bingobob777

few questions I'd be grateful for any help on

1. At the end of the agreement period the car has a balloon value, are you required to buy it or can you give it back to the leasing company?

2. The lease comes with 3rd party insurance, from what I can find this is all that's compulsory in Australia, is this correct? Do most people pay for comprehensive anyway?

3. When it says it comes with a fuel card, does that mean that all your fuel is included within the monthly lease amount?

4. Is there anything similar to UK car tax?

Thanks in advance

JAJ

All depends on the terms of the agreement.
http://en.wikipedia.org/wiki/Novated_lease

mark213

1. Yes you can buy it for the valuation they state, or give it back for nothing, or re-novate it for another term

2. All leases require you to have comprehensive insurance as part of the offer in the loan for the lease. Its in the banks interests so its required.

3. Yes all fuel is included if you have a card. The lease company estimate your fuel usage, maintenance, tyres, and have it as part of the overall deductions (including lease fees etc.) and then your fuel card goes to that drawing that down. If use more fuel than estimated, you have to pay the difference (overall not every month). Nothing is free. The only advantage is (depending on how the leasing company as set it up) is that the payments for this are generally pre-tax and you also save the GST on purchases. But check with them - every lease is different.

4. Called registration. This is also included in your deduction allowance (most leases some dont!). You buy the registration, and claim the expense back against the vehicle - you are refunded the amount, and the costs go against the vehicle account.

Most of these questions are answered by the leasing company sales agent - give them a call as they have the facts for your lease

JAJ

Better to read the agreement for yourself rather than rely on advice from sales agent.

paddyo

1. ot too sure about previous response to 1.

At the end of my Novated Lease I have to pay the residual value of the vehicle to the Leasing Company. I do this by selling the car and then paying the money or keeping the car for myself and paying the value to the Leasing Company. I do not have the 'just give it back to them' option.

2. Ref the Insurance, my company has a global fully comp insurance policy and mine comes under that, any excess is covered by the Leasing Company.

3. Yes, up to the agreed amount defined by your mileage usage, I actually have 2 cards which does come in handy.

4. Rego which you can get done at the RTA (or equivalent) and you have to have your Green Slip (Insurance) and Pink Slip (MOT equivalent if required) with you.

Gems

No you cant just hand the vehicle back. Many adverts and companies try to make out that you can.

In fact its your responsibilty to sell the vehicle and pay out the residual, or keep the car and use your saving/loan to pay off the residual.

Some companies may take it back in extreme cases but Ive heard they will put it in an auction. The company will then send you a bill if it sells for less than the residual.

If you get a novated lease make sure you can pay the residual at the end of the term.

Gems

phat-dave

Not entirely correct....

1. There are a number of leasing products available in Australia and one of those is a novated lease. A three way agreement between you, the financier and your employer (whom has no legal obligation). Under the novated lease options there are predominantlytwo options:

- Finance Lease - A finance lease is where you take the residual risk and are obligated to pay the commitment in full by either selling the vehicle, refinancing the vehicle or handing the vehicle back to be disposed of via public auction. Be aware you will be responsible for any shortfall that may occur.

- Operating Lease - An operating lease is more expensive than a finance lease because the financier is completely responsible for the residual position. They speculate on its future value based upon a number of factors such as kilometres driven and history of the model you're considering. They typically have a lower residual thus higher repayment. With an operating lease you are effectly renting the vehicle over the fixed term and have no say in the residual and will not be automatically given an opportunity to purchase it from the financier - this kind of lease you can hand back at the end of the term without any further obligation.

Then there are addon options such as having the vehicle "fully maintained" which may include; servicing, fuel, insurance, registration, tyres etc - this is typically managed by a fleet company and a single deduction is taken from your salary pre-tax. Keep in mind smaller company's may not utilise a fleet company and therefore may only provide the ability to lease the vehicle pre-tax only via internal payroll. Some of the larger fleet company's also may not allow you to use a fully maintained lease for a used vehicle either.

2. It depends on what State you're from too - Most financiers/leasing company's will have a generic fleet policy to cover you and of course, their vehicle. In some States you may be able to negotiate your own coverage through your own insurance company whom you have a relationship. Sometimes taking their own insurance will in fact save you money - particularly if you're under 25 and want a turbo/v8 or may include items like free windsheld replacements etc

3. If you opt for a fully maintained lease then typically yes, it will include a fuel card. It can vary from one leasing company to another - You'll find most of them use the big fuel stations; Caltex, BP, Shell etc. In some cases they may even give you two cards for two different fuel company's which can come in handy if you're travelling.

bingobob777

Thnaks for replies folks, only on a 4 year 457 Visa so don't fancy having the pressure of trying to sell a car at the end of it.

