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Novated Lease.


richdave

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  • Member For: 21y 1m 24d
  • Location: Newcastle
Ben,

Maybe you can shed some light on vehicle lease financing (not just novated leases).

I came across a nice little earner for the lease company (and/or their financiers) the other day.  I'm 1 year into a 3 year novated lease on a Mk1 T.  With the runout sales on I thought it would be a good opportunity to upgrade to a new MkII and (slightly) reduce costs (extra day of child care per week adds up!).

I found, before closing the deal thankfully, that the exit cost from the lease was astronomical!  They basically calculate the exit price by looking at what is still owed on the capital, and add on all the interest you WOULD have paid had you kept the lease for the full term!  And this was even in light of the fact that I would have been leasing the new car through the same company, so they would have still been getting money out of me (can't change companies as it is an exclsuive deal with the employer)!

Is that a legitimate way to structure the financing of the vehicle?

Adrian

<{POST_SNAPBACK}>

Hey Adrian,

Unfortunately no surprises for me there on your findings. Leases & Hire Purchase (HP) agreements are different to ordinary car loans.

With Leases & HPs the interest is charged to you upfront and you simply repay the amount in accordance with their repayment schedule, this is the reason you don't save interest (like a car / home loan) when you pay it out.

One potential good thing is the interest therefore is effectively fixed for the term of the contract, so people that took at leases when interest rates where at their lowest in years about 1 1/2 years ago saved heaps.

When I talk to a client, I always remind them of the fact that it is near impossible to get out of a lease / HP without a heavy financial penalty so I tell them to match the term of the lease / HP with the term they usually like to upgrade a car, ie. no point taking out a 5 year lease when you want to upgrade in 2 years.

For example, I locked my novated lease on my ute for 5 years, but that's at least how long Im expecting to keep it for.

Generally you can only get out of a lease / HP early without severe financial penalty if you are toward the end of the contract and you are going to write new business with them.

Bit of a shame no-one (ie. financial broker or credit provider) didn’t explain this to you before, in your situation you would have been better with a car loan. Fact is though, you can only salary package on a novated lease, unless you want your employer owning you vehicle or you have your own business.

Unfortunately, I can’t really suggest anything further, sounds as though you have already told them you going to write the new business with them and still want to charge you interest for the whole lease period.

Cheers,

Ford Grunt

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  • Member For: 18y 4m 3d
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With Leases & HPs the interest is charged to you upfront and you simply repay the amount in accordance with their repayment schedule, this is the reason you don't save interest (like a car / home loan) when you pay it out.

...

When I talk to a client, I always remind them of the fact that it is near impossible to get out of a lease / HP without a heavy financial penalty so I tell them to match the term of the lease / HP with the term they usually like to upgrade a car, ie. no point taking out a 5 year lease when you want to upgrade in 2 years.

...

Generally you can only get out of a lease / HP early without severe financial penalty if you are toward the end of the contract and you are going to write new business with them.

Bit of a shame no-one (ie. financial broker or credit provider) didn’t explain this to you before, in your situation you would have been better with a car loan. Fact is though, you can only salary package on a novated lease, unless you want your employer owning you vehicle or you have your own business.

Unfortunately, I can’t really suggest anything further, sounds as though you have already told them you going to write the new business with them and still want to charge you interest for the whole lease period.

Yup, you got it, I did tell them that the replacement car would be through them (as I have no other choice), but that didn't seem to matter. And I'm sure they did explain it all to me, it's in that thing called a contract that I signed :msm: So no blame on their part, I just think that charging interest up front is WRONG.

And it's really the wife that wants to upgrade the car, but I certainly don't mind the thought of it..... :thumbsup:

Oh well, there's always next year.... Bound to be BF runouts then...

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So does anyone know where the MT2024 ruling has gone from the ATO site as I asked here before Falchoon started the merry go round...

The list of vehicles excempt has also disappeared from the ATO site as well. :spoton:

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  • Sucker
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  • Member For: 19y 11m 4d
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So does anyone know where the MT2024 ruling has gone from the ATO site as I asked here before Falchoon started the merry go round...

