How does a car lease work???

[TooFastTim]

I punch the data into http://www.orix.com.au/novated-leasing/calculator.html and it looks like I should be paying more annually than the purchase value of the vehicle!

[jerry]

For me it works good. If you are in a position to afford a new car it is an option that should be explored. It's nice to not stump up cash every time you fill up or get new tyres. Also nice to know your running around in a new car. However it's not for everyone and you should probably speak to an accountant and then go into a lease with your eyes wide open! I use Advantage. Go to their web site and educate yourself a bit before you talk to a bean counter. Good luck. Cheers Jerry

[TooFastTim]

Sorry Jerry, I've amended my post. It was a bit vague. Hopefully it makes a bit more sense now.

[TooFastTim]

The deal I have with my soon-to-be employers is that after the probationary period I get a car (and permanent residency!!!) and the contract reflects this stating "salary sacrifice". Clearly there is, in this situation, some tax angle to this. I was wondering whether anybody here has a handle on that side.

As I said above the blurb that Orix spews out looks like the car is going to cost me, in one year, more than the vehicle purchase price but the nett salary that it states *might* be income for tax purposes (in which case there's a big upside to leasing). Other lease calculators are a lot simpler but the Orix calculator has me confused.

You're right I'll have to have a chat with a financial chappie. Any on here?

[Montynut]

There are several different types of lease. If you are talking Novated Lease you need to speak to the lease company for the best combination or method for your particular circumstances. It basically means that all cost (everything) of the purchase and running of the vehicle less GST (it is claimed as a business expense by the lease company) are taken out of your before TAX income therefore lowering your vehicle costs and also your taxable income and therefore your tax bill.

You then pay fringe benefits tax on the value of the vehicle and after the effing greens attached that last year it is now effectively higher. This tax can be reduced if you make a co-payment when purchasing the vehicle and also if you have significant work related travel.

The final decision comes down to what your marginal tax rate is, what type of vehicle you want to buy and how long you want to keep it. There are certain limits to the type of vehicle you can buy.

You need to do the sums and many work mates have found their accountants don’t understand it either. I have found over the last nine years and three vehicles that it is absolute the cheapest way to buy and run a new vehicle available.

You can buy second hand but car companies give big discounts to lease companies eg a XR6 Falcon has about an $8K discount and then you do not pay the GST so buying new is the usual thing most lease do

A hint is to choose a vehicle that holds resale value, go for the top model in the range and stay below the Prestige car tax threshold at all costs.

[Montynut]

The costs that appears on your lease always seems outrages but if you sit down and work out every cost in buying a new car it is not actually expensive. Most people don’t realise how much a car really does cost them. Unless you can walk in and pay cash for a new car then the novated lease is in my circumstance the way to go. Even if you can pay cash you are better off investing that money in some form and lease the car anyway well that is what I worked out for my situation.

[TooFastTim]

Thanks for the replies guys.

I just had another look at the Orix result and the figure I saw that gave me the sh&ts was MY income AFTER income tax. Much better!

[Montynut]

One of the benifits is that the lease company organises bulk discounts on just about everything so tyres, batteries etc are aways well priced

[Nathan S]

Beware your payout figure. A mate leased a Pajero a few years back, and selected what he thought was a reasonable payout figure, with a bit of fat built in (just in case).
For a variety of reasons, the added fat was too little and he's now looking at having to stump up a fair bit of cash to cover the shortfall between what he'll get when he sells it and what he owes the finance company...

Another mate has had a number of novated lease cars - he does a lot of kays, and is adamant that you've got to get rid of the car before it clocks over 100,000kms, because the resale plummets after that: "everyone is happy to pay decent money for a two year old car with 95,000kms, but nobody wants a three year old car with nearly 150,000kms on it".

[Montynut]

Nathan makes very good points hence my warnings.

In the last few years (just before the effing greens started fiddling with novated leases) the residuals were reduced (residual % etc is set by the ATO).

The 100000Km applies to all used cars and is very valid I would think. The same if you sell a two year old car with new car warranty remaining then the resale is much higher.

The number of K's travelled no longer has any bearing on fringe benifits TAX (effing greens).

You need to crunch the numbers for your own circumstances. Given th esize of the Novated Lease market there must be something good about it.

[Freakshow]

I get a car allowance and cant spend it all or do the KMS to cover business use.  So In the end i now buy a new used car from work thats come off company lease, with 95K on the clock, its already depriciated and then just run it for another 2 years or until 150K, or till it needs tyre or a major service,  i find doing that the last 2 cars i had have sold for the same as i paid for them, i have never paid for a service and i just pay the tax on the money i save or is left from the car allowance.  Rather that than throwing dough at business costs i cant cover in the work KMS.

As always Horses for courses

[oldskool]

We've just leased a new lancer we went for the top of the line without going into the ralliart.Used to be called aspire but is now called lx leather heated seats reverse camera touch screen stereo which is also the screen for the camera excellent car.We did our own insurance which saves us about $400 a year lancer services are capped for 4 years so say the lease company pays $300 per service our capped services are only $195 so the remainder of the $300 goes into an account same with fuel and other stuff at the end of the lease you can use that money towards the residual.the company we went through have just changed their name from SPNT to SPAUS.

[Montynut]

Oldskool half way through the lease you should approach your lease company and reduce your lease payments if the lease balance has gone very positive as you suggest it will. Otherwise when the least finishes that money is returned but goes though your payrol and is taxed at your full marginal rate. Been caught with that one It is still OK but means a big tax hit that you don't get back until tax time.

[oldskool]

Thats a good point monty will look into that.As the car only does around 30 k's a day there should be a fair bit at the end of lease and once the eldest daughter has her licence early next year the k's will drop to around 10 a day.The wife drives it and her round trip to work and back is 6 k's  .