Novated Leases Pitfalls

Just taken delivery of my Navara under a novated lease by LeasePlan. I calculated average kilometage ? over last 5 years and that average out over 15,000kms.

For me the trickey bit is the FBT that has to be paid (by me). Upto 14999kms its 48.5% over 15,000 its 20%, over 25,000 its 11%. So under 15 its not worth it, 15 and its a goer, if I slip over 24 woo hoo.

I said I would do 17,000 so they budgetted 2600 for fuel for the year, if the estimated cost of fuel goes up then that gets reconciled at the end of lease. Likewise if it goes down (hahahaha) or U don't do the 17,000 theres an adjustment, Any ho I figure I'm getting pretax dollars to buy fuel etc and then pay back 20%FBT so I saving 22% or if I get over 25 then another 9% less.

Any kms travelled over 17,000 I pay .33 (cents per km)

As far as there term of leasing I went for 5 years to amortise the cost per month, at the end I have to coff up $14,400 plus GST and any reconciliation amount. If i like the car I keep it or hand it back and they sell it. I haven't seen a 5yo Navara for $15,000 have you?

Fuels cards don't care use Caltex and BP anyhow, with effectively 22% discount ontop of the the fuel card discount its pretty cheap.

Have I answered your questions.
Russell

I live in a regional area and like you the leasing company push Caltex, and like you I find Caltex (or ampol) are never around when you need them. So I asked the lease company and they said I could also get a BP and Mobil card for nothing. So I now carry all three.

Remember though that your lease company should have provision for you to claim back cash expenses, so you could do that. One friend of mine normally uses supermarket fuel dockets and pays cash for the fuel then claims it back. It is more hassle but he believes he winds up saving money.

Another issue you may have is vehicle servicing. If you are living in regional areas you may find the preferred servicing agent is not available (or no good !). You need to find out how the leasing company deals with that.

When the vehicle is purchased, the leasing company may try and purchase from a dealer of their choice then charge you to freight the vehicle to you. This could be a significant cost depending where you live in Australia.

Be wary of the interest rate the leasing company charges. Also, be wary if the leasing company demands you use their insurance company. I have seen cases where the leasing companies insurance is twice what you can get it for privately.

A final trick you can use is to buy/lease a second hand vehicle only a couple of years old. That way you still have plenty of years to lease the vehicle (max age is 7 years) but the capatial price on which FBT is calculated is a lot less. My current lease vehicle was 2 years old when I got it and I paid about half the new price for it. IMHO, at the moment the main benefit of the lease vehicle is that you can pay for the running costs, ie fuel, pretax.

Just a quick first pass at your enquiry;

Many companies providing leasing sevices have fuel deals with the majors so you end up paying less than the published pump price.

You'll usually benefit from their purchasing power when sourcing a vehicle.

If you are salary sacrificing the lease payments than it would be better to under estimate the kilometres, as if you do not do the required kilometres to keep you in the FBT bracket you will end up paying a higher tax rate. As far as I am aware this will be post tax (I'll stand corected on this!).

You would normally have some flexibility in deciding what residual value you want, however with the way second hand vehicle prices are oing you may not cover the residual value.

I have a VZ Commodore wagon with a residual of around $12,000 from memory with around 18 months to go - I reckon that will be line ball whn the time comes..

In summary you need to be doing the kilometres to make salary sacificing working these days.....others might have some thoughts on this.

I thought any Navara shouldnt attract FBT.
Utes whatever form are FBT free
Its part of the reason crew cabs are so popular as Salary sacrifice cars
JR

Andrew,

Having been throught this myself, back when I was an employee, I found it far more beneficial to do my own lease/chattel mortgage arrangement.

On the vehicle I wanted at the time, Custom Fleet quoted me $21,000 out of my salary each year. I did it for $13,000. Sure, I had to keep a log book for 3 months and keep all receipts, but I was well ahead.

Fleet companies don'tg do leasing out of ther goodness of their heart, they are a business after all.

Talk to your accountant.

Regards,

Jim.

Hows it going Andrew,

I have had a few cars on leases , with few problems.

It is attractive to go for higher km quotes to reduce FBT but you can get caught out if you do not make it into the braket.

Try to pick a vehicle with the least chance of depreciating that will suit your needs.

Best lease car deal for me was a Suzuki swift for the Mrs , sold when 2yrs old with factory warranty, The extra cash we got drove the weekly cost to below the running cost of the bleep ebox falcon she was driving.

Had a different vehicle on higher km over 3yrs and had a bit of trouble getting rid of it after.

It costs nothing to get quotes so get a few and work out what is best for you.

Glenn.

Another thing to watch is that not all lease companies are equal. The one available where I work is VERY expensive.
Looked into a novated lease on a Pajero a couple of years ago found that they charged over 16% interest (rates were much lower then) plus large setup fees, annual administration fees and monthly administration fees. When I worked it out there was NO saving over buying vehicle outright and forget tax benefits. Friend who works for another organisation has leased vehicles at the same time at 10% interest, minimal setup fees and no ongoing fees. For him the benefits were really good.
Make sure you check ALL the figures first.

Alan

Hi Andrew,

If you haven't yet done so, i'd recommend a review of the ATO website which has a very good summary of novated leases.

One thing not mentioned is that the FBT taxable value can be reduced by offsetting expenses paid from post tax $. Depending on your circumstances and other tax deductions you could well find that tax paid on post tax $ is lower than FBT, which is currently 45c/$. Even taking into account GST credits, etc I find this saves me ~ $1000 pa. I am lucky in that my NL is managed by the company's acct dept, so they don't mind doing this. You would need to check on this option if considering a fully maintained lease.

Regards,
Hugh