19/03/2024 - 10:39
      -4

      "Cash is King" = $54,000 drive away + 5 years' worth of insurance, registration, maintenance, electricity, etc.

      you don't pay rego, insurance, maintenance, electricity when you lease a car? huh?

      • norrisrules on 19/03/2024 - 10:43
        +15

        It's covered in the deduction from your salary - insurance, maintenance, electricity all included

        • coffeeinmyveins on 19/03/2024 - 11:12
          +1

          good lord. that makes it viable if your company offers it.

        • Montyjpm on 19/03/2024 - 11:16
          +1

          I wonder how they calculate the electricy cost of the car charging.

          • Pelicannn on 19/03/2024 - 11:48
            +3

            @Montyjpm: They use a flat rate, per km based on how much you estimate you drive. This also affects your maintenance cost (e.g more km = more tyres for example)

            For what it’s worth, a lot of people don’t realise it’s YOUR lease, if the NL company is quoting you maintenance at $800 a year and it’s actually only $400 a year it’s important you tell them to only include $400 of deductions per year. Same with insurance. They will give you a standard deduction average but if you can get cheaper insurance through your own sourcing you should do that, and get them to adjust the lease as appropriate.

            You definitely do NOT want the money in your NL account to start accruing such that come end of lease time there is a couple of grand sitting in there, for an EV it’s probably ok as all of that money should be pre-tax but if it’s a regular NL that follows the 20% statutory method to avoid FBT there’s a solid chance you’re going to get double taxed on that money when it’s returned and there’s almost zero way to avoid that.

          • shiny1 on 19/03/2024 - 12:08

            @Montyjpm: You can claim a flat rate of 4.2c per KM travelled provided you charge at home. If you include paid public chargers, it gets messy with claiming.

            Smart Leasing also told me they will accept a screenshot of the charge amount and your electricity bill and they can include that as part of the leasing calculations. I'm not sure how to go about that, but I'll figure it out when I get my car.

            • Save Medicare on 20/03/2024 - 07:14

              @shiny1: Wow! How much does it work out in reality in cents per km? I imagined it would be cheaper if you charged at home? For a mid sized car like an atto 3 or tesla model 3

              • shiny1 on 21/03/2024 - 00:28

                @Save Medicare: Don't quote me on this because I'm likely to be off, but I did a rough calculation and the Seal seems to have 14-16kwh/100km according to owners, which you multiply to get to your battery size (400km @ 61kwh for the Seal Dynamic).

                Electricity in NSW can be simplified to 30c/kWh. So if my maths is correct, 60 or so kWh x 30c is around 18 bucks. Round it up to 20 bucks for a "full tank" that will get you 400km.
                With the reimbursement, 4.2c/km is about 16 bucks. If it all works out, there should be very little cost to electricity from your own pockets.

                I'm happy to be corrected if I've missed something.

                • Nom on 16/05/2024 - 22:40

                  @shiny1: @shiny1 - once you have an EV, generally you're going to switch your electricity to an overnight EV plan, so your charging cost is 8c/kWh not 30c 👍

            • lunartemis on 20/03/2024 - 20:38

              @shiny1: You may want to check that because my NL company says I can't claim at home charging according to ATO

              • ozoner on 20/03/2024 - 22:15

                @lunartemis: He doesn't need to check it - you need to find a better NL company. I too claim 4.2c per kilometre. Most companies will do this.

          • eek on 20/03/2024 - 10:28
            +1

            @Montyjpm: I asked about this - you can have a charger installed at your house and have it individually metered. You can use the invoice from that meter to claim back your charging cost. The rest of the 3rd party and destination chargers are easy enough to identify. When I asked about the cost of installing the charger at home my employer's default NL company said no, had to be out of pocket to me upfront. Only charging cost are reimbursed. However you can view it as a capital improvement to your property, ha ha

            • JKF on 23/03/2024 - 22:35
              +1

              @eek: I have an app that sync with the Tesla to record every driving, charging or idle session. It support different charge cost rate and location. I send the report from the apps showing a summary of all my home charging with accurate costing and I get reimbursed by the NL company. Fast charging has seperate invoices which I can also claim like any other ICE fueling expense.
              The only thing you can't claim is if you pay for dedicated charger. I am still using the portable charger that came with the car.

