Someone asked this before so copy & pasting my reply here:
> My personal experience - I took out a 3 year novated lease and due to circumstances, i quit my job 1.5 years into my novated lease and the lease turned into a "finance only loan" where i had no benefits of the lease (i couldn't claim anything) but still had to pay the monthly payments for the rest of the 1.5 years. I continued paying for the rest of the lease only to find out that at the end of it, I had to pay the residual amount if I wanted to keep the car! The car was worth $36,000 and including the residual amount (48% for 3 years), it added another $18,000 at the end of the 3 years which meant the total outlay was $54k outright just to keep the car.
>
> I bet your question now is... why do people do it if the residual value payment inflates the price of the car???
>
> A couple of reasons:
>
> * The idea is that even though the residual was $18k, the total tax savings over the 3 years would have been worth roughly $20k+ for me base on what I was earning, claiming GST 10% off every car related expense, etc. Doing the math, it meant that I not only did not have to put the money outright to get a new car, I get $2k extra in my pocket at the end of it.
>
> * If I decided not to keep the car, I can pay the residual value of $18k and sell off my car at market price and pocket the difference. This only works if the car you purchase doesn't go down in value as much as the calculated residual amount and in my case, if i sold the car at the end of my 3 year lease, it will have gone for $25k~$28k which I would have pocketed $7k~$10k after the sale.
>
> * If I wanted a new car at the end of the 3 year lease, I wouldn't have to pay the residual to keep the car and all I needed to do was "re-novate" for another 3 years with a new car. This basically means I was effectively paying $16k ($36k cost - $20k tax savings) "rent" for using a brand new car for 3 years and claim all the related deductions accordingly without ever needing to "own" the car. I've seen this option used mostly by people who wish to own really expensive cars without having to pay upfront extravagant amounts for it (i.e. Audis, Mercs, BMWs, etc).
>
> So (1) would have been the ultimate culmination of the plan if not because of me changing jobs which threw out every tax saving benefit I got. Anyway, that's a story for another time.
>
> Thus, the lessons I learned are:
>
> * If you can buy a car outright, this should always be your no.1 option. A car is a deprecating asset and it will be so much more hassle if you finance it in whatever shape and form. Pay it once, drive away and you don't have to worry about debt, changes in tax law, your job, dealing with deductions, keeping receipts, etc.
>
> * If you need finance, only go for a novated lease if you are ABSOLUTELY SURE YOU WILL NOT QUIT/GET FIRED/CHANGE YOUR JOB and THE TAX SAVINGS YOU INCUR FROM THE LEASE PERIOD > RESIDUAL VALUE. If you say no to either of statements above, don't even think of doing a novated lease.
>
> * If you still need finance and novated lease is not an option, get a quote from the novated lease company (they usually give you a sheet stating your monthly payments, etc based on the purchase value of the car) -> take that quote to the dealer -> ask them to beat it with a zero interest financing deal. You have to be careful with the T&C with different dealers but they generally work out to be cheaper than going through a novated lease and you only pay for the interest rates of the loan.
>
> Sorry for the wall of text. Hope that helps!
Couple of broad statements:
1. The higher your marginal tax bracket, the more beneficial the novated lease will be
2. You should understand how post tax contributions affect the FBT
3. In fact you should read what FBT is https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/
4. Car FBT info [ATO](https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00008&PiT=99991231235958/)
[smh article about packaging](http://www.smh.com.au/money/car-packaging-still-worthwhile-20160203-gml6y3.html)
How is not beneficial to you? I would have though higher earners had the most to gain with novated leasing.
ETA, there's nothing wrong at all with paying cash if you have it and your choice is hardly extravagant.
Out of all the things I have done in my 30 years. Taking out a car loan was one of the things that still gets on my nerves.
I wanted a new car, so I got a loan. Now I'm stuck with repayments and probably in a car debt cycle.
Save some cash, even if its 10k. Take your time.
It's cheaper to buy a good second hand car cash than lease a new car, but a novated lease on a new car will likely be better than paying for finance on a new car.
As suggested below, it works better for higher tax brackets. You may not pay GST and may get a decent fleet discount. Plus there is the advantage of paying some pre tax. Check with your employer and see the ATO site as /u/kieran_n suggests
If you work in a non proft / charitable / public health area you may get it FBT free, or discounted as the benefit can be shared.
