"Canberra News, Views and Opinion"
Having recently looked at novated leasing options for RiotACT staff members, we quickly discovered the amount of misinformation that is running rampant throughout the industry. We turned to Phil Harvey, General Manager at Autovate
Novated Lease, for some advice and to dispel the common myths associated with leasing a vehicle.
“Novated lease doesn’t work anymore,” says Phil. “You hear this misguided comment far too often nowadays.”
“The truth is there are few tax-deductible items for the regular worker and novated lease is available to most people earning a salary.”
Q. Don’t you have to travel a high number of kilometres to make it worthwhile?
A. No. The misconception is you need to live in your vehicle to get the real benefits of a novated lease. With changes to FBT legislation last year, just about anyone who running a vehicle will benefit by putting their car through a tax-effective arrangement.
Q. Don’t you need to be on a high salary to afford repayments?
A. With the inherent tax savings through competitive leasing rates, anyone who’s employed and running a vehicle will benefit from a novated lease, regardless of your annual income.
Q. Why does information from leasing providers vary so drastically?
A. The problem with most novated lease providers is they only focus on the tax savings, without giving their clients the full spectrum of advice. At Autovate, our point of difference is we thoroughly explain every aspect of the leasing agreement to our clients, ensuring they’re presented with all the facts to make an informed decision.
Q. It sounds too complicated, why should I bother?
Novated lease is simple. You’ll receive huge discounts on new cars, fuel, servicing, maintenance, tyres, and insurance specifically designed to cover you for any unique circumstances you encounter under a leasing arrangement. Combined with Autovate’s personalised service and competitive rates, you’ll be amazed at how you can reduce your motoring costs and keep more money in your pocket as a result.
Q. How do I find the right provider?
It’s important to find a provider that understands your needs. At Autovate we pride ourselves on a low-pressure, education approach that clearly explains every aspect of the leasing arrangement to ensure you’re always up to speed. Our team of staff have a wealth of industry experience to help answer any of your questions.
We’re certain there are more questions relating to this topic so we’ve arranged with Phil to answer your questions in the comments section below.
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So, do they do bikes?
poetix said :
Actually, you can novate most things, I think it just depends on if there are two other parties who wish to assist you, i.e. your employer and the bike seller.
I’m not sure about anyone with a salary benefiting from a novated lease though. Maybe it should say, anyone who can afford a car may benefit from a novated lease.
Madam Cholet said :
Yes, that’s why I asked about bikes for the RA eds. Or Bacchus could have a skateboard.
Perhaps a good idea for federal policy makers would be to reduce FBT rates for vehicles under a specific fuel consumption and/or emissions threshold.
Having novated four cars over the past 10 years I’m pretty much over it. I used to be a big fan, especially when I got government fleet pricing and GST credits. Tax benefits were pretty swish too, especially as my income increased.
However, once I added up the interest paid and the depreciation I realised that there was a heap of expense that I didn’t want to justify now. Also, now I have been able to change my employment status to become a consultant and my total vehicle expenses are 80% tax deductible anyway.
So using a 10 year old car now which was 100% depreciated in the first year.
I still think that if you’re an employee and you want to have a nice new car every three years or so, novating is the way to go. But spending $1 to save $0.30c on a non-income producing asset is inherently suspect for the non PAYE person
What type of discounts are available on fuel, maintenance and insuance? Does a lease vehicle get petrol cheaper? By how much? What maintenance discounts are available?
I still believe a good secured car loan with a credit union paid off over three or five years is the way to go. That way you own the car outright at the end of the deal. Baloon payments are fraught with danger….
It is correct to say that Novated lease is not for the non PAYG employeeas they may well have the benefit of claiming costs and depreciation on thier tax. This benefit is for the normal PAYG employee who needs to reduce the costs associated with running thier motor vehicle. As you yourself said you had a novated lease for 10 years and enjoyed the benefits when you didn’t have the other options you can now take advantage of. Phil Harvey – Autovate
On my NL, I get cheaper servicing through the lease co. as they access Aust Vehicle Consultants who have a list price for the service for my car. eg. Mate has a VW Golf, I have a VW Passat and we both go to the same dealer for service. Same service was for him $1100 whereas for me it was $900
Petrol – bollocks, not cheaper, the same to buy, but apparently you get gst off it??? i don’t get that part though.
Kilometres – yes it used to be better if you did more than 40k per year as you paid less FBT. Old mate Swan godbless the dummy has equalised it so that it doesn’t matter – we all now pay 20%. what does this mean?
I used to pay $475 pre tax and $325 post tax. As of 1 April (when my particular bracket gets equalised up to 20%) I will pay $400 for both pre and post tax. Net result, my taxable income rises and the benefits of the tax saving decreases..