    • bobswinkle on 19/03/2024 - 15:05

      Yeah I was so confused by this thread. I did the same maths as you and like you I ended up justifying it because of the opportunity cost on the mortgage. Now is buying a car brand new actually my smartest use of my money? Nah probably not. But if we take buying said car as a given then NV works out ahead in a lot of people's circumstances.

      The only thing I can think of to justify the maths above is their NV company is super dodgy or their income is low so the tax benefits don't help them as much.

    • meoden1005 on 20/03/2024 - 08:29
      -1

      I asked leasing company. The interest rate is fixed and you will get stuck with very high interest rate over 5 years. They wont let me to negotiate interest rate and find better loan for the lease. I have to deal with baloon payment. The car is not mine at the end of the lease but you cannot simply return the car to the leasing company..

    • whyisave on 20/03/2024 - 10:57

      I want to drive the point home

      Nice pun

    • hishaken on 20/03/2024 - 22:49

      What is the interest rate they offered?
      sounds pretty good

      • shiny1 on 25/03/2024 - 23:49

        The comparison rate is 11.99%, but I don't think that's the actual interest rate. The comparison rate includes all this other stuff. At first the interest rate scared me and put the whole thing on hold for 2 weeks. But then I used the cash vs NL calculator and I came out on top by a long shot anyway, so I didn't mind.
        Edit: I just checked the calculator on my original calculation and the actual interest rate came out to be 8.61%. That's a more-or-less figure, so I wouldn't hold that as a golden number or anything.

    • mandelbrot on 21/03/2024 - 15:58

      Do you know how it affects the novated lease repayments if the employee's income is in one tax bracket (e.g. 170k), but due to other investment income, their taxable income is much higher (e.g. $220k)? Is there any effect on how the novated lease is calculated?

      • ozbargainsam on 21/03/2024 - 18:09
        +2

        Just plug it into the spreadsheet. It'll answer your question and many more.

        Lease payments are taken from your salary. If you're in 37+2% for salary, then you'll get deducted based on that. But if your taxable income at tax time is in the top tax bracket, then you should see the full benefit in your tax return.

        In other words, you won't see the full deduction when your pay is calculated, but you'll be made right when your tax is calculated.

        Extreme example: you have 18k salary and 18k lease payments. You pay the full no-deduction novated lease during your pay run. But if you go on to have 180k other income, you will effectively get 18k*0.47 as credit at tax time (which will go towards the tax on the 180k).

        • mandelbrot on 21/03/2024 - 19:38

          Awesome. Thank you!

    • Zondor on 24/03/2024 - 15:54

      As a 1st year sole trader with a mortgage, do you think it makes sense to do this vs getting a 2018 Kia Cerato and wrapping it? (Doing 5-7k PM so far).

      I'm at the stage where I want to get a company car as an IT consultant to brand myself abit more professional than my Rio with bullet hole stickers on the passenger door trolley dent.

      • shiny1 on 26/03/2024 - 00:09

        Looks like a 2018 Cerato goes for about $20k these days. Using the calculator, after 5 years you have an additional $15k in ongoing costs and $9k in accrued interest from the original $20k not being in the mortgage account. That comes to almost $45k.

        In my situation, the Seal is $67k after 5 years. That's a $22k difference, which is huge and needs a ton of discussion and evaluation if I were you.

        • Zondor on 07/04/2024 - 14:19

          Awesome thanks mate! I think the leasing works if you're in a HUGE tax bracket or love having new cars but doesn't make sense otherwise.

  • May4th on 19/03/2024 - 04:43

    we are missing some numbers, they would have given you a breakdown? what's the interest rate charged? you have to factor in the opportunity cost of having that money in your offset over the 5 years also if you are paying that much interest over 5 years. the higher your marginal rate the more advantageous.
    to keep maths simple do the calculation on 1 year lease, 65% balloon+GST and compared to see whether you are better off buying cash.

  • apaul on 19/03/2024 - 06:53

    $400/fortnight is the difference in your pay rather than the money NL company takes out before tax.
    So NL company keeping all the savings and if you have taken a loan ( west pac offered me 7.55%) , i guess you would have paid the similar amount . My argument is NL company is taking all the advantages, no gst + fbt benefits

    • shiny1 on 19/03/2024 - 07:22
      +5

      Yes, they are greedy sons of Bs and pocketing all the savings, but that is largely irrelevant. The fact of the matter is despite all of the moaning and groaning, what I FEEL in my bank account is way better value going with them compared to paying with cash. I feel 400 a fortnight getting docked. I'm not going to get hung up on the technicalities pre-tax because I wasn't going to see that money anyway. And besides, I see the NL as an immediate tax return in a way.

