Novated Lease "TAX" Changes effective immediately.

[gtfpv]

the budget has changed the novated lease arrangements, on all new novated lease car contracts effective immediately after the may 10 federal budget .
this allows a flat 20% FBT regardless of distance travelled . however the golden rule for TAX EFFECTIVENESS worthwile of novated leases up to this date was ," it's not worth doing unless you travel atleast 25000km/pa" , which will give you AN FBT OF 11%/pa .
this is the reason most people who have ever utilised novated leasing do high kms in travel . most people i think dont bother leasing , if they do under 25000km because the current 20% tax rate applies which makes any benifits minimal.
DO YOU THINK THE GOVT HAS KILLED OFF FRINGE BENIFIT INCENTIVES which will destroy novated leasing ? or do you think people will still take up leases anyway , because there is still a small benifit , which will apply to a wider range of paeople ?
the only ones that are better off are the people who will take up a novated lease , who travel less than 15000km/pa . in this case the FBT, tax rate will reduce from 26% pa to 20%pa . but like i said . the only ones i think that were accessing novated leasing were people doing over 25000km @11% or 40000km @7% .
here is the link that explains the changes .
what do you think . ???? i think they have ruined it , and will lose many fleet sales, is it will become more expensive overall to lease a car , therefore it will hurt the industry , in car sales ,and the economy respectively .
what do you guys think about this ?????
http://www.nlc.com.au/2011-federal-budget/

[john3136]

I think there is still some benefit.
If I recall correctly (over 10 yrs sincs I had a N.L.)
- all payments come out of your salary before tax, so it lowers your taxable income.
- all running costs (including services) can be part of the package.
- all accessories you buy during the life of the lease can be part of the package.

I guess you'd probably have to run some numbers to see how worthwhile it is.
(and check the rules and regs. yourself. I might have it completely wrong...)

[bobthebilda]

As long as your tax rate you currently fall in, is higher than the 20% fringe benefit tax rate, then you should still be in front.

Altho i did look into it a few years ago, and with some of the "mark up" the lease companies put into the leasing plan, there was marginal benefit between leasing and buying (after borrowing money from bank). Probably very little point now.

[gtfpv]

agree with above statements . but what about the market in general . a lot of people were turning over cars every 2 or 3 years which was good for the car market , and the 2nd hand ca r market . sales may drop off , or worse , it could be the demise of the falcon . just assuming , but i thought holden and ford had a huge chunk of new car sales to fleet buyers. wether this is due to operating leases versus novated leases i guess is the question . but i'm sure novated leases had still i big chunk of new car sales and turnover .
overall it means cars are becoming less affordable , which will see people maybe changing from leasing , to buying smaller imports , or buying 2nd hand .

[blueoval]

I'm right on the verge of looking at leasing now.

I do about 20,000-25,000km per year. Looking to finance it through my business for 3 years. Second hand vehicle of about $27-30k.

Im assuming I will fall under the blanket 20% rule based on the above criteria. Can anyone offer any more advice on whats best?

[bobthebilda]

Originally Posted by gtfpv

agree with above statements . but what about the market in general . a lot of people were turning over cars every 2 or 3 years which was good for the car market , and the 2nd hand car market . sales may drop off , or worse , it could be the demise of the falcon . just assuming , but i thought holden and ford had a huge chunk of new car sales to fleet buyers. wether this is due to operating leases versus novated leases i guess is the question . but i'm sure novated leases had still i big chunk of new car sales and turnover .
overall it means cars are becoming less affordable , which will see people maybe changing from leasing , to buying smaller imports , or buying 2nd hand .

I think commodore leasees stopped the 2 yearly turnover of cars by themselves. No point in leasing a VE in 2006, another in 2008, and then another in 2010, only to realise you are $70000 out of pocket and have basically ended up with the same car. Surely in this day and age, no one is dumb enough to go and pay a new car lease rate on a 5 year old car.

[Mr Hardware]

You are aware there's already an existing active thread on the topic
http://www.fordforums.com.au/showthread.php?t=11327818
this thread is essentially a duplicate

[gtfpv]

Originally Posted by blueoval

I'm right on the verge of looking at leasing now.