Novating is great (for me) as my vehicle has a budget for servicing, rego, insurance, extra warranty, fuel and lease payments and its a set and forget system. For other people who like to vary things i.e. don’t want to do the specified k’s then it might not be for you.
AG Canberra 1 said :
What type of discounts are available on fuel, maintenance and insuance? Does a lease vehicle get petrol cheaper? By how much? What maintenance discounts are available?
I still believe a good secured car loan with a credit union paid off over three or five years is the way to go. That way you own the car outright at the end of the deal. Baloon payments are fraught with danger….
The discounts refered to for maintenance and service are as a result of being able to access fleet pricing through a negotiated deal with your lease company. With fuel there are no discounts on pump price, the savings are by way of the tax savings average of 34% and additionally 10% GST.
The method of buying your car in the traditional manner being personal loan or whatever is still available but does not provide you with the substantial savings a novated lease offers. It is up to the individual which outcome they are looking for. Phil Harvey Autovate
Wondering if you could answer this question as I can find out nothing on any company’s site. We have a novated lease for our Golf. For some reason when they calculated the total cost of purchasing diesel at the beginning of the lease they really over-estimated it and a lot of the credit comes from this, along with a few other things we haven’t hit the budget on. They mentioned to us once that if we get to the end of the lease and still have credit then this will be taxed before it’s paid back to us.
What tax will it be taxed with?
By far the best way to do it is to buy a car that is over 40 years old.
1) They won’t depreciate, so that saves money
2) Keeping an old car on the road means one less new car needs to be built, saving the environment tons, takes a lot of energy to make a new car
3) Much less moving parts, so much less to go wrong
Makes sense really
“Wondering if you could answer this question as I can find out nothing on any company’s site. We have a novated lease for our Golf. For some reason when they calculated the total cost of purchasing diesel at the beginning of the lease they really over-estimated it and a lot of the credit comes from this, along with a few other things we haven’t hit the budget on. They mentioned to us once that if we get to the end of the lease and still have credit then this will be taxed before it’s paid back to us.
What tax will it be taxed with?”
All of your vehicles running costs will have been calculated in advance and a budget set from day 1 of your lease. Funds will be being deducted from your salary in a pre-tax and after -tax format to offset the FBT. After-tax monies are always spent first so any balance remaining in your lease account at the end will always be pre-tax. As it is deemed to be the employers money it will be returned to your employer and they will pay it to you as part of your salary. It will be taxed at your normal income tax rate (as it would have been if you hadn’t been packaging a vehicle.) Phil Harvey – Autovate
By far the best way to do it is to buy a car that is over 40 years old.
1) They won’t depreciate, so that saves money
2) Keeping an old car on the road means one less new car needs to be built, saving the environment tons, takes a lot of energy to make a new car
3) Much less moving parts, so much less to go wrong
Makes sense really
Age restrictions on Novated Lease vehicles allow you to lease a used vehicle that will be no older than 10 years at the end of the lease. This means you can do a 5 year old vehicle over a 5 year lease.
Unfortunately 40 year old vehicles exceed the age restriction. Phil Harvey – Autovate
Autovate said :
Other advantages of cars that are over 40 years old:
1) they use technologies that no-one knows how to work on any more, so if something goes wrong you have to either fix it yourself or deal with it
2) they use parts that are often NLA, so if something goes wrong you have to either fabricate the part yourself of deal with it
3) rust
4) no, seriously, rust.
5) ceteris paribus, cars from the 70′s predated sophisticated engine management (or really any engine management at all – mostly carbs at that time); predated good cylinder head design (and often used single valve entry and exhaust) and predated fuel quality allowing for decent static compression ratios; so the engines use more fuel and produce less power. Unless they’ve suffered the usual wear and tear, in which case they’ll use a shitton more fuel and produce almost no power.
Where do I sign up?
I’ve been sucked in by the bright lights and tinsel of a novated lease through work and I was thinking of that old chestnut, if it looks too good to be true, it is. And now I’ve found the catch. I could get a three year old WRX or XR6T for $28k and I’d be paying about $380 per fortnight with a residual of $8,200.00 in 2018. Sounds great………………………so long as you don’t want to break the lease. Break a lease early and the payout figure could be more than the initial price of the car!!! Jeez, they almost had me too.
Autovate said :
All the claims of savings are variable and totally depend upon the specific lease and of course the FBT status of the employer and if they pass on the FBT to their workers or not.
With car lease I lease a Toyota Camry and pay the standard $130 per service, the same as anyone else with a Camry would pay, there is no discount. Same with tyres etc, I pay the same price as anyone else and then claim back from my lease company.