      Simply put: I can either pay cash and lose, or get a NL and win. There isn't a third option to one up the government, the dealership and the leasing company and save even more.

      • apaul on 19/03/2024 - 08:02
        +2

        My issue is in the diffence of the money they received and the difference in the pay.

        So in your case [total amount NL received]- 400×26 and I am not surr where that money goes.

        The benefits are not transferred to employees.

        IMO Government should open up the tax savings if you finance it through a bank and allow citizens to deduct car payments from income.

        • May4th on 19/03/2024 - 08:10
          +1

          it goes to the NL company of course.. interest + administration. you can package insurance/maintenance. there can be a big variability in the rate quoted too. so do the maths and see if the numbers make sense for you. unfortunately you have to let the lease companies get a slice of the pie first

        • shiny1 on 19/03/2024 - 09:44
          +1

          They are a business first and foremost, so they have to make money in some way. That is usually through the customer. But because of the FBT exemption for EV, the government takes the L this time. The tax dodges are passed on to the customer. The leasing company then tacks on an interest rate (which you can negotiate slightly on), a leasing draft fee and a fortnightly service fee (about $500 and $3/m respectively).

          I don't know about other leasing companies, but Smart Leasing itemised my quote, so it is transparent what the costs are.

    • dsp007 on 19/03/2024 - 10:05

      It's a game of positives vs negatives.

      Positives you save on GST, get to claim a portion or all of it on tax and can generally get a better upfront price on the car (doesn't work with fixed price cars).

      However you pay monthly fees plus pay a much higher interest rate.

      It's your personal circumstances that determine which one triumphs.

  • mini2 on 19/03/2024 - 08:54
    +2

    I wouldn't call it a scam, but it doesn't work for everybody. YMMV based on the car picked, the NL provider, your tax bracket etc, etc.

    Run the numbers, and if it smells fishy, it probably is. The NL provider isn't a non-profit/your friend, so watch out for yourself.

  • brad1-8tsi on 19/03/2024 - 09:18

    What your calcs demonstrate is the an NL is not the right finance structure for your situation.

  • JimB on 19/03/2024 - 09:33

    Can you get another quote from another Novated Lease company?

  • dsp007 on 19/03/2024 - 10:01
    +1

    Did you include the opportunity cost of having this cash stored in a savings account or home loan during the lease?

    Cash upfront means you lose a large chunk of money straight away that could otherwise be stored elsewhere, providing you with another financial benefit (ie home loan).

    Won't fill this void but I agree with the others, the number doesn't make sense with the high yearly cost.

    When I did the calcs for an EV, I ended up saving around $2k per year off a $100k car. It's not fantastic, but it's something.

    EV Novated leases are a way to get a small discount on a car, not a cheap one. They generally end up better than paying cash, but only slightly.

    Bonus tip, the savings figure on the lease is always exaggerated. It compares the cost of a lease claimed on tax with the same cost of a lease without claiming anything on tax. No one will ever do this due to their exorbitantly high interest rate and extra fees. Should at least compare it with a car loan (~7%).
     

  • kawinuyo on 19/03/2024 - 10:12

    I did my own calculations and was better off $2k rather than their generalised calculator $8k. A consultant went through my presented sums and said yes I was correct. While yes the company takes a larger chunk of that saving… In the end I still save 2k rather than paying cash + whatever I saved having the money in my offset instead. It's still no small sum to scoff at. 2k for minimum effort? Yes please.

    I also found the longer I novated lease the less beneficial it was for myself. We did it for one year.

    • Gotchas on 19/03/2024 - 10:30

      Did you include the tax savings on running expenses in your calc?

      • kawinuyo on 19/03/2024 - 19:16

        Yes, although I didn't buy an ev. I also don't drive very often. So having it longer actually decreased the amount of initial savings.

        • keejoonc on 20/03/2024 - 15:57

          NL is not worth it unless you can get FBT exemption like EV's are eligible for. It might still work if you are on the top marginal rate of tax, but you would need to do the sums.

          • kawinuyo on 20/03/2024 - 17:49

            @keejoonc: As I said i did our sums. Even 2k for us was worth it (minimal effort) I work part time so would have to work at least 3 weeks to get 2k. We had to get a new car old one died so no brain for us.

