freebo

Hi,
When I start my new job I have the opportunity to Salary Package or not. The packaging company will charge me 3.5% of my gross income and in return I get to package a number of items, the biggest being a car.

Has anyone looked at the cost/benefit of doing this as opposed to buying the car in cash, it looks to me like it might not stack up. The (example) figures I'm looks at are roughly...

New car cost = $32,000

Monthly lease payments = 24 x $1100 = $26,400 + Final payment of $18,000 = $44,000

I know the lease payments are made out of untaxed income but there is a Fringe benefit tax to consider, based on milage.

Its looking a lot like if I have the cash I should just buy in cash, this is of course almost always the case but before working it out I was attracted by the tax saving, am I missing something?

ozzieeagle

Not one Health Professional that I know or off at the Royal Melbourne Hospital has taken advantage of buying a car under salary sacrifice even though that option is open to them. Seems it's dearer than actually buying one cash, because of Mileage reasons perhaps ? It could be that the sacrifice available is seen as better value on a Mortgage or Groceries (credit card)

If thats not the reason then I dont know why they arent buying them. Wanted to find someone that had bought one and see their response to the running before jumping ourselves. Still waiting 4 years later.

renth

They offer this at my workplace. Our staff website says that if you can afford to buy the car outright for cash then it's always a better option than salary sacrificing.

I think the main disadvantage to salary sacrificing is the fringe benefits tax which is scaled to how many Ks you do. I've heard loads of stories of people making pointless trips in their cars to get into the next, lower band.

Don't forget, you are also paying interest on the loan that is buying the car.

ozzieeagle

We would be lucky to do 12,000 K's a year and thats with a holiday trip or two thrown in.

Probably only drive 150 k's a week tops.

freebo

Thanks guys, I rekon I'd get into the 2nd band 15-25,000km but I'm thinking its probably not worth it and I'm better paying cash. I'm not in heathcare so can't sacrifice much other than the car.

It looks like the whole idea of packaging may not work for me and I can save my 3.5%

paularn

I just started working with Queensland Health and during orientation we had someone come in to talk to us about salary packaging and leasing a car, paying bills, saving for a holiday etc. Of course they wanted you to sign up on the spot, also telling us that someone would ring to discuss. I signed up, just because I thought if I decided to do it, that part would already be done.

I took home the information and my husband and I looked at the example they gave and worked out that they blew the figures out to make it look good. We worked out what it would be like on my pay and I would not be saving myself very much, so I opted not to go with salary sacrificing.

Its a great concept - if used to be an advantage to you. To me - it wasn't. So I do wonder how many people actually do it.

slipshot

We looked at for my company. Nice idea in principle but low k's make it crazy. Live in Bendigo and drive to Melbourne every day. Would work well.

Anything less as it's a waste given the FBT

ozzieeagle

Whooaaa hold your horses on that one. Everyone and I mean every single Nurse at the RMH uses it to pay their mortgage or credit card. Discuss it with your peers. All of them use the Meals and Entertainment card as well. I mean you do get takeaway and eat in restaurants surely ? We use 150 bucks per fortnight on the meals and entertainment card, that would save us at least 60 to 70 dollars per fortnight in tax.... IE one 3rd cheaper.... if you think you would only use 100 bucks per fortnight then you can opt for that, which would save you around 33 bucks in tax.


Seems to be a massive difference in what you can save on a Mortgage, Credit Card, Holiday or Meals, v a Car. If your only renting then pay the rent with your credit card and claim against that.

freebo

Yes, as non-heathcare all I can package is a car, laptop, phone etc If I could do rent/mortgage, food etc I'd be right in there.

paularn

No worries, I'll ask some of my coworkers tomorrow who is salary sacrificing. As I also said, we worked it out and for ME it wasn't worth it. I'm also not looking to lease a car either. I'm speaking on salary sacrificing in general and believe people need to sit down and work out the numbers no matter what they are planning to use it on, to see if it's to their advantage to salary sacrifice or not.

ozzieeagle

To be blunt it gives a 70,000 annual salary the spending power of a 90,000 dollar annual salary.

Absolutely no doubt about it... the fees here are less than 200 dollars per year. If it wasnt in place in Vic, there would be a massive shortfall of workers in the Health System.

EvannTel

Agree, typically salary sacrifice in healthcare or not for profit organisations is an absolute no brainer. You must have very odd circumstances for it not to be worth it.

Regarding novating a car, the FBT can be offset by making post tax contributions i.e. you pay some of your lease pre-tax and some post tax.
To be worthwhile you definitely have to do 16000km and ideally 25,000km.
Remember while you will be paying a lease fee, if you just go and buy a car you loose that capital which could be working for you in other ways e.g. mortgage offset, term deposit at 8% etc. Its not a simple calculation to correctly value and you have to do whats right for you and your circumstances. For me it works and well as its takes me out of a higher tax bracket - the higher the tax bracket your in at marginal rate the more effective it is.

Bonnie65

Go to a financial adviser and ask them to crunch the figures for you.
When I was working as a trainee financial planner for a time, I did all the salary sacrificing tax calculations for clients and I cannot remember one client who did not save money even after payment of our fees and the salary packaging company's fees.

freebo

Think I'm going to need a financial adviser when I get to Australia next week (I'll be working as a freelance contractor & have a number of options as to payment/savings schemes I can enter into).

Can you tell me a good way to locate one?

Bonnie65

Where are you heading to?