I’ll list the exact details from our CFO’s spreadsheet to show how it works.

Details       |   $

|

Purchase Cost:  | 39005.00

Lease Cost p/m  | 624.12 (6.92% 4 yrs)

Residual        | 13651.75 (35%)

Finance Cost (1)| 7489.44 p/a (excl GST)

|

Registration    | 650

Insurance       | 475

Fuel            | 2700 (12L/100km, 75c/L,

| 30000km p/a

Maintenance     | 880 p/a

Running Cost (2)| 4705 p/a

|

Fringe Benefit  | 4290.55 (11% Pur Price)

Grossed up Amt  | 8331.17

FBT          (3)| 4040.62 (48.5% FBT rate)

|

Subtot (1+2+3)  | 16235.06

Cost to Company | 11364.54 (30% tax rate)

|

Salary Sacrifice| 10426.18

Super Sacrifice | 938.36

After tax equiv.| 5369.48 (48.5% tax rate)

Note that I also have a super sacrifice of $938 which I didn’t mention earlier. I am also in the 48.5% tax bracket which makes the sacrifice less of a burden. The lease payments also include GST, but our company can claim that back again. Similarly for the fuel, I’m effectively getting that GST free. Also there is no GST on the original purchase price. The only time I have to pay GST is on the residual, but I could extend the lease by two years to zero residual if I wanted, which would eliminate GST altogether. I usually get a new vehicle every four years though.
The company is revenue neutral from the deal, ie it would cost them the same in total if I had no vehicle, and just took the extra wage and super. I end up with a reportable fringe benefit of $11,364 which would affect my superannuation surcharge if my wage were high enough (it isn’t because of my negatively geared IPs)
Hope this makes sense. It should to your accountant.
Regards, Jim.

PS C2, the bank prefers a new vehicle, but they will accept a near new vehicle if you push it (I’m talking CBA here)
Note that you probably wouldn’t get the GST advantage on a used car. I’m effectively getting the vehicle for 9.09% (1/11th) discount to the price from the dealer. (not quite because rego doesn’t include full GST)

Fullout, the novated lease means that the car is registered in my name, but the company pays the lease (about 6%) and if I leave the company, I have to take over the lease.
C2, you have to consider what an old bomb would cost me anyway. My 5.3k includes 30,000km pa, which costs in petrol alone 30,000 X 10.8L/100km X 74c = $2397. Rego is $683, insurance is $475, maintenance estimated at $880 pa including two sets of tyres over the four years. That’s $4435 total pa. I get to drive a $38k vehicle for only about $900 pa more than basic expenses, so it’s a pretty good deal.
Jim.

Hi Bec and Luke,

Can’t sleep, so figured I’d say g’day. You have me thinking, so yes, you have contributed thank you. I’m hoping that there may be a difference between gains tax and income tax, but this is what I understand to be true.

As I understand to date, yep at your marginal rate if on the top marginal rate. Income is income as a sole trader, therefore whether before or after wage income, makes no difference. But, if your marginal rate is say only 30% and the gain causes bracket creep, the applicable tax will apply to that part of a gain which falls within the next tax level and so forth.

This is why people talk of trusts and companies in an attempt to reduce both tax and liability. However, from what I have learnt here, I know that we can not avoid the latter. Also, a company may pay a lower tax rate than a wage earner on the highest tax level. However, a company pays that rate on every dollar of income. A wage earner enjoys the tax free threshold first, before he/she starts to pay tax.

You can of course off-set a capital gain by taking a loss simultaneously. Say your shares have realised a loss and your IP has realised a gain. You can off-set one against the other. Timing of the sales is important.

Depending on your circumstance, your IP may also have losses added back for other obligations.

CG used to be indexed to inflation. The ATO has simplified that. You now pay tax on simply 50% of your gain.

The best answer for your circumstance of course should be found on the ATO website.

I hope this is of help to you, and I stand corrected in the hope that the tax laws may have changed.

Kind regards, Phil

Keith, P&I or IO has little bearing on your tax situation, just your cash flow. Sure with P&I you are going to be reducing the principal and therefore your interest payable, but not by a big percentage in the early years. Eg on a 100k loan @ 6%, 25 years P&I payments are $644, cf $500 I/O. After 12 months the residual will be $98219, which would be $491 per month in interest, ie you’ve reduced your tax deduction by $9 per month after a year.
There isn’t much difference between IO and P&I if you are in the max tax bracket. (Here he goes again they are all saying!) This is due to the effect of inflation, which is pretty similar to the after-tax interest (51.5% of 6% = 3.06%) that comes out of your pocket.
P&I is good for forced saving if you are not pushed to the limit so that IO would be necessary. I’m in that situation now. If I just had IO loans, I would probably squander the extra cash flow. IO with an offset account would be very useful on your PPoR if you intend to convert it to an IP later on, to maximise that loan when it becomes tax deductable, and minimise the loan on your new PPoR.
Just a few thoughts.
Regards, Jim

Hi Gracy, I suggest you have a read of Margaret Lomas’ books. She goes through the maths quite thoroughly, and it’s easy to follow. Sure, any net loss is 100% tax deductable, which means that you get a subsidy at your marginal rate. I’m not sure how you are getting 34% tax, unless you are talking about your average overall tax. You need to be doing the sums with tax at your marginal rate, which will probably be one of 31.5%, 43.5% or 48.5% including the Medicare Levy.
Jim.

>>If you think you are “smart enough” to see through these TV reports, or that they have no bearing on you, then you are fooling yourself.
To me, suggesting that it is just ratings hype, or poor journalism, misses the point entirely.<<

I would say, Dino, that the point you appear to miss is that these scums aren’t interested in the truth so much as in rating grabbing sensationalism which consequently is presented in an unbalanced way.

And of course one can only agree very much with your sentiment that it isn’t facts which move the market so much as people’s perceptions.

Pisces133

I’m with Malachi and Bill – I purchased my first property and started learning about positive cash flow and stuff 10yrs before I joined the forum – newbie is relative, and should not be the judgement platform for knowledge. Each of us brings different knowledge and info to the forum. I have seen lots of questions asked about things I know the answer to. And I have also seen more about stuff I didn’t know. People like Sooshie, MiniMogul, Melbear, Westan and a host of others not named have given me information and time that I really appreciate.
And to reiterate, just because you have a hundred posts doesn’t mean you said 100 intelligent things!!!!![] Lisa R