Novated Lease.

[markxr6t]

I wouldn't have an XR6T if it wasn't for novated leasing. I comfortably do over 25 000kms anyway (and its still viable for 15000 - 24999 on cheaper cars under $20 000).

So if you were going to finance a car anyway and you'll do over 25000km, then its a no brainer. The "Employee Contribution Method - ECM means it still works if you're in a lower income bracket as you can pay your FBT amount toward running costs in after tax dollars.

When I factor in tax benefits and my residual being $8000 less than what I can sell the car for, total lease, rego, insurance and running costs for my t costs about $140 per week over 3 years in "real" dollars - meaning after tax dollars - and after selling at $7 - 8k more than residual.

If you want me to post or PM the sums, let me know.

Mark

[Ford Grunt]

Hey sykes, I can help you with any enquire you may have in relation to this topic as I am a accountant (speciality is tax).

I quite ofter do calculations for other people at work, ive got salary sacrifice calculation software at work too. I can do a calculation for you if you want. I wont try to charge you

When considering salary packaging the following factors need to be taken into account:-

- Salary (including any other income or tax deductions which affect your assessable income for your income tax return)

- Fringe Benefits Tax, related to this calculation is the cost of the vehicle, the annual Klms or total running costs & business percentage (as proven in a vehicle log book)

- Whether you can claim a tax deduction for the car anyway (ie. if you have a logbook this will be the case)

- Lease term (as this will affect the monthly repayments & residual value)

- Also need to take into account affect on child care payments and Centerlink payments if applicable.

An important assumption with salary packaging is that you are going to buy the car anyway, as this is the comparison basis for the calculation, for example you are not simply buying the car to save some tax & get expenses GST-free.

I am salary packing under a novated lease for my BAXR6T ute and is FBT-free due to some lesser know exemptions (and is therefore subject to certain restrictions on usuage). So after-tax cost to me is very cheap.

Any questions please feel free to ask. Im very knowledgeable on the subject.

Cheers,

Ford Grunt (Ben).

[Panda]

I am salary packing under a novated lease for my BAXR6T ute and is FBT-free due to some lesser know exemptions (and is therefore subject to certain restrictions on usuage). So after-tax cost to me is very cheap.

Any questions please feel free to ask. Im very knowledgeable on the subject.

My current lease runs out soon and I will be doing it again. Can you clue me in on these lesser known exemptions?

Panda

[sykes]

Hey sykes, I can help you with any enquire you may have in relation to this topic as I am a accountant (speciality is tax).

I quite ofter do calculations for other people at work, ive got salary sacrifice calculation software at work too. I can do a calculation for you if you want. I wont try to charge you

When considering salary packaging the following factors need to be taken into account:-

- Salary (including any other income or tax deductions which affect your assessable income for your income tax return)

- Fringe Benefits Tax, related to this calculation is the cost of the vehicle, the annual Klms or total running costs & business percentage (as proven in a vehicle log book)

- Whether you can claim a tax deduction for the car anyway (ie. if you have a logbook this will be the case)

- Lease term (as this will affect the monthly repayments & residual value)

- Also need to take into account affect on child care payments and Centerlink payments if applicable.

An important assumption with salary packaging is that you are going to buy the car anyway, as this is the comparison basis for the calculation, for example you are not simply buying the car to save some tax & get expenses GST-free.

I am salary packing under a novated lease for my BAXR6T ute and is FBT-free due to some lesser know exemptions (and is therefore subject to certain restrictions on usuage). So after-tax cost to me is very cheap.

Any questions please feel free to ask. Im very knowledgeable on the subject.

Cheers,

Ford Grunt (Ben).

<{POST_SNAPBACK}>

Ben,

Thanks mate, I have sent you a PM with some stuff!

Mick

[RAPHOON]

I have always chosen CHP over Novated Lease. The reasons for me have been:

- I get a healthy discount on the car through work, so it negates the GST factor.

- I use a log book to claim the (high) business usage.

- An ITWV ensures that an appropriate %age of the vehicle allowance is remitted without being taxed. This also allows you to tailor your payments/residual nexus.

- I have no restrictions on KM usage.

- FBT is not an issue.

- Another factor to keep your eye on when considering a novated lease - CHECK THE INSURANCE. Some people I know have taken the Novated Lease option and have had to make a claim on the insurance policy only to find that their excess is sky high. The leasing organisation has obviously done this to reduce the costs etc.

Good luck with whichever way you decide to go.

[Turbofalke]

I have always chosen CHP over Novated Lease.  The reasons for me have been:

- I get a healthy discount on the car through work, so it negates the GST factor.

- I use a log book to claim the (high) business usage.

- An ITWV ensures that an appropriate %age of the vehicle allowance is remitted without being taxed.  This also allows you to tailor your payments/residual nexus.

- I have no restrictions on KM usage.

- FBT is not an issue.

- Another factor to keep your eye on when considering a novated lease - CHECK THE INSURANCE.  Some people I know have taken the Novated Lease option and have had to make a claim on the insurance policy only to find that their excess is sky high.  The leasing organisation has obviously done this to reduce the costs etc. 

Good luck with whichever way you decide to go.

<{POST_SNAPBACK}>

I'm with you SIXRT. A CHP does appear to work better for me also.

I think a big disadvantage of the Novated lease is the penalty to cop if you want to get out of it before the "contact" is due. With a CHP you can do what ever you like.