            • keejoonc on 20/03/2024 - 17:54

              @kawinuyo: You said you didnt buy an ev so im assuming you didnt consider an ev for NL. NL for any car where you have to pay FBT is not going to save money for most people.

  • burningrage on 19/03/2024 - 10:18
    -1

    This topic has been covered to death.

    Using your example, which was spot on, Atto 3 is worth $54k at purchase yet you are effectively financing for $105,000. You don't need a super genius to know that you are basically expending 2x of your albeit pretax money with GST discount etc etc etc and yet you are paying almost 2x for a car?

    No amount of concession is worth pursuing if the end result is actually paying 2x for a car that will only depreciate (and depreciate real fast)

    You will save something vs cash but your much bigger savings have all been enjoyed by the Novated Lease company and you will still suffer from being recorded for Reportable Fringe Benefit which will result in you losing your Govt benefits (at the very least, private health subsidy if you have one).

    • eek on 19/03/2024 - 10:57
      +8

      Electric cars under $89K/LCT threshold are FBT exempt for private use ….(for now). Leasing company should have already accounted for this in their calculations anyway.

      • JimB on 19/03/2024 - 11:25
        +1

        Correct. This is the main benefit of NL an electric car.

      • burningrage on 19/03/2024 - 21:38
        +1

        Yes they are FBT exempt but they are NOT exempt from Reportable Fringe Benefit. Again this has been discussed to death.

        If you currently receive Government benefit that is subject to Adjusted Taxable Income Means testing (including Private Health Insurance rebate), you may be affected by the Reportable Fringe Benefit.

        https://www.ato.gov.au/businesses-and-organisations/hiring-a…

        (See the bottom page of that page)

        • Poor Ass on 20/03/2024 - 01:04
          +2

          Correct but you won't be worse off than if you didn't do the car

          What most people get upset about is with their family tax benefit or hecs repayment is when the salary sacrifice companies setup pre tax , payroll deducts PAYG as if you are making less income. But if you request to bring it back to the original PAYG then it would be all good. However, if you don't then there will be a big correction come tax return time which is actually the same result but when people get a bill they think they got ripped off but really ATO and Centrelink are just getting back what they are entitled to from the correction

    • MetaphorOZB on 20/03/2024 - 16:48
      +1

      You are incorrect. OPs figures are way out - I assume he has misunderstood the quote provided by the finance company.

      There is absolutely no way an FBT free NL ends up costing $105k for a $54k car.

    • meowsers on 23/03/2024 - 12:34

      I think you aren't quite correct. For someone on say $180-275k+ a year where they get zero or minimal benefits anyways it can be quite a chunk of change saved.

  • p1 ama on 19/03/2024 - 11:09
    +1

    Therefore, the total amount paid to the novated lease company over the 5-year period (assuming I decide to purchase the vehicle at the end of the 5th year) would be $18,000 x 5 + $15,000 = $105,000. It's important to note that there is no Goods and Services Tax (GST) applicable on novated leases.

    While I would receive tax deductions on the $18,000 annual payments over 5 years, totaling approximately $30,000, deducting this from the total amount paid ($105,000) leaves me with $75,000 as the effective cost for the vehicle.

    How did you get $30,000 of tax deductions on a $105,000 pre-tax payment? What's your top tax bracket?

    Novated leasing only really makes sense if you're in a relatively high tax bracket. For example, if someone is well into the 45% tax bracket (e.g. if your salary is at least $18,000 above $180,000), their savings would actually be 45% of $18,000 p.a., i.e. $8,100 p.a., so that total savings over 5 years would be $40,500.

    With this calculation, then the total out of pocket cost would be $105,000 - $40,500 = $64,500

    Factoring in additional expenses such as registration, insurance, Compulsory Third Party (CTP) insurance, electricity, and tire costs, totaling $10,500 over 5 years, the total cost of the vehicle under the novated lease arrangement amounts to $64,500.

    With these new costs, then taking out your $10,500 over 5 years (which I think is roughly right), then your outlay is $54,000 over 5 years.

