Good day folks! Now I know this is a property forum, so purchasing brand-new cars are probably frowned upon. In the past, I would have only considered buying a car if I had the cash to do so outright. However during the meet up with my tax agent for the most recent tax return, he talked about buying a car with finance as a 'lease' or 'hire purchase'.
So now that my interest in piqued, I'm keen to hear from anyone experienced with this, as to what are the tax benefits of purchasing a car in this manner. I have a decent small car now, only 3 years old! But like almost everybody, would like to upgrade, and the car I wish to buy would probably cost between $37-44K, depending on the model and trim…just a practical wagon with an efficient diesel engine.
My money is in property and I have mortgages to pay, so I don't really see how I could potentially upgrade my car and NOT expect to have to lay out more money on a depreciating object and possibly affect my borrowing capacity for future property purchases. Plus, I'm only in the '30% tax bracket' but I do travel a fairly substantial 240-270km per week to and from work (excludes my house calls).
Because really, if this is going to cost me money and reduce my borrowing capacity, despite the tax benefits, I'd pass. Can anybody enlighten me on this?
In relation to the tax benefits, travel to and from work is generally classified as private, and therefore not deductible. Do you have a home office, or do you have to transport tools / work equipment etc from home to work?
If you are in the 30% bracket, it probably wouldn't be worth it, uinless you are doing a large percentage of work kilometres.
fWord wrote:My money is in property and I have mortgages to pay, so I don't really see how I could potentially upgrade my car and NOT expect to have to lay out more money on a depreciating object and possibly affect my borrowing capacity for future property purchases. Plus, I'm only in the '30% tax bracket' but I do travel a fairly substantial 240-270km per week to and from work (excludes my house calls).A lease is essentially a loan, it will count towards serviceability.
Dan42 wrote:In relation to the tax benefits, travel to and from work is generally classified as private, and therefore not deductible. Do you have a home office, or do you have to transport tools / work equipment etc from home to work?If you are in the 30% bracket, it probably wouldn't be worth it, uinless you are doing a large percentage of work kilometres.
Hi Dan, thanks for the response. My boss has agreed to packaging my salary such that a portion of it is car allowance, but not sure if this changes anything in terms of getting a car on lease hire.
This is what I understood as well, that travel to and from work is not deductible. Although to a certain extent this is strange…for the purposes of work, we need to be able to get into our workplace from home (whether that might be by train, car, bicycle or via parachute), hence the trip to work should be deductible, but that's just my musing.
The 'home office' part is not clear cut, because for the purposes of my work I do have to continually educate myself in the profession, hence any additional reading or revision occurs in my 'home office' which is essentially also my bedroom. So arguably I do have a home office which I also use for the purposes of research for investing.
I also have some 'tools' in my boot that are always there: an insulated bag for some materials (in case of an emergency) and also a body bag. I am a veterinarian by profession and hence do carry some work-related materials in my car in case of an emergency (even if I'm not at work per se).
In the past I heard someone else mention before also that the benefits are only worth it once we start getting to over $80K salary, which is a higher tax bracket. Maybe I should wait till that happens and I'll need to review this again. So far, I have spoken to a number of people who have bought a car on 'lease hire' or something similar. They don't appear to understand much of it either and can only tell me 'it's cheap'. Naturally, I want to dig a bit deeper before getting involved in it.
bjsaust wrote:A lease is essentially a loan, it will count towards serviceability.
Thanks. Seems logical that this would be so. How long are 'lease hires' usually? I'm guessing they might last from 3-5 years depending on the loan?
Its not really that complicated. Most people will go with a Novated lease, which includes maintenance costs as well as the lease costs. The payments are deducted from your salary pre-tax, so you save money. On the other hand, its a loan, you're paying interest. That costs money.
So say your lease costs you $10k per annum. At 30% tax rate, thats only $7k out of your take home pay, but if say $4k of that was your lease payments, then you have to compare that to cost of just owning your own car and paying your own maintenance.
