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5 Misconceptions about novated lease

By Jazz 18 March 2013 39

Novated lease options

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.

What’s Your opinion?


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5 Misconceptions about novated lease
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Autovate 2:34 pm 25 Mar 13

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?

If you purchase a 5 year old vehicle and do a 4 year lease you will only be able to do a further 1 year lease on the same car. The 10 year rule will apply in most cases. Phil Harvey – Autovate

Autovate 2:29 pm 25 Mar 13

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?

The ATO consider any vehicle with over a one tonne carrying capacity a commercial vehicle, so when you look to do a lease make sure the vehcile you choose complies with this. Most manufacturers websites will show this or give the Autovate office a call and we will find this out for you. Phil Harvey – Autovate

Autovate 12:20 pm 21 Mar 13


….what if you buy your cars up front in cash (like a freak, I know).”

Does novated leasing have any benefits then?”

Of course not. Leasing is more or less another type of financing. If you can afford to pay cash you are always going to be better off

This is not necessarily correct in that the savings on a novated lease may well exceed the interest cost on the lease contract. It also allows you to use your cash to make you money (interest etc.) as opposed to putting it all into a rapidly depreciating item.

You should investigate both options before paying cash for a car. Phil Harvey – Autovate

Autovate 12:17 pm 21 Mar 13

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.”

So you can guarantee that in the next five years you will not:

* Change jobs to an employer who doesn’t provide fringe benefits
* Become unemployed for any period of time
* Have any change in personal circumstances that makes your current car unsuitable
* Have any change in your finances for better (spare cash) or worse (need cash).

The early termination fee for a lease is usually the amount of interest you would have paid over the remainder of the lease plus an admin fee. There is usually no financial benefit in breaking a lease. At least with a personal loan you can sell the car, pay out the loan, and save the remaining interest.

A novated lease contract is transferable between employers and only requires the preparation of a new novated deed to allow this to occur. If you change jobs you just simply transfer the lease from one employer top the next. If you lose your job you can pay the lease yourself until you become employed again and then transfer the lease to your new employer. Autovate offers this service to please contact our office on 1300766617 if you ever need help in this area. Phil Harvey – Autovate

Autovate 12:12 pm 21 Mar 13

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?

A couple of good questions here.
Firstly the issue of a ready reckoner is best as follows, ring your bank and get a quote for a personal loan for the vehicle you wish to purchase then add to the monthly loan repayment the cost of all of the running costs of the car that you expect to pay. Fuel, service, maintenance, registration, insurance, tyres etc. Calculate the total cost on a monthly basis so you now know what the car is going to cost you. Next get a quote from the Autovate calculator http://www.autovate.com.au or call the office on 1300766617 and get a formal quote so you can now compare the costs of both.

In regards to the residual value your choice of vehicle will determine if there is any future risk. Most people, if advised properly, will profit from the sale of the vehicle at lease end. Note that any profit is tax free. Not all cars have the same future value % so your leasing copmpany should assist you in this area. Phil Harvey – Autovate

JC 7:25 am 20 Mar 13

arescarti42 said :

….what if you buy your cars up front in cash (like a freak, I know).

Does novated leasing have any benefits then?

Of course not. Leasing is more or less another type of financing. If you can afford to pay cash you are always going to be better off.

thebrownstreak69 6:43 am 20 Mar 13

arescarti42 said :

….what if you buy your cars up front in cash (like a freak, I know).

Does novated leasing have any benefits then?

No. I tried this once, but to make it work the leasing company needed to buy the car off me, and wanted to charge a service of $600 to make this happen.

If you own your car outright, you may well be in a better position than if you lease. Don’t forget, you still need to pay the 20% FBT each year if you lease, but not if you own.

I’ve never leased, and bought my last new car for cash.

RedDogInCan 10:54 pm 19 Mar 13

goggles13 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.

So you can guarantee that in the next five years you will not:

* Change jobs to an employer who doesn’t provide fringe benefits
* Become unemployed for any period of time
* Have any change in personal circumstances that makes your current car unsuitable
* Have any change in your finances for better (spare cash) or worse (need cash).

The early termination fee for a lease is usually the amount of interest you would have paid over the remainder of the lease plus an admin fee. There is usually no financial benefit in breaking a lease. At least with a personal loan you can sell the car, pay out the loan, and save the remaining interest.

arescarti42 9:44 pm 19 Mar 13

….what if you buy your cars up front in cash (like a freak, I know).

Does novated leasing have any benefits then?

thebrownstreak69 7:35 pm 19 Mar 13

Autovate said :

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

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?

thatsnotme 7:07 pm 19 Mar 13

Autovate said :

” 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

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?

xcskier 6:39 pm 19 Mar 13

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 6:15 pm 19 Mar 13

” 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

devils_advocate 5:58 pm 19 Mar 13

Solidarity 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

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.

p1 5:17 pm 19 Mar 13

Sandman said :

poetix said :

So, do they do bikes?

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.

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?

Autovate 5:12 pm 19 Mar 13

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

Solidarity 4:50 pm 19 Mar 13

devils_advocate said :

Autovate said :

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

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?

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

thebrownstreak69 4:28 pm 19 Mar 13

Why can’t we lease older vehicles?

Autovate 4:14 pm 19 Mar 13

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

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