Novated Lease, help me understand how this works...

[~Raven~]

M-kay we have decided that a new car is needed and I have heard about this leasing arrangement and it sounds too good to be true.

Can someone explain it in simple terms for us simple folk to understand because all of the sites I've read seem to be car sales sites and it reads like a sales spiel and not so much information. I don't want to get caught by a snake oil salesman

I have to add that we aren't in an employer/employee situation. We have our own business and are paid on a contract basis

[Rivlas]

Go talk to your accountant/financial advisor about this. He will be able to advise you whether it will save you money or not.
We were thinking of doing this a while back but in the end we would not have been able to use it much for tax purposes.

[~Raven~]

She's not there today and I'm feeling impatient

[M22]

we had one with dh old boss- so from what i understand it worked like this - his car payment came out before tax so it helped us out a lot- mind you since building we are still paying off the car.........

[Astrid]

ok, will see what I can remember about them.

Basically you salary sacrifice an amount from your pay, so your taxable income is less and you there for pay less tax.
The sacrificed amount cover the lease, petrol, servicing, rego, insurance etc.
Some firms will use a novated lease company who handles the lot, others do it all in house.
Basically they will pay your leasing as per their normal payment methods. The rest you normally pay and get reimbursed, unless of course they have a fuel card for you.
Ok, the catch is that you pay the Fringe Benefits Tax on it, as it is a fringe benefit. Now I have been out of this for awhile, but this tax amount varies depending on what travel you do, the more the better. Basically you want that tax to be lower than your highest marginal rate. So really you need to be earning a fair bit for it to be worth it.
Also the car lease will have a balloon payment, so at the end of the lease, either re lease a new car or payout the car to keep it. I think you maybe able to redo the lease on the current car.

So, yep talk to your accountant to see if it is worth it for you.

[Jennifer13]

If you have your own business there might not be any benefit running it as a novated lease as opposed to just buying it through the business. So I have my car leased through my business, but it's a business lease with the payments coming out of the business account and a net amount to pay at the end of the term. Which in our case would amount to trading the car in and using some of the equity left towards a new car.

If it's done completely through the business it's a business expense and there are no tax implications (other than reducing your business profit potentially and thereby decreasing the amount of tax you'd pay). You need to keep a log book for at least 12 weeks of the year and nominate the percentage of business use. Too much personal use and the business will be required to pay FBT on that, but I'd hazard a guess that would be much lower than the tax implications of buying the car privately, lease or no. You'd be surprised how much of your usage will be business, if you're taking a trip to the shops and do the business banking, that's a business trip. Most of my longer trips in the car (say into the city in my case) are to meet with clients, etc, so business trips. Personal use is limited, especially since it's our second car. I calculate about 90% business use and I'm not required to pay any FBT.

Obviously it is a business asset/expense though, so if you were to close or sell the business the expense would also go with the business. You might be able to take over a lease, but you'd need to discuss that with the finance company.

[Olive]

you can ring and talk to DH if you like!! but were tossing up whether or not its worth it any more, you may be better off buying through your business

[e_p]

I don't know annnnything about it beyond our car payments, rego, insurance, maintenance, petrol etc is all taken out of DH's pay pre-tax...it saved us about $3,000 last financial year but we are wage earners/employees and of course it really depends on circumstances For us, its fantastic

[Kazbah]

main thing is the novated lease is a contract with the leasing company and its not linked to the company. with our work, we have a choice between salary sacrifice (where the car is leased by the company and payments come from our pay. If we leave the company we don't have to keep paying) and novated lease. Novated lease is directly with a lease company and its a bit more involved. A friend of mine had a novated lease and he left the company, left the country and still had to make the payments. We ended up buying the car from him so he didn't go bankrupt.

with novated lease you have to estimate the amount of fuel you'll need, the insurance, the rego etc and that's what you'll be contracted to. At the end of the novated lease period you are responsible for the vehicle, to purchase it or to renegotiate the lease.

[~Raven~]

If you have your own business there might not be any benefit running it as a novated lease as opposed to just buying it through the business. So I have my car leased through my business, but it's a business lease with the payments coming out of the business account and a net amount to pay at the end of the term. Which in our case would amount to trading the car in and using some of the equity left towards a new car.

Ahhh I see that makes a bit of sense. Clear as mud this stuff is

[Bathsheba]

Ahhh! DH mentioned last night that we might be doing this! He is a bank manager but doesn't really know how it works fully yet... he's just heard that this is what most of his colleagues do. We haven't had a car loan for over 10 years so are a bit out of the loop. Thanks for explaining it so well girls, especially Astrid