If you were on 40% tax rate, it would only cost you $6k in take home pay, which could make the difference between it being good or bad.
Leases will normally be between 1-5 years. I have a mate who leases a new car every year, haven't asked him why but I presume its because he wants a new car every year. I do a 3 year lease…I think I did some sums and comparisons when I did it the first time, but now I just do the same period each time.
bjsaust wrote:Its not really that complicated. Most people will go with a Novated lease, which includes maintenance costs as well as the lease costs. The payments are deducted from your salary pre-tax, so you save money. On the other hand, its a loan, you're paying interest. That costs money.So say your lease costs you $10k per annum. At 30% tax rate, thats only $7k out of your take home pay, but if say $4k of that was your lease payments, then you have to compare that to cost of just owning your own car and paying your own maintenance.
If you were on 40% tax rate, it would only cost you $6k in take home pay, which could make the difference between it being good or bad.
Leases will normally be between 1-5 years. I have a mate who leases a new car every year, haven't asked him why but I presume its because he wants a new car every year. I do a 3 year lease…I think I did some sums and comparisons when I did it the first time, but now I just do the same period each time.
Thanks for the info. Sounds like negative gearing with property, except this is with a car instead. Does the novated lease include costs of petrol, even if only used for travel to and from work?
Just curious, what are the interest rates for car loans sitting at currently? Are they around 4%? And my understanding is that the interest rates for cars doesn't work the same way as a home loan. The effective interest rates for car loans is apparently higher than the figure stated, or so I've been told. If you could point me to a calculator I could easily work out all the sums to see how much the loan is going to cost, and maintenance to it.
The lease has nothing to do with the use of the car. Its just a salary perk. The only tax-effect I'm aware of is that you can't claim travel with a lease car when you could with your own. Because technically the car is owned by your company, not you.
Yes, a novated lease should cost you nothing. Petrol, insurance, servicing, road-side assistance, new tires, everything.
Basically at the end of the lease term, everything you've spent is added up. If you've spent more than was allowed, you'll be billed for it. If you've spent less, you'll get a refund (well, technically your employer will, but it gets passed back to you).
http://www.fleetpartners.com.au/
I go through these guys. I notice they have some calculators on the front page and plenty of info links.
I've previously packaged a car with a novated lease over a 3 year period. Loved the feeling of getting 'free fuel' – obviously you pay for it but not having to worry about how much a weekend cost was fantastic!
Pretty sure you can do between 1 and 5 years and I think the weekly cost doesn't change regardless of how long the lease is but the balloon (payout) figure at the end does significantly! Happy to be corrected on this one tho
This one got me thinking….
Small business owners regularly run their cars (amongst other things) through their business. They're paid for using business funds from their business account, as opposed to simply claiming for a percentage of use. Yet as an investor I'm told that we can only claim a percentage of expenses (ie. travel to the property a few times a year etc). If you run your investing operation as a business (trust?/corporate trustee etc) is it possible to run a novated lease through it so the payments come from the business and not our own funds? – Maybe I'm making this more complicated than it needs to be… Put simply if you have a positive portfolio can you pay for a car out of it and let the business take a hit like all my rich tradie mates???Rusty
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bjsaust wrote:The lease has nothing to do with the use of the car. Its just a salary perk. The only tax-effect I'm aware of is that you can't claim travel with a lease car when you could with your own. Because technically the car is owned by your company, not you.Yes, a novated lease should cost you nothing. Petrol, insurance, servicing, road-side assistance, new tires, everything.
Basically at the end of the lease term, everything you've spent is added up. If you've spent more than was allowed, you'll be billed for it. If you've spent less, you'll get a refund (well, technically your employer will, but it gets passed back to you).
http://www.fleetpartners.com.au/
I go through these guys. I notice they have some calculators on the front page and plenty of info links.