Fuel wise, my fuel is paid out of taxed income (along with all running costs), so I don’t get 34% off through tax savings. I also don’t get back the GST, although on my last car through a different lease company I did. Though in that case the money went back to my employer as a tax input credit and when it was given to me was taxed as income, so not quite a 10% savings, more like 5%. Of course if you use a fuel card, which is how most leases do it then you cannot access supermarket discount. So 4c/l off at $1.50 per litre works out to be around 2.6% compared to around the 5% through lease. All academic now though because my current lease I don’t get any discount.
For me this will be my last lease. Prior to the last change in FBT on mileage I used to drive around 30,000km per year so was in basically the lowest FBT category without trying. (unlike some I have heard of who have had to make uneeded trips to Sydney etc to build the k’s up). But now with the mileage requirements gone and the FBT rate up the whole thing is marginal, and yes even taking into account lower purchase costs etc.
Autovate said :
Of course one has to be careful with how much they get back, otherwise they will be loaning the taxman some money until tax return time.
Case in point is I had around $6000 extra in my account, so asked for $5000 it back. As you said it goes to my employer who paid it to me as income and it was taxed as part of my normal income. So for that pay period my income was quite high so taxed accordingly. Yes as mentioned over the year it will balance out and I will get some of it back, but if I had of asked for $2500 one fortnight and $2500 the next I wouldn’t have paid as much tax up front.
farnarkler said :
but unless something bad happens, why would you break the lease early?
there is also likely to be an early termination fee for a personal loan as well.
poetix said :
I’ve looked into that and Yes, some companies do bikes. There’s a major catch however, you can only use it for work related trips. No personal use allowed at all which makes it kind of pointless as the smaller purchase price has little effect on your taxable income when spread out over 3 or 5 years.
goggles13 who knows what could happen in 5 years but I’m not about to take the chance. As for a personal loan, I’ve had one that has no penalty for early payout.
I’ve been sucked in by the bright lights and tinsel of a novated lease through work and I was thinking of that old chestnut, if it looks too good to be true, it is. And now I’ve found the catch. I could get a three year old WRX or XR6T for $28k and I’d be paying about $380 per fortnight with a residual of $8,200.00 in 2018. Sounds great………………………so long as you don’t want to break the lease. Break a lease early and the payout figure could be more than the initial price of the car!!! Jeez, they almost had me too.
You are 100% correct in that the breaking of a lease early can be financially disadvantageous. It should be an area covered by your lease provider up-front when going through the pros and cons of the leasing arrangement.It would be a rare occurence (first 9 months) that the payout would exceed the amount financed but like any finance contract there will be penalties for breaking your arrangement. You must weigh up the substantial savings against any potebtial pitfalls before entering a novated lease contract. Phil Harvey – Autovate
Why can’t we lease older vehicles?
devils_advocate said :
You sound like someone who is allergic to parties and will never own a cool car anyway, so my point is moot when it comes to you
Why can’t we lease older vehicles?
The age restriction is predominantly as a result of the lease financiers policies. The older the vehicle the less likelihood that the vehicle will fit within the amount financed and security parameters. Phil Harvey – Autovate
Sandman said :
Really? Why would that be the case? It isn’t for cars?
And by “work related trips” do you mean going to and from work, or does this only work for posties?
Solidarity said :
Au contraire, I love old cars, powerful cars, and even cars that are old and have been made to be powerful. I’ve owned plenty and worked on plenty more. I know the unique pleasure of plastigauging a newly ground crank, and the pain of rescuing a patient from the tinworm.
There are plenty of reasons to own, drive and restore classic, vintage and muscle cars, but financial ain’t one of them.
” So, do they do bikes?”
There are differing opinions on fdoing a novated lease on a motor bike.
The ATO states that you can novate a motor vehicle and neither a motor bike or commercial vehicle fall under the definition of motor vehicle. As a result you are doing a novated lease in name only and because it is not a relevant vehicle you are not able to claim the private use just the business use.
Better to finance it normally and claim any business use on your tax. Phil Harvey – Autovate
I’m thinking about novated leasing at the moment so the timing of this topic is good. Is there a ready reckoner spreadsheet available that can help you work out all the benefits and costs of novated leasing versus all the benefits and costs of other purchasing a car through a personal loan?
How do lessees typically deal with the residual value obligation at the end of the lease?
How big is the risk that the market value of the car at the end of the lease is less than the residual value?
Autovate said :
So what fits under the definition of ‘commercial vehicle’? If I were to novate anything in the near future, it’d be a duel-cab 4WD ute (Ford Ranger / VW Amarok style vehicle). What do the ATO class that type of vehicle as?
Autovate said :
Makes sense I guess. Most vehicles older than 10 years are probably worth close to bugger all anyway (so insufficient profit to justify the administrative overhead), and may be quite variable in price, meaning increased risk for the financiers.
If I buy a 5 year old vehicle and do a 4 year lease, am I able to roll the lease over past the 10 year mark (ie I’ve been leasing since it was in policy), or is the 10 year threshold inviolable?