I do about 20,000-25,000km per year. Looking to finance it through my business for 3 years. Second hand vehicle of about $27-30k.

Im assuming I will fall under the blanket 20% rule based on the above criteria. Can anyone offer any more advice on whats best?

lokk at 20-25 k . there is no change for you . its was and will be 20% FBT. the advice i would've given you was tell them your doing 25000km p/yr , and stretch it to 25k , much cheaper , however now that doesnt apply . 2nd hand vehicles are given a premium interest rate over brand new . by lease companies . they dont disclose this to you . but could cost you $10 p/wk . eg new car for 30k versus 2nd hand for 30k difference per week , 2nd hand car 10 bucks more .
another thing to consider . a new car has GST . SO if you buy a 33 000 car from a dealer , your price will be 30 000 . if you buy private for 33000 , you'll pay 33 000.
business leasing is much better than novated leasing . see an accountant .

[GT0132]

Originally Posted by bobthebilda

As long as your tax rate you currently fall in, is higher than the 20% fringe benefit tax rate, then you should still be in front.

Altho i did look into it a few years ago, and with some of the "mark up" the lease companies put into the leasing plan, there was marginal benefit between leasing and buying (after borrowing money from bank). Probably very little point now.

The FBT tax rate is 46.5% , not 20......The 20 is the percentage of the vehicles base value used to determine the amount on which the 46.5% tax rate applies (after being grossed up by around a factor of 2).

So if the value of the car is $50,000 your FBT is calculated as

$50,000 x 20% x 2 x 0.465 = $9,300 p.a

The benefit is calculated as the saving you make by paying car running expenses and lease payments in pre tax dollars versus post tax dollars compared to the cost of the FBT.

The FBT itself would be paid out pre tax dollars as a salary sacrifice , so a net cost to the employee of $9,300 x 0.465 = $4,976 is he is on the toop marginal rax rate , or earns over $180k p.a net of the salary sacrificed amount

[gtfpv]

Originally Posted by GT0132

The FBT tax rate is 46.5% , not 20......The 20 is the percentage of the vehicles base value used to determine the amount on which the 46.5% tax rate applies (after being grossed up by around a factor of 2).

So if the value of the car is $50,000 your FBT is calculated as

$50,000 x 20% x 2 x 0.465 = $9,300 p.a

The benefit is calculated as the saving you make by paying car running expenses and lease payments in pre tax dollars versus post tax dollars compared to the cost of the FBT.

The FBT itself would be paid out pre tax dollars as a salary sacrifice , so a net cost to the employee of $9,300 x 0.465 = $4,976 is he is on the toop marginal rax rate , or earns over $180k p.a net of the salary sacrificed amount

i'm in 37% tax rate , and my vehicle value 31500 at 32000km ppa , including all maint etc . has a net cost of $12532 pa x 3 yrs. i dont get it . and at the end i pay 47% residual balloon . thats @ 11% FBT.

[blueoval]

Originally Posted by gtfpv

lokk at 20-25 k . there is no change for you . its was and will be 20% FBT. the advice i would've given you was tell them your doing 25000km p/yr , and stretch it to 25k , much cheaper , however now that doesnt apply . 2nd hand vehicles are given a premium interest rate over brand new . by lease companies . they dont disclose this to you . but could cost you $10 p/wk . eg new car for 30k versus 2nd hand for 30k difference per week , 2nd hand car 10 bucks more .
another thing to consider . a new car has GST . SO if you buy a 33 000 car from a dealer , your price will be 30 000 . if you buy private for 33000 , you'll pay 33 000.
business leasing is much better than novated leasing . see an accountant .

Interesting info there mate. I had no idea the finance companies charge more for second hand cars. Sounds like its better to go brand new for maximum savings over second hand.

[gtfpv]

Originally Posted by blueoval

Interesting info there mate. I had no idea the finance companies charge more for second hand cars. Sounds like its better to go brand new for maximum savings over second hand.