Thanks for that. This is great info. Just plugging some figures into the calculator as we speak. I assume that at the end of the lease we can actually negotiate to buy the car as there will still be residual value in it. But for the car I want, there's no way I'm going to make this work and would rather save my money for another investment. I can see why it's attractive however, and if I were actually in the market and needed a new car, I would be looking at this more closely.
rusty05 wrote:I've previously packaged a car with a novated lease over a 3 year period. Loved the feeling of getting 'free fuel' – obviously you pay for it but not having to worry about how much a weekend cost was fantastic!Pretty sure you can do between 1 and 5 years and I think the weekly cost doesn't change regardless of how long the lease is but the balloon (payout) figure at the end does significantly! Happy to be corrected on this one tho
Haha, yeah I know where you're coming from in terms of the 'free fuel'. Could have more a lead foot if I went for a car lease in this manner!
When you speak about 'balloon' figures, are you referring to the amount you pay if choosing to buy the car out at the end of the lease?
rusty05 wrote:This one got me thinking….
Small business owners regularly run their cars (amongst other things) through their business. They're paid for using business funds from their business account, as opposed to simply claiming for a percentage of use. Yet as an investor I'm told that we can only claim a percentage of expenses (ie. travel to the property a few times a year etc). If you run your investing operation as a business (trust?/corporate trustee etc) is it possible to run a novated lease through it so the payments come from the business and not our own funds? – Maybe I'm making this more complicated than it needs to be… Put simply if you have a positive portfolio can you pay for a car out of it and let the business take a hit like all my rich tradie mates???Rusty
It makes sense and could be possible, but will have to let the experts comment here. My guess is that the vast majority of people own negatively geared property and hence wouldn't benefit from a trust or company system. But for positively geared property, yeah, a company structure is a good way to go.
Anyway, speaking of tradies, I should have ditched my expensive course, saved the money and become a tradie myself…as if that amount of education actually got me a high paying job.
The way I see it, the balloon payment (or residual) is the amount owing at the end of the lease when you either buy the car outright (not so common but that's what we did) or need to get for it at trade in to finalise payment.
From someone with a 4 year uni degree – I agree with the tradie thing… hats off to all the tradies on the forum!
My first lease I deliberately got a car with good resale value so I could pay it out, on-sell it for profit and get a new lease. Worked out I'd make around $5k profit. However by the time I renewed registration, needed new tires for roadworthy, and some competition on carsales.com meant I dropped my price by a couple $k I think I made about $1.5k profit. Better than nothing, but not what I was hoping for. I suspect this one we'll just give back at the end.
"need to get for it at trade in to finalise payment."
No, you just hand the keys back and walk away. Then the lease company will on-sell it. Check out any lease companies website and they'll have links to ex-lease cars for sale/auction.
"need to get for it at trade in to finalise payment."
"No, you just hand the keys back and walk away. Then the lease company will on-sell it. Check out any lease companies website and they'll have links to ex-lease cars for sale/auction."
Sorry Bj, you're right. I was using the term 'trade-in' loosely. I mean you need to try and avoid the situation where the car is worth less than the residual when you give it back.novated leasing on a car is not as good as it was last year the government has changed the fbt rates so its more expensive to lease. I looked at it and for a car worth about 45k it was going to be a reduction in take home pay of about 250 to 300 a week. also if you go over the km that you have agreed on the leasing company will charge you more for wear and tare and fuel. so for me not a option atm.
rusty05 wrote:The way I see it, the balloon payment (or residual) is the amount owing at the end of the lease when you either buy the car outright (not so common but that's what we did) or need to get for it at trade in to finalise payment.From someone with a 4 year uni degree – I agree with the tradie thing… hats off to all the tradies on the forum!
or you can take out another lease on it . Have to laugh tho 250 kilometers a week, a lot . Its only 15,000 a year, or was thre a zero left off. A lease can be structured to match the amount you want to pay . I like too make them as long as possible to minimize payments but with no penalty for early pay out, so when bargains come along such as run out sales, I will have a vehicle that when I trade, I can get almost as much as I paid for I when trade up. You should be aware though that if you make a profit after claiming your tax deductions you will have to pay tax on it. So that 1.5k profit would only end up being 1k.
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