The list of vehicles excempt has also disappeared from the ATO site as well. :laughing:

<{POST_SNAPBACK}>

Here you go Dags.

The ruling:

http://law.ato.gov.au/atolaw/view.htm?rank...27&pn=ALL:::ALL

And the appendum with the falcon utes (no tornados or BFs for that matter listed though)

http://law.ato.gov.au/atolaw/view.htm?loci...A2/NAT/ATO'

edit: and I thought if anyone could find something on the net it'd be you :stirthepot:

Edited by tab
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Thank ya kindly, it's must be the ATO site...I spent five minutes looking before I fell asleep :stirthepot: boring as bat sh*te.

Barstard's have got everything but the Tornado.... :laughing:

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  • Sucker
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  • Member For: 19y 11m 4d
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Just request a private ruling (or undertaking or whatever they call it). As long as you have a good accountant it shouldn't be a problem though.

edit...

Just having another look at it though, the preamble to the actual ruling should cover you. The only reason that dual cabs are specifically listed by model is that they have extra seating positions.

Edited by tab
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  • - Track Bound EVO III -
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Thank ya kindly, it's must be the ATO site...I spent five minutes looking before I fell asleep :censored: boring as bat sh*te.

Barstard's have got everything but the Tornado.... :spoton:

<{POST_SNAPBACK}>

Docco was as at

"13 July 2005"

Which means it would have been compiled before then, before the ute was available.. and mine was exempt..

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  • Member For: 21y 1m 24d
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The Tornado will be right, it will be exempt.

Ive looked at this ruling extensively and while as tab said it relates to duel cabs the ruling also covers single cabs.

The vehicle can be treated as exempt where the vehicle is "principally designed to not carry passengers". Which is a statement which generally refers to commercial vehicles like vans & utes.

For this the ruling refers to a formula for calculating whether the vehicle will be exempt, which is simply the GVM less the Tare Weight to give the carrying capacity, this is then compared to a average adult weight which they say is 68kg.

In my case the carrying of a BAXR6T is 600kg which is compared to 136kg ie. 136:600. As the carrying capacity for carrying passengers is primarily less than that for carrying a load (ie less than 50%) then it can be treated as exempt.

Further to note is the vehicles listed in the ruling and Amendums are not an exhaustive list.

As F6 Ute mentained 2024A2 came out on 13 July 2005 (I also remember this because its a day before my b'day) which is obvoiusly like he said was after the BA was released. The previous 2024A dates to 2000!

Cheers,

Ford Grunt

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  • Member For: 18y 2m 25d
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Click here to go to the ATO WEBSITE

Look at points 7.6 and 7.7

Here is an exert

7.6 Exempt car fringe benefits

There are circumstances in which private use of a car by a current employee may be exempt from FBT.

An employee's private use of a taxi, or a panel van, utility or other commercial vehicle (that is, one not designed principally to carry passengers) is exempt if the employee's private use of such a vehicle is limited to:

travel between home and work

travel incidental to travel in the course of performing employment-related duties, and

non-work-related use that is minor, infrequent and irregular (for example, occasional use of the vehicle to remove domestic rubbish).

Dual cab vehicles

Dual cab vehicles are variants of conventional goods vehicles with additional seating positions behind the driver and front passenger seats. They share a common chassis, to which the single or dual passenger cab and alternative tray sections may be fitted.

Dual cabs qualify for the work-related use exemption only if:

they are designed to carry a load of one tonne or more, or more than eight passengers, or

while having a designed load capacity of less than one tonne, they are not designed for the principal purpose of carrying passengers.

FBT consequence of full novations

A car fringe benefit arises where you are the lessee of a car that is provided for the private use of an employee or associate of the employee. Cars under a full novated lease are subject to the same car fringe benefit valuation rules as other cars you lease.

I am sure for a business lease this clears it up... but for a novated lease I am still not sure....

What do you guys think??

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