YES , it was origionally designed to benifit people who travel long distances for work , as these people turnover cars more often , but it helped out turnover for new cars , and kept people from buying old bombs and doing high kms . was good for the economy . and definately emphasis on new vehicles , this is why most leased cars are brand new .
2ndly tax exemptions are better on new cars , everyone gets a slice of the action, companies, the employee , the petrol suppliers, the finance, the parts and maintenance turnover , the fleet company . the fleet company gets a cut off the sale of a new car , if the buyer buys he own car , they miss that sale , hence the upped interest rate on a 2nd hand car . i worked this out myself with different quotes and talked to relevent people which confirmed this . . anyhow . it was good for employment , with the actual owner getting the least benifit with all the risk . of course the governmet targeted the owner , which will rub off and have a flow on effect through businesses.

[GT0132]

Originally Posted by gtfpv

i'm in 37% tax rate , and my vehicle value 31500 at 32000km ppa , including all maint etc . has a net cost of $12532 pa x 3 yrs. i dont get it . and at the end i pay 47% residual balloon . thats @ 11% FBT.

Ok, so the FBT component of your salary sacrifice goes up by $2,637 net ($4,186 gross @ 37%) assuming this budget change affects existing leases as well as new ones.

[Dave3911]

Originally Posted by GT0132

Ok, so the FBT component of your salary sacrifice goes up by $2,637 net ($4,186 gross @ 37%) assuming this budget change affects existing leases as well as new ones.

It doesn't. Existing leases remain at the current arrangement until their conclusion. Even if it did apply, the new arrangements are stepped in over the next 3 years.

Summary from my leasing provider http://www.nlc.com.au/2011-federal-budget/

[jpd80]

For those that genuinely do lots of work related mileage, what's to stop you leasing
but using log book method and getting a 221D variation on taxation and getting your
money tax free to make work related payment portions of the vehicle's costs.

I'm now thinking this is the best and fairest way for people who actually use their vehicles for work,
I know a lot of people with novated leases that use it solely to drive from home to work and back,
they're the ones the government is targeting but genuine people are going to get caught up in this...

[Matty4]

I find it rather amusing that me, being a Federal Gov't employee and them allowing me to salary sacifice a novated lease, is now targeting its' own employees and penalising them. I currently am in the 11% FBT bracket utilising the employee contribution method.
At this stage all I can see is that my post tax contributions will almost double, making the sums on doing it again look less attractive.

[b0son]

Originally Posted by gtfpv

DO YOU THINK THE GOVT HAS KILLED OFF FRINGE BENIFIT INCENTIVES which will destroy novated leasing ?

i hope so. I never saw the logic in allowing people to effectively deduct a private asset as if it were being used for work.

[gtfpv]

Originally Posted by b0son

i hope so. I never saw the logic in allowing people to effectively deduct a private asset as if it were being used for work.

thats a little contradictive , for a start a big company has to introoduce this facility to its full time employees , if they take up the offer , then the employee is responsible for the car , the finance, the maintenence, and has to buy the vehicle at the end of the lease , why wouldnt he drive the vehicle to work , at least 5 days a week . , 2ndly abn owners can do it with a car they drive to work , managers get company cars , what is wrong with a company writing off an employee lease car , and giving some benifit to the said employee ? this stops an employee from seeking other employment outside the industry , employs mechanics to maintain the car , as your not allowed to work on the car yourself,keeps car manufacturers selling higher numbers of new cars . over all it creates more employment across many industries , allows banks to secure finance in term of a contract at very high interest rates , up to 14 % which in turn allows savers to invest in a bank fund at high interest around 8% .
in reality it stops people having a family car less than 5 years old and a 15 year old car for work , so allows 2 recent model family cars in the one family , puts lots of highly depreciated 2nd hand late model cars out there for sale for the private bargain hunters who want a good 2 or 3 year old car for 1/2 price of new .
the cake goes a very long way my friend .
but your entitled to your opinion .