Edited 12/05/05 12:43 AM by Turbofalke

[sykes]

Fogive me for being a bit dumb today, but what is CHP?

A bit blonde today I am!

Mick

[Turbofalke]

its a hire purchase agreement.

essentially a loan. Buy a car for $45k, only borrow a % of the purchase price and leave a residual payout figure to be paid at the end of the loan term.

E.g.

Amount financed: $45k

60 monthly payments of $700 (at say 8% interest)

at the end of 60 months payout balloon $15k (you car needs to be worth this to break even either on a trade in or private sale)

The monthly payment is not a salary sacrifice so you have paid income tax on it, but you can claim back on tax running costs which you establish through various methods. Establish a log book to demonstrate business usage (say 60% work 40% private) then apply this % to depreciation on the assett and other expenses like rego/insurance/fuel/whatever.

Edited 12/05/05 02:06 AM by Turbofalke

[Ford Grunt]

Turbofalke is on the money, however but as said earlier you dont need a residual (actually called a 'balloon payment' for CHPs), you can spread the payments evenly over the period.

Essentially there is a difference in law and therefore tax treatment and again therefore effects what you can and cannot salary sacrifice.

I'll explain the differences:

With a lease the lease payments can be deductable while the final residual payment can never in itself be deductable.

On the other hand, hire purchase payments are never deductable but the depreciation and interest on the vehicle cost can be deductable.

This is essentially because of ownership of the vehicle. Under a lease the vehicle is deemed to be owned by the lease company (even though the rego may be in your name) you become the owner essential when the residual is paid. Under a hire purchase or loan you own the car from the start of the agreement.

This is also an important consideration for businesses registered for GST. If a business is registered for GST on an accrual basis (like most are) the GST on the purchase price can be claimed upfront vs only on each payment when payments under a lease. This can stear some employers to use a HP over a lease due to the GST advantage.

However, the other consideration is that most employers who salary package don't want to purchase a vehicle on HP (or a lease without a novation agreement) because the employer doesn't want your car on their books (and probably neither do you) so they insist that you only obtain a novated lease.

The novation agreement of a novated lease, is an agreement that employer signs to agree to pay your lease payments. This makes it salary sacrifice effective, and means that the car becomes a car benefit. The other advantage with a novated lease is the agreement can be cancelled with your current employer and can be moved to another employer.

Cheers.

[Ford Grunt]

I have always chosen CHP over Novated Lease.  The reasons for me have been:

- I get a healthy discount on the car through work, so it negates the GST factor.

- I use a log book to claim the (high) business usage.

- An ITWV ensures that an appropriate %age of the vehicle allowance is remitted without being taxed.  This also allows you to tailor your payments/residual nexus.

- I have no restrictions on KM usage.

- FBT is not an issue.

- Another factor to keep your eye on when considering a novated lease - CHECK THE INSURANCE.  Some people I know have taken the Novated Lease option and have had to make a claim on the insurance policy only to find that their excess is sky high.  The leasing organisation has obviously done this to reduce the costs etc. 

Good luck with whichever way you decide to go.

<{POST_SNAPBACK}>

Just wondering whether you work pays any of the running costs of your vehicle or whether you simply claim a tax deduction for the expenses? from what you said it sounds like you claim a tax deduction (due to ITWV and no FBT).

Why I raise this as a point is because if you had work pay for the running costs of the vehicle then the payment of these costs doesnot consitute a "car fringe benefit" for FBT purposes instead would be treated as an "expense payment" and you would relie on the "otherwise deductable rule" to escape some of the FBT payable. In this case if you job activities changed substaintually (eg you became an office worker and had no business use anymore) then your logbook could not be relied upon anymore and the costs would be FULLY subject to FBT, with no consessions that you get if the car is treated as a "car benefit".

To be treated as a "car benefit" (instead of a "expense benefit") for FBT purposes the car has to either be owned, leased or CHP by the EMPLOYER or Novated leased by the EMPLOYEE. CHP taken out by the EMPLOYEE just doesn't cut it (due to the legal principals I descriped in the post above).

In your case if you have a logbook with high business klms (im assuming high klms) then the above may not concern you either way because by packaging the car you save some GST and pay some FBT, unpackaged you dont save any GST but dont pay any FBT but get a tax deduction anyway for the costs including GST.

In which case you are banking on the FBT savings to be higher than the GST saving, because the car is tax deductable to you anyway

If sykes (or anyone else) has a car than has no or little business use than a CHP is not the way to go for salary packaging, because where there is no business use and the employer paid for the expenses (including the CHP payments) then this would not constitute a "car fringe benefit" and would be as described above FULLY taxed (ie FBT @ 48.5%) without concession a situation you dont want to be in.

If the car can be treated as a "car fringe benefit" for FBT purposes such as be way of a novated lease agreement, then business use (as a percentage) is not relevant when the "statutory method" is used to calculate FBT. This method only considers the cost of the car (slightly differently valued for FBT purposes than income tax purposes) x by a statutory percentage which is based on the annual (or annualised) klms travelled by the vehicle. Is this situtuation, the employee is can effectively get a tax deduction (via salary packaging) and also GST-free for a car that they may have not been able to claim a single dollar in tax deductions for the cost of some FBT. If the FBT cost outweighs the income tax & GST savings then the car should not be packaged.

Ps. in my experience the cost of insurance is also not higher, however it is required to be noted on your insurance policy just like a normal car loan would.

Cheers,

Ford Grunt.