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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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39 Responses to
5 Misconceptions about novated lease
farnarkler 6:10 pm 18 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.

devils_advocate 5:42 pm 18 Mar 13

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?

Autovate 5:08 pm 18 Mar 13

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 5:05 pm 18 Mar 13

“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

Solidarity 4:39 pm 18 Mar 13

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

Madam Cholet 3:36 pm 18 Mar 13

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?

Autovate 2:51 pm 18 Mar 13

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

MightyJoe 2:14 pm 18 Mar 13

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….

Autovate 2:13 pm 18 Mar 13

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

AG Canberra 1 1:53 pm 18 Mar 13

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….

rosscoact 1:37 pm 18 Mar 13

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

thebrownstreak69 11:32 am 18 Mar 13

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.

poetix 11:27 am 18 Mar 13

Madam Cholet said :

poetix said :

So, do they do bikes?

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.

Yes, that’s why I asked about bikes for the RA eds. Or Bacchus could have a skateboard.

Madam Cholet 11:22 am 18 Mar 13

poetix said :

So, do they do bikes?

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.

poetix 11:17 am 18 Mar 13

So, do they do bikes?

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