[jpd80]

I think 20% FBT is reasonable, those people doing closer to 90% business use
should be using the Log book method and those employees using notated leases
for cars that do little if any business use should thank their lucky stars.

I can't believe how many people just blindly take up novated leases without
checking what the effective interest rate is and how much services and petrol are
actually being charged at. If you doing it just to avoid paying 40% tax, just be sure that
you aren't giving a lot more away than you should be...

[gtfpv]

Originally Posted by jpd80

I think 20% FBT is reasonable, those people doing closer to 90% business use
should be using the Log book method and those employees using notated leases
for cars that do little if any business use should thank their lucky stars.

disagree . completely mate . for my circumstances that is . before my employer signed up to novated leasing , i had no right to lease a car as an employee , therefore it wasnt my decision , the employer offered it , and i took it up . no way would i have went out and bought a new car , i was driving around in an el futura 13 years old , which i'd had on LPG for 6 years and did over 200 000kms in that time . the car had over 400 000kms on it . and i needed to update , i was going to spend about 10 to 15k on another lpg 4 or 5 year old car , and run it again on lpg and do all the work and maintenance myself , when my employer offered me a novated lease deal where i could sacrifice a lease vehicle new . at 1st i thought no . but after looking into it it wasnt much dearer than my plan , so i thought ,, why not , it wont just benifit me , but also keep many employed .
you work for ford dont you . do you fancy a few more production day down times , as i wont now be renewing a lease deal , i'll go back to private 2nd hand ownership , or cheaper hyundi I20 DEALS .
MANY OF US OUT THERE will also do the same .

[Matty4]

Originally Posted by jpd80

I think 20% FBT is reasonable, those people doing closer to 90% business use
should be using the Log book method and those employees using notated leases
for cars that do little if any business use should thank their lucky stars.

I can't believe how many people just blindly take up novated leases without
checking what the effective interest rate is and how much services and petrol are
actually being charged at. If you doing it just to avoid paying 40% tax, just be sure that
you aren't giving a lot more away than you should be...

I still need a car to get to my place of employment to make a living, just like those who are self-employed or those who need a vehicle for travel as part of their employment . Why shouldn't I be able to either claim a vehicle as an expense or gain a tax break?

My cash is currently earning me more than what my interest is on my lease.
Petrol is as per pump prices less GST, servicing is as per the manufacturers recommendations and I can choose where I have it serviced and how much I pay. I'm certainly not paying more than I should be, and I doubt others are either.

[b0son]

Originally Posted by gtfpv

why wouldnt he drive the vehicle to work , at least 5 days a week

what does driving it to work have anything to do with it? you cant claim that as work-related travel, only the trips you make once you're at work.

2ndly abn owners can do it with a car they drive to work

because their base of employment is often their home office. if they have an office elsewhere, then the trip from home to that office isnt deductible.

the cake goes a very long way my friend .

and by effectively giving a tax deduction to someone for something they wouldnt otherwise be entitled to claim, they reduce the government's tax take, which reduces the level of spending on services/infrastructure that we expect the government to make.

so you cant have your cake and eat it too.

[b0son]

Originally Posted by Matty4

I still need a car to get to my place of employment to make a living, just like those who are self-employed or those who need a vehicle for travel as part of their employment . Why shouldn't I be able to either claim a vehicle as an expense or gain a tax break?

in that case, why should this perk only be restricted to someone whose employer can provide it?

salary sacrifice is inherently unfair because it isnt available to all... eg. if my employer runs a daycare, i can effectively deduct my childcare expenses. use an independent childcare centre, no deduction.

that's fair?

a fair tax system treats people as equally as possible, not discriminate against employees who dont work for a big corporation.

[gtfpv]

Originally Posted by b0son

in that case, why should this perk only be restricted to someone whose employer can provide it?

salary sacrifice is inherently unfair because it isnt available to all... eg. if my employer runs a daycare, i can effectively deduct my childcare expenses. use an independent childcare centre, no deduction.

that's fair?

a fair tax system treats people as equally as possible, not discriminate against employees who dont work for a big corporation.

i also agree with what you are saying . why should it be up to the company? if one company offers it . all should . other wise it isnt fair .