    If you were to buy it in cash, then your spend would be $48,771 + $2,049.60 (Stamp Duty) + $224.70 (Rego) + $522.20 (CTP) + $40.80 (Plate fee) = $51,578.65

    Obviously the novated lease makes sense, because you don't pay it upfront. If you have a mortgage, let's say, keeping the $51-52K in an offset account will save you much more money than the additional like $2k or whatever that the novated lease will cost (for instance) over 5 years - hard to say how much you save, but should be in the neighbourhood of $15k or so in interest savings.

    Ultimately, whether novated leasing works for you depends on your financial situation. Just because it doesn't work for you doesn't mean that it's a "scam", do the calculations and figure out whether it works for you.

  • freefall101 on 19/03/2024 - 11:26

    Get a better breakdown of all the costs, individually. Because that sounds incredibly broken. $2k a year is nowhere near enough for rego/tyres/etc. Yet $16k repayments on the car itself for 5 years is bonkers unless it's a 20% interest rate.

    I have a novated lease with an Atto 3, the car repayments themselves are $10,500. All the other costs are $4,300, insurance alone is $2k.

  • ozbargainsam on 19/03/2024 - 12:09
    +7

    The poll numbers suggest a little bit of ignorance.

    The calculator shiny1 linked above's is from this post. It's an excellent comparison between cash and lease.

    Unless you're on a low marginal tax rate, and you're actually in the market for a car, an EV Novated lease now is one of the most tax advantageous things you can do.

    As literally everyone else has pointed out…there's something incredibly wrong with the numbers OP is posting. I just started a $94k 3-year lease and my out of pocket is about $16k/year all in.

    • uncompressed on 19/03/2024 - 12:28
      +3

      Agreed. OP should post a screenshot of his quote for clarity.

  • Drakesy on 19/03/2024 - 12:35
    +1

    Novated leases were worth it back in the day.

    Companies have since absorbed the benefits of using pre-tax dollars and put it directly into their back pockets, just look at the interest rates they're charging, i can guarantee you it'll be in the range of 10-12%+.

    Your numbers sound like you're novate leasing something closer to a $75k car, not a $50k car or getting majorly shafted.

    The best novated lease imho is a 1 year to maximise the benefits of the GST and FBT exemption whilst not having to fork out 12% for the right to lease a vehicle.

    But that's my 2 cents. ICE vehicles are just plain stupid to finance/lease imho

    • May4th on 19/03/2024 - 20:11
      +1

      do you mean you refinance every 12 months into a 1 year loan? as most of the GST exemption will be lost when you have to pay balloon on the 65% residual value

      • Drakesy on 19/03/2024 - 21:31

        i'd buy out with cash to get the maximum rebate.

        The 12% interest rates they charge nullify most if not all of the benefits

        • May4th on 19/03/2024 - 21:33

          12% is atrocious. I got a quote recently and was given 6.7% which I thought was very reasonable given my variable mortgage also starts with a 6.

          • Drakesy on 19/03/2024 - 21:33

            @May4th: 6.7% is incredibly low, who's that with and are they stinging you in other bills?

            Would take it up if they were offering that.

            All the ones i approached were 10-12%

            • May4th on 19/03/2024 - 21:55
              +1

              @Drakesy: ORIX, there's some admin fee but fairly standard. I was quite tempted

            • ratman on 20/03/2024 - 06:59

              @Drakesy: Smart leasing is popular option, their rates are 7.14%, plus roughly $60 a year admin. not great but not too bad either. Brokerage is the killer at $66 a month, but still with the tax savings its not hard to come out on top.

          • keejoonc on 20/03/2024 - 16:00
            +1

            @May4th: Have you actually calculated the interest rate to confirm what they quoted is correct? Some NL companies quote rates that does not take into account commission they receive from the financier. My brother was with Orix before and I'm pretty sure their quoted interest wasn't anywhere near its true effective interest rate.

          • UFO on 23/03/2024 - 23:23

            @May4th: No way that 6.7% is anywhere near actual comparison rate. They quote 6.7% but then there's another 5-6% in fees and charges for sure.

  • suti1 on 19/03/2024 - 15:38
    +2

    Its a scam that is dressed up as middle-upper class welfare that shoukd just be gotten rid of so that everyone can pay a tiny bit less tax.

    • shiny1 on 19/03/2024 - 16:27

      Sure feels like it if you take a step back and look at the bigger picture. The only people who abuse this are the rich ****s who don't even need it in the first place.

      • May4th on 19/03/2024 - 20:12
        +1

        The only people who abuse this are the rich ****s who don't even need it in the first place.

        the same could be said for all taxation

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