JohnJL

Hello all, this is my first post. I've done some searching but can't seem to find the answers to the following question;

What kind of options/terms should I try and negotiate with my employer or set up on my own when obtaining a car.

Here are the details...I am in the midst of negotiating my pay package now for a move in late March. I'll be working for a local subsidiary of my company, based as a 'local' in Sydney. They have offered me LAFHA, which I understand to mean they will basically split housing rental and provide a stipend for food.

I currently drive several sports cars and would like a comperable arrangement in Australia.

What are the community's thoughts on tax-efficient arrangements for cars? Could I lease, drive the car for business purpose and work some kind of deduction?

Can I set aside some salary pre-tax?

What about a "Novated Lease?" I am not familiar with this and I think the company might balk at signing a benefit with the name "Porsche" or "BMW" on it.

Any help is very much appreciated.


Best,
john

surfdude

Sorry to disappoint, most companies offer lease agreements of Ford Falcons or Holden Astras even in very high positions ( $120+). If you want to negotiate to a Porche/BMW you may find yourself with a BMX ! Just take what is offered and buy your own sports car (less tax payable) for personal use.

JohnJL

surfdude,
thanks for the reply, I am interested in what the details of an arranged lease might be. How does a deal like that (ok, lets use your scenario of an Astra) work? How much do I pay, how much does it cost the company, etc.

Thanks all!

surfdude

Hubbie has all the details of his lease, I will ask him in detail tonight and come back to you.

MrsDagboy

Dagboy has a novated lease agreement with his company, we could chose whatever car we wanted. The stipulation being that there was a set amount/month for repayments/fuel etc & over $XXXX purchase price there is a fringe benefits tax component involved & the company would only pay a certain amount. If we wanted a more expensive car then we had to pay for the difference out of his salary. Fringe benefits tax was also dependant on the distance driven during the year, I think 25,000kms was the amount where FBT was minimised.

In our case the car part of the package was worth around $12k/year & we've not had to pay anything, as the small amount of FBT has come out of the novated lease accrual account. However apparently Dagboys employer is strange in that respect & not many other companies do an accrual account!

surfdude

Back again !

The Novated lease is very risky to say the least and I can only comment on hubbies company details and all companies have different regs.

A Novated Lease is a leasing arrangement where employees enter into a standard finance lease agreement for a motor vehicle with the company's approved lease company (Orix). The vehicle is then sub-leased to the company via a 'novation agreement' with the company making lease payments, with these lease payments being effectively funded by the employee on a pre-tax salary sacrifice basis. (so if your salary package was $120K and you wanted a £50k inc road cost BMW you would effectively earn $70K - don't forget the same is applied for your superannuation allowance)

The terms and conditions are set by Orix. Credit approval of lease rest solely with Orix and the employee will be subject to credit analysis (might be hard for a new arrival).

You would be advised to seek professional financial advice in respect to cost and tax effectiveness of the Novated lease.

All employees would receive a monthly report showing details of their salary package lease, fuel, FBT and insurance payments - which must be fully comprehensive (quite expensive here).

There are many examples of terms and conditions - very finite eg no scratches at all on the paint work, no marks on interior when it comes time to hand it back. (Agreement usually 4 years). You annual KM allowance is minimum of 15,000km per year for FBT purposes.

If you are disposed of or leave the company - you are totally responsible for the remainder of the lease, it cannot be broken.

Hubbies co points out that their packages would not go over the 2002 Luxury Tax Threshold inc road costs, as it is tax inefficient for the company. You can acquire vehicles over the Luxury Threshold by electing to receive a vehicle allowance (in leiu of company motor vehicle).


Hubby has opted for a simple 'fringe benefit' system - whereby he has a fully paid vehicle (which is fully owned by his company - so no agreement to follow) inc road costs/fuel for $17k. He is taxed on this alone. He has a very powerful Ford Falcon and travels well over 1000km a week ! So petrol costs alone make this cost/tax effective. He could have opted for a yearly vehicle allowance (thus having £17K extra on his salary - refer above) and used our family car but the mileage he does per week would not prove financially viable.

All FBT info can be found on Aussie tax site - www.ato.gov.au.

Hope I haven't made you fall asleep and the above helps !

MrsDagboy

Hi surfdude, just a couple of points in regards to your post

In your scenario I think the computation would be salary package ($120K) - (cost of car $50k - residual value (usually 33 or 40%) / 4 years (typical lease period). So I think that works out to $112,500 (using 40% residual)? There are other numbers to add to the equation as well (such as running costs, interest etc), but the cost of the vehicle minus the residual (plus the other variables) would be spread over the 4 years, not just one.

You arent obliged to hand the vehicle back at the end of the lease period - you can opt to pay out the residual & then either keep the vehicle or sell it, either by trading it in or selling it privately. Most people find that paying out the residual is alot better financially for them than handing the vehicle back as the vehicle is usually worth more than the residual value after 4 years.

surfdude

I was quoting my hubbies company as stated - these are their terms and conditions - they do have to hand it back. Yes you are quite right the vehicle is spread over the term but a top of the range BMW/Porche wouldn't be far off this per year taking into account road costs/comp insurance/fuel !

MrsDagboy

Hi Surfdude, is that hubbys company that demands they hand it back or the lease company? Either way, it sounds like you aren't as lucky as us, our novated lease (throught Novalease) has been excellent. It runs out in a couple of months time & we are just going to keep the car for a bit longer & cash in the car $ as extra salary.

And, sorry, I thought you meant a car costing $50k total price, not per year, as the BMW 3 series & X3 range start at between $50K & $70K. Yes, the top of the range stuff would cost alot more (cant even comprehend spending that sort of money on a car :scared: ) .

bondipom

Are the leasing companies still overly optimistic in calculating residual values?

MrsDagboy

BP, residual values are usually a set % of purchase price, normally 30 or 40%. Not sure why you think they are optimistic, in our case we paid $36K for a 2001 Pathfinder residual value at 30% is $10,800. Ours has done 79,000kms currently.

Redbook as the following figures for it now

2001 NISSAN PATHFINDER

WX II Wagon ST 4dr Auto 4sp 4x4 3.3i
average kms 85,000 - 105,000
Trade in price guide* $21,000 - $24,400
National average price - private sale* $23,700 - $27,700

Even at 40% residual the payout is only $14,400.

If you can pay off the residual you are usually ahead, most peoples problem is having the cash to do it as a lump sum.

JohnJL

Thanks everyone, very informative.

I went back to my employer and asked about vehicle arrangements. THey said they had forgotten to send my welcome package, which covered this in detail. Anxiously awaiting what those details are...

john

bondipom

Because I used to work for a leasing company whose salesman overset the residual values to reduce the leasing costs. The period was when second cars were dropping in value. The leasing company lost a lot of money. This was back in 98 which is why I ask if it is still the case.