[jpd80]

Originally Posted by Matty4

I still need a car to get to my place of employment to make a living, just like those who are self-employed or those who need a vehicle for travel as part of their employment . Why shouldn't I be able to either claim a vehicle as an expense or gain a tax break?

I'll explain,
My company wanted to offer me a novated lease, my business usage is at or over 90%
and generally, I was allocated a pool vehicle, Non FBT diesel ranger Ute but because
I already had a good salary there was maybe room for a $5K increase for a Nov lease.

You can see that immediately, I was going to go bloody backwards in a big way.
So I said no thanks, I'll have a new pool non-FBT vehicle for work and some incidental use.

Two and a half years later, My FG Ute has near 50,000 km on the clock,
I still have my good salary and the company pays for all vehicle expenses.

What I'm saying is, do your sums and see what the company will offer and if you do
have a high business usage, talk to them about an non-FBT vehicle, it's much better.

My cash is currently earning me more than what my interest is on my lease.
Petrol is as per pump prices less GST, servicing is as per the manufacturers recommendations and I can choose where I have it serviced and how much I pay. I'm certainly not paying more than I should be, and I doubt others are either.

Good for you but I think I'm way better off as I explained above...

[SB.1]

Originally Posted by b0son

in that case, why should this perk only be restricted to someone whose employer can provide it?

all employers can provide novated leases. Many chose not to because of either a ) a lack of understanding of how it works or b) not wanting to deal with the administration. But these days there are plenty of salary packaging companies out there who will handle the whole thing on the employer's behalf and charge the employee an admin fee.

[SB.1]

The "if you don't do 25,000 kms then it is not worth it is one of the biggest myths going around". The 20% applies to the base value (essentially the GST inclusive cost) of the vehicle. If you choose a cheaper vehicle, or second hand vehicle then you can still come out much better off than buying the car yourself. You still get all of the running costs out of your pre-tax.

The other thing most people are not aware of is that you get to keep the surplus of your sale price over your residual and you get that tax free. This makes shorter term leases very attractive especially where you are buying second hand.

I have mainly done 1 year leases in the past (as you get a 65% residual). So if I buy a $20K 2 year old Berlina, I only owe $13K on it in 1 year's time. If I sell it for $16K I pocket the $3K tax free. That $3K will pay for a significant proportion of the following year's lease payments (after tax) on a replacement vehicle.

Additionally the 20% FBT is only based on $20K (so $4K), so I'm a lot better off than the bozo who paid $40K for one new on a 3 year lease and is still paying FBT on $40K (20% = $8K) on the exact same vehicle in Year 3.

Still lots to be had out of novated leasing, you just need to be clever about it and get good advice from an accountant.

[GT0132]

Originally Posted by b0son

i hope so. I never saw the logic in allowing people to effectively deduct a private asset as if it were being used for work.

Totally agree with this

[Bearman]

A novated lease is not a "one size fits all" thing, it works well for some and not for others.

I tried it a few years ago as at the time it put me in front (not by much but still worth doing) but a change of circumstances put the kybosh on that. This involved being reassigned to another work area which meant being taken off shiftwork, the result being a $15K per year pay cut!! As a result I simply couldn't afford to continue with the lease so I had to bail out and god damn, did that sting!!

I wouldn't do it again, I reckon the gains are just not worthwhile but that is just my particular situation. For others it's a great thing.

As someone else has mentioned - see an accountant. You will get the best advice for your particular situation.

[b0son]

Originally Posted by SB.1

all employers can provide novated leases. Many chose not to because of either a ) a lack of understanding of how it works or b) not wanting to deal with the administration. But these days there are plenty of salary packaging companies out there who will handle the whole thing on the employer's behalf and charge the employee an admin fee.

i've yet to hear of one that does the whole thing. there's always some extra admin work required of the employer.

IMO, it would be far simpler if we just allowed workers to claim the cost of travel to and from work. bear in mind, in many states, this trip is already classed as a work trip by workers compensation.