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Car Allowance Vs Novated Lease

Car Allowance Vs Novated Lease

Old Nov 24th 2005, 7:25 am
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Default Car Allowance Vs Novated Lease

Just negotiated a company car with my employer

I have the choice of doing a novated lease with their recommended company or taking the money as a car allowance - (which I believe allows me free to do what I want with it?).

Just wondering if anyone was aware of the tax implications of the options - or could anyone point in the right durection??? (Just of to look at the ATO site - but sometimes I find these things a bit complicated )
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Old Nov 24th 2005, 7:51 am
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Default Re: Car Allowance Vs Novated Lease

Originally Posted by SarahandOli
Just negotiated a company car with my employer

I have the choice of doing a novated lease with their recommended company or taking the money as a car allowance - (which I believe allows me free to do what I want with it?).

Just wondering if anyone was aware of the tax implications of the options - or could anyone point in the right durection??? (Just of to look at the ATO site - but sometimes I find these things a bit complicated )
Hi

Without going into masses of detail, as there is alot of implications the basics are;

Under a novated lease the company will deal with most of the paperwork, Fringe benefit tax implications etc. Watch out with Novated leases for implications on leaving the company, the lease will normally continue to be your responsibility (at least at the company I worked for if the employee left it was their car - their responsibility). Also be very aware of how much FBT there is (my company packaged the expense into peoples overall package). One persons liability was about $10k under one method and less than $2k under another. This method however required her keeping detailed mileage information. Other thing about using their company you may not get the 'best' financing deal available. (Note, I have not worked in Aus as an accountant for 3 years so the FBT rules would need to be checked)

Under a car allowance the paperwork implications are essentially on you. Don't keep accurate records of your expenses / mileage etc the ATO will deem the car allowance income, and therefore liable to normal income tax. This is regardless of whether you actually used your car for business - if you can't prove it with records they tax you. Also, if you have a car allowance you can choose how to finance your car, looking for the best rate or deal available. You can also change your car at your discretion, without the implications of breaking your novated lease.

Anyway, just some thoughts.
Abby
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Old Nov 24th 2005, 7:57 am
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Default Re: Car Allowance Vs Novated Lease

I had novated lease quotes from the leasing company that my employer forced us to use ( I work for global US IT company here in Aus)

The novated lease uses forced government depreciation/residual figures which are not aggressive - this means you have to pay off a high percentage of the value of the car in the leaseperiod. You also have to pay fees for the leasing company etc. In the end it worked out something like 1500$ / mth for a 30,000$ used car doing 15k kms pa - its a shed load cheaper to finance that car on normal finance.

A new 60k$ car was something like 3k$ per month these are after taking into account the taxation benefit.

If you google novated lease you'll find lots of aussie on-line calculators to work ou twhat cars would cost you. Beware of being tied into a lease for a long time and not being able to break it.
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Old Nov 24th 2005, 7:59 am
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Default Re: Car Allowance Vs Novated Lease

Hi,

I have a novated lease through my company and agree with Abby, the FBT can be a bummer, you have to advise what mileage you will do in a year and then pay the bracket of FBT to do that. I like the novated lease as it's a good tax decution for me and I don't have to worry about any expense for the car as it is all included in the lease payment that I agree with the company and also I get to choose what residual I wish to have if any at the end of term. I agree a budget a month for fuel, sevice etc and pay accordingly

So far I have a credit balance and for me it's like having a we savings account that i will get back at the end of the lease. The interest is less than a loan too. I used www.nlc.com

PM me if you wish to get any more info.

C x

Last edited by Carrianne; Nov 24th 2005 at 8:02 am.
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Old Nov 24th 2005, 10:24 am
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Default Re: Car Allowance Vs Novated Lease

Originally Posted by spalen
In the end it worked out something like 1500$ / mth for a 30,000$ used car doing 15k kms pa - its a shed load cheaper to finance that car on normal finance.

A new 60k$ car was something like 3k$ per month these are after taking into account the taxation benefit.
We just got a quote for our new car today - $42K, 35% residual, lease payment of $847/month.
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Old Nov 24th 2005, 10:32 am
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Default Re: Car Allowance Vs Novated Lease

Originally Posted by MrsDagboy
We just got a quote for our new car today - $42K, 35% residual, lease payment of $847/month.
Shows how crappy my lease company were!. I new they were expensive thats why I ended up buying my own. They have monopoly for all employees of my (big) company in Aus.
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Old Nov 24th 2005, 11:00 am
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Default Re: Car Allowance Vs Novated Lease

Thanks for the replies - has been a great help getting my brain around some of this!

My company uses leaseplan - not sure how good they are, but have been rummaging around the site and I think i understand how this lease thing works now! MUCH more complicated and very different to how things were with my UK company car!

I have done a few calculations and I am not certain that this will be that great for me from a tax perspective as a) i will be doing under 15000k per year and b) I have quite a large LAFHA allowance, so my that keeps my tax rate lower ...... I still need to do some more sums!

I am also worried about what happens if we leave aus during the term of the lease (quite feasible) as it seems that you have still got some sort of liability for an early termination - but it doesn't say how much!
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Old Nov 24th 2005, 11:45 am
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Default Re: Car Allowance Vs Novated Lease

Originally Posted by SarahandOli
...I have done a few calculations and I am not certain that this will be that great for me from a tax perspective as a) i will be doing under 15000k per year and b) I have quite a large LAFHA allowance, so my that keeps my tax rate lower ...... I still need to do some more sums!

I am also worried about what happens if we leave aus during the term of the lease (quite feasible) as it seems that you have still got some sort of liability for an early termination - but it doesn't say how much!
From those two snipppets (no great tax incentiive and you might move away) I would say the best would be to take the allowance. You can still get some tax breaks i believe if you keep log books etc and record a typical usage pattern.

Mine will only be worth continuing with because I will be over the 25,000 km level, which brings the FBT down a fair bit.

Cheers,

DagBoy
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Old Nov 24th 2005, 12:27 pm
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Default Re: Car Allowance Vs Novated Lease

Have you considered that Aussie favourite, the ute (pickup truck for those still in Blighty)? These can be FBT exempt.

Got kids? no worries, go with the crew cab option (a 4 door ute)
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Old Nov 25th 2005, 10:33 pm
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Default Re: Car Allowance Vs Novated Lease

Originally Posted by DagBoy
From those two snipppets (no great tax incentiive and you might move away) I would say the best would be to take the allowance. You can still get some tax breaks i believe if you keep log books etc and record a typical usage pattern.

Mine will only be worth continuing with because I will be over the 25,000 km level, which brings the FBT down a fair bit.

Cheers,

DagBoy
on limited info supplied i agree, take the money...

but why not get proffesional advice and contact an aussie accountant
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Old Nov 26th 2005, 6:48 am
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Default Re: Car Allowance Vs Novated Lease

and if your spouse earns under AUD60,000, you can opt for associate lease.
Spouse 'owns' car, leases it to your employer, who lease it to you. You get tax benefit (paying for car out of pre-tax salary) partner gets the lease payments...very wierd but very tax efficient and it is your car at the end of the lease with no residual payout required by the leasing co (as it is your spouse)
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