One other thing, if you do lease a car, buy one that has a record of holding value. I did this and after paying off the residual at lease end, I on-sold the car at a profit. That took some sting out of the over all cost.
One thing I will add, for both options, getting a "used" car that is a year or two old versus a brand new car will reduce the depreciation sting when it comes time to sell. Novated leases generally just require the car to be less than 7 years old at the end of the lease.
I compared last year and a 12 month lease was 10% cheaper compared to buying with 2% finance (IP offset). But would have been cheaper to buy second hand. Personally I wouldn't buy a car i couldn't afford cash, or a holiday, or any other non investment purpose other than a house or education.
I have a novated lease. it means that every cent I spend on the car is tax free. Every calculation I've done has shown that my money is much better sitting in my mortgage offset rather than being used to purchase a car.
I have had a novated lease for the past 4 years, and when that one ended I took out a new one.
For me it was cheaper, because of my employer there was no FBT liability. If it wasn't for that, then the tax savings would have been negligible over paying cash (and the opportunity cost of that).
In addition, the residual payment was around 40% less than the actual value of the car. You therefore get a chunk of tax-free cash back if you sell at the end of the lease.
We did some calculations and worked out in order of preference Novated Lease > Cash > Mortgage re-draw > Ordinary lease / personal loan
A few other points to consider:
* A novated lease isn't restricted to just new cars, you could buy a 3yr old still with warranty and avoid the depreciation hit
* It is convenient having the one payment out of your salary for finance, fuel, servicing etc. which can help if you're not great with budgeting
* Make sure there are no added extras for tyre insurance, car wash or whatever
* Do your own haggling with the dealer on price, and accessories
Cheers,
Thanks guys for all your help. I have ended up going with the Novated lease. Got a pretty good deal on a Toyota RAV4 $950 all in. Could barely get that low with loan, so cannot complain :)
Someone asked this before so copy & pasting my reply here: > My personal experience - I took out a 3 year novated lease and due to circumstances, i quit my job 1.5 years into my novated lease and the lease turned into a "finance only loan" where i had no benefits of the lease (i couldn't claim anything) but still had to pay the monthly payments for the rest of the 1.5 years. I continued paying for the rest of the lease only to find out that at the end of it, I had to pay the residual amount if I wanted to keep the car! The car was worth $36,000 and including the residual amount (48% for 3 years), it added another $18,000 at the end of the 3 years which meant the total outlay was $54k outright just to keep the car. > > I bet your question now is... why do people do it if the residual value payment inflates the price of the car??? > > A couple of reasons: > > * The idea is that even though the residual was $18k, the total tax savings over the 3 years would have been worth roughly $20k+ for me base on what I was earning, claiming GST 10% off every car related expense, etc. Doing the math, it meant that I not only did not have to put the money outright to get a new car, I get $2k extra in my pocket at the end of it. > > * If I decided not to keep the car, I can pay the residual value of $18k and sell off my car at market price and pocket the difference. This only works if the car you purchase doesn't go down in value as much as the calculated residual amount and in my case, if i sold the car at the end of my 3 year lease, it will have gone for $25k~$28k which I would have pocketed $7k~$10k after the sale. > > * If I wanted a new car at the end of the 3 year lease, I wouldn't have to pay the residual to keep the car and all I needed to do was "re-novate" for another 3 years with a new car. This basically means I was effectively paying $16k ($36k cost - $20k tax savings) "rent" for using a brand new car for 3 years and claim all the related deductions accordingly without ever needing to "own" the car. I've seen this option used mostly by people who wish to own really expensive cars without having to pay upfront extravagant amounts for it (i.e. Audis, Mercs, BMWs, etc). > > So (1) would have been the ultimate culmination of the plan if not because of me changing jobs which threw out every tax saving benefit I got. Anyway, that's a story for another time. > > Thus, the lessons I learned are: > > * If you can buy a car outright, this should always be your no.1 option. A car is a deprecating asset and it will be so much more hassle if you finance it in whatever shape and form. Pay it once, drive away and you don't have to worry about debt, changes in tax law, your job, dealing with deductions, keeping receipts, etc. > > * If you need finance, only go for a novated lease if you are ABSOLUTELY SURE YOU WILL NOT QUIT/GET FIRED/CHANGE YOUR JOB and THE TAX SAVINGS YOU INCUR FROM THE LEASE PERIOD > RESIDUAL VALUE. If you say no to either of statements above, don't even think of doing a novated lease. > > * If you still need finance and novated lease is not an option, get a quote from the novated lease company (they usually give you a sheet stating your monthly payments, etc based on the purchase value of the car) -> take that quote to the dealer -> ask them to beat it with a zero interest financing deal. You have to be careful with the T&C with different dealers but they generally work out to be cheaper than going through a novated lease and you only pay for the interest rates of the loan. > > Sorry for the wall of text. Hope that helps!
