Anyone know much about leasing vs HP tax advantages?
Submitted: Sunday, Oct 03, 2010 at 13:15
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fender22
Looking at buying a new Defender. I have a car allowance and can claim up to around $20k / year. It's my understanding that based on around $50k vehicle, if I lease, with a 30% balloon, I can claim all of the lease payments plus running / maintenance costs. Which from my calc's would be around
$10800 + running costs, but no depreciation.
Hire purchase on the other hand can claim depreciation ($50k * 22%) + interest on repayments which to me with a similar balloon looks like
$11000 depreciation + about $5000 interest. So on the surface of it looks like HP is the bigger claim but lease means probably lower monthly payments? Am I understanding this right?
The other thing concerns me with the lease arrangement is that in the contract, it says you have the option to pay out the vehicle at the end of the lease to buy it, but only if Land rover finance accepts your offer? Is that normal? I would definitely be wanting to pay it out at the end of the lease to own it. That's the great thing to me about buying a defender with a 30% residual is that they hold their value so
well it will be worth much more than the 30% left, so will be win win if I want to sell or trade it and buy another one. Is that standard practice and they always give you the option to pay out the lease and own it or can they just say give the car back and you've made all those payments and have nothing to show for it?
Would appreciate any advice
Reply By: Motherhen - Sunday, Oct 03, 2010 at 14:16
Sunday, Oct 03, 2010 at 14:16
I can only suggest you consult a taxation accountant 'Fender, as the replies you may get here that have suited people here could be very different if used in your circumstances. On your last question, you may be asked to pay more than the vehicle is worth at this stage; depends of market situation.
Motherhen
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Follow Up By: Member - A J- Monday, Oct 04, 2010 at 11:01
Monday, Oct 04, 2010 at 11:01
fender22 - agree with Motherhen 100% - after spending 38 years in the banking world involved with branch banking I was interested to see what answers came.
The final payment is usually determined at the start of the finance arrangements so that the finance company can work out what your repayments are.
With a Lease or Lease purchase as they known the final payment is the residual which is usually set as a percentage of the purchase price.
Most Hire Purchase agreements have a balloon payment at the end to keep down the monthly repayments.
Most finance companies will change the final payment to suit your position as long as the figure is allowed by the taxation dept.
Another point your accountant will consider is your GST position and the possibility of capital gains tax.
A J
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Reply By: Member - The Bushwhackers -NSW - Sunday, Oct 03, 2010 at 14:27
Sunday, Oct 03, 2010 at 14:27
Hi Fender,
I would definately take Motherhen's advice and see an accountant/tax agent.
You would have to calculate what you are paying per month/year in lease payment versus hire purchase and interest. It all gets very complicated, sorta like driving a long way to buy an item $5 cheaper than at the local store, then realising you have wasted $10 on fuel.
Accountant appointment recommended!
Cheers, Dave
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Reply By: Member - Jeff P (SA) - Sunday, Oct 03, 2010 at 15:15
Sunday, Oct 03, 2010 at 15:15
*I agree with the others, have a chat with a tax guy, but the other option to put on the table is, can you salary sacrifice? and if so have a look at a novated lease that covers all repeat all running costs as
well. I have this and it works brilliantly for me, but might not for you. I have no out of pocket expenses at all and a small payout figure after 5 years.
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Reply By: bgreeni - Sunday, Oct 03, 2010 at 16:08
Sunday, Oct 03, 2010 at 16:08
I too have a vehicle with a novated lease. You don't just have to use landrover, there are plenty of companies that do this. I use LeasePlan for my Prado.
Only trap is to make sure you do the minimum kms you nominate or you can face a big Fringe Benefit tax bill. Like others have said - talk to an accountant.
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Reply By: mikehzz - Sunday, Oct 03, 2010 at 18:50
Sunday, Oct 03, 2010 at 18:50
The HP claim is bigger at the start and reduces where the lease stays the same. I have found lease repayments to be not cheap enough to be attractive compared to HP payments considering the residual at the end, but thats just me. The advantages of lease are supposed to be no money up front and constant claim amount. This makes it good for big ticket cars where you are pretty sure you can cover the residual. HP is more complicated to claim and the amount changes each year. They seem to charge you interest on the full amount with a lease, not the difference between the cost and the residual which is rude I think. I know this because I queried what I thought were high lease repayments once. The advice of the others is sound, speak to a pro and I don't mean the dealer or his finance guy. Mike
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Follow Up By: fender22 - Sunday, Oct 03, 2010 at 19:04
Sunday, Oct 03, 2010 at 19:04
Appreciate the advice ta Mike and that all sounds about right. Many thanks
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Reply By: Member - david m2 (SA) - Sunday, Oct 03, 2010 at 23:07
Sunday, Oct 03, 2010 at 23:07
I think you can claim the gst on the purchase price with HP and the gst on each payment with a lease
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Follow Up By: Zenra - Monday, Oct 04, 2010 at 13:53
Monday, Oct 04, 2010 at 13:53
With HP there isn't a claim for the GST, however you can on a 'Chattel mortgage' with the next BAS, if you are registered for GST.
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Reply By: Zenra - Monday, Oct 04, 2010 at 13:50
Monday, Oct 04, 2010 at 13:50
As
well as talking to accountant or like, I would get a couple of samples from
novated lease providers.
At the end of the day, novated leasing is a way of increasing your takehome pay by using your vehicle as a tax deduction.
Most people can not claim a tax deduction for their vehicle, as they use it for personal use, but a novated lease provides that tax deduction in every paypacket.
Look at the actual disposable cash left over between the Novated and the HP option.
Car allowance is not the taxable claim, is a portion of monies that an employer is adding to your TEC for the running of a vehicle, usually because you have a fair proportion of business usage, if you don't use all of it, its taxed.
Typically, the financier of a novated lease, will quote the actual residual as the offer to buy, as they don't have an interest to become motor dealers with 100's or 1000's of cars.
Don't forget, you could always re novate the residual for a further couple of years, to keep getting the tax deduction.
I really have not seen too many scenarios where a novated lease doesn't work, usually expensive cars ( over $150k) and low annual kms.
If you want some example, let me know.
Zenra
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