Operating lease may be better, if slightly more expensive option.

paddyo

Bob, the residual value at the end of 4 years will be significantly lower than the market value. You will be able to sell it easily and pay for it and still make some profit, as long as its not some obscure make!
For example, our residual value is 10.5k plus GST, I can sell it easily for between 16-18.5k, thus no issues there! As it is we are going to keep the car and 'buy' a second hand XTrail cheaper than the going rate!

shannonst

Hi Bob,

Paddyo is on the right track.
3 year finance with 46.88% residual, gives a better chance of making a profit on the car, but... what car you choose will make the difference.

In the legal documents of the finance, the vehicle is owned by the financier and at the end of the term, the financier will make you an offer to purchase.
This is usually the residual value (or the loan balance if not residual date), as the banks are not car dealers and don't want to end up with 100's or 1000's of cars waiting around to be sold.

A novated lease;
your choice of car, your choice how far you drive, what tyres your put on, paid from your pay. The condition of the car when you go to sell it, will impact how much profit or loss.
Profit or loss, you are responsible for.(profit is tax free, losses can't be claimed).

An operating lease;
Employer choice of car, set kms to travel for the term of the finance, provider sets maintenance costs and tyre choices and at what timeframes, employer responsible for payments. Car condition at end of term if not normal 'fair wear and tear' will result in a bill for the employer. If car travels over contract kms, again, employer billed. Overall much higher costs
Employee can not profit from the car sale, they can buy the car, from the provider, normally, at market value.

We do a lot of novated leases for people under VISA, the financiers usually state that the term has to be shorter than the VISA. And if something sudden happens and the client leaves the country, we quite often have had to sell the vehicle on the clients behalf.

The whole idea of a novated lease, is to claim your car as a tax deduction and maximise your take home pay.
So a budget should include all costs to run the vehicle for the term of the finance.

Hope this helps you on your path.
A typical novated lease, can create an extra two or three weeks wages per year, into your hands, not the taxman.

Shannons
<snip>

phat-dave

It is highly unlikely albeit not impossible that you will make a "profit" on the disposal of the vehicle. You will typically be better off however given the tax advantages throughout the term of the lease.

An operating lease has nothing to do with an employer provided vehicle nor does it have restrictions such as make and model, kilometres or anything to do with its maintenance costs. The only difference between an operating lease and finance lease is that the financier take the residual position.

However, operating leases are popular with large company's as they may be a "off balance sheet" liability where the only need to account for the expense is on their profit and loss. (Typical of public listed entities)

shannonst

Picking the shorter term and the right car, yes, a profit is possible, agreed, it isn't guaranteed.

Under most operating leases, the employer has rules of what vehicle they will allow, being that they don't want to be left with an orphan vehicle that other employees wont drive.
ie a vw beetle for a construction site manager role might just not work.

For our company, an 'Operating lease' means, a rental contract with the employer, based on the kilometres and term. The rental being for all included costs like finance payments, fuel, rego etcetera. Contract is regardless of the employee, in fact over the term of the contract more than one employee may be the primary user.

In turn for example, if the car needs new tyres, replacement will be the same type as per standard and only x sets allowed over the contract period.
If the vehicle is returned at the end of the term and has travelled outside the contract terms, the employer is liable for the costs.

Operating lease is usually used where the employee should be provided a company paid for vehicle, sales reps, site managers etc.

Back to the good stuff, a novated lease should be beneficial for most people, just ask your fleet provider to provide some full salary scenarios.

phat-dave

A company may have an internal policy of what vehicles they recommend their staff lease however, under a novated operating lease there is no specific vehicle they must choose. We are talking about novated leases here so there is never a possibility of an orphan vehicle because the ultimate responsibility remains with the lessee, ie: you. So if you leave the company, the vehicle comes with you - this is regardless of which novated leasing product you choose.

You are absolutely correct, this in a nut shell is what an operating lease is however we're talking about a novated operating lease.

On a fully maintained novated finance lease the fleet company makes a calculated guess based upon the kilometres you will travel to anticipate what the running costs may be. If however you go over the allocated maintenaince fund, you will be required to "top it up".

Now if we use a fully maintained novated operating lease all the costs are completely fixed. If you use more tyres than anticipated or fuel spikes from $1.30 litre to $2.00 litre or whatever increase in expenses, this is completely worn by the financier. It is true there is an excess kilometre penalty for kilometres driven past the initial allowance (anywhere up to 0.20c/km).

The novated operating lease is for anyone whom wishes to have a brand new vehicle for a nominated period with no additional outlays, regardless of occupation.