That is great thanks!
Couple of broad statements: 1. The higher your marginal tax bracket, the more beneficial the novated lease will be 2. You should understand how post tax contributions affect the FBT 3. In fact you should read what FBT is https://www.ato.gov.au/General/fringe-benefits-tax-(fbt)/types-of-fringe-benefits/ 4. Car FBT info [ATO](https://www.ato.gov.au/law/view/document?DocID=SAV/FBTGEMP/00008&PiT=99991231235958/) [smh article about packaging](http://www.smh.com.au/money/car-packaging-still-worthwhile-20160203-gml6y3.html)
Thanks will check it out. :)
[удалено]
How is not beneficial to you? I would have though higher earners had the most to gain with novated leasing. ETA, there's nothing wrong at all with paying cash if you have it and your choice is hardly extravagant.
[удалено]
As opposed to?
I’m guessing here, but probably the added cost of the notated lease compared to the car loan? All things considered
Why aren't you just buying with cash?
/s I hope..
Out of all the things I have done in my 30 years. Taking out a car loan was one of the things that still gets on my nerves. I wanted a new car, so I got a loan. Now I'm stuck with repayments and probably in a car debt cycle. Save some cash, even if its 10k. Take your time.
It's cheaper to buy a good second hand car cash than lease a new car, but a novated lease on a new car will likely be better than paying for finance on a new car. As suggested below, it works better for higher tax brackets. You may not pay GST and may get a decent fleet discount. Plus there is the advantage of paying some pre tax. Check with your employer and see the ATO site as /u/kieran_n suggests If you work in a non proft / charitable / public health area you may get it FBT free, or discounted as the benefit can be shared.
Thanks for the advice much appreciated. Lot to consider.
One other thing, if you do lease a car, buy one that has a record of holding value. I did this and after paying off the residual at lease end, I on-sold the car at a profit. That took some sting out of the over all cost.
That's a great idea. Thanks mate
One thing I will add, for both options, getting a "used" car that is a year or two old versus a brand new car will reduce the depreciation sting when it comes time to sell. Novated leases generally just require the car to be less than 7 years old at the end of the lease.
Good idea thanks!
For me the novated lease cost the same as an interest free loan. I had good salary sacrifice package. Might not be the same for everyone.
That's what I am seeing it as.
Look into the guaranteed future value option as well. This is really handy, especially if you want to upgrade your car every 3-4 years.
I compared last year and a 12 month lease was 10% cheaper compared to buying with 2% finance (IP offset). But would have been cheaper to buy second hand. Personally I wouldn't buy a car i couldn't afford cash, or a holiday, or any other non investment purpose other than a house or education.
Calculate the after tax NPV of both scenarios and choose the lower amount?
I have a novated lease. it means that every cent I spend on the car is tax free. Every calculation I've done has shown that my money is much better sitting in my mortgage offset rather than being used to purchase a car.
Yeah makes absolute sense thanks mate :)
I have had a novated lease for the past 4 years, and when that one ended I took out a new one. For me it was cheaper, because of my employer there was no FBT liability. If it wasn't for that, then the tax savings would have been negligible over paying cash (and the opportunity cost of that). In addition, the residual payment was around 40% less than the actual value of the car. You therefore get a chunk of tax-free cash back if you sell at the end of the lease. We did some calculations and worked out in order of preference Novated Lease > Cash > Mortgage re-draw > Ordinary lease / personal loan A few other points to consider: * A novated lease isn't restricted to just new cars, you could buy a 3yr old still with warranty and avoid the depreciation hit * It is convenient having the one payment out of your salary for finance, fuel, servicing etc. which can help if you're not great with budgeting * Make sure there are no added extras for tyre insurance, car wash or whatever * Do your own haggling with the dealer on price, and accessories Cheers,
Thanks guys for all your help. I have ended up going with the Novated lease. Got a pretty good deal on a Toyota RAV4 $950 all in. Could barely get that low with loan, so cannot complain :)