OT: Novated Leases

Off topic thread.

I'm researching leasing options.

Seeking advice on novated leases from those who may have an understanding and / or experience with such arrangements.

Some pertinent information:
* Looking at leasing a BMW motorbike for to and from work (hey at least it a boxer)
* 100k return commute each day (500k/week = 20,500k per year)
* I have an employer that offers salary sacrifice (what ever that is)
* Am looking at a 5 year term with a 35/40% balloon

What traps and pitfalls exist?
How do you shop around for leasing agents?
What questions should I be asking?
What is a reasonable balloon?
Will I be doing enough kilometers to benefit from a lease (I hear you need to do a lot of K's)

If anyone can offer some advice I would be very happy to read listen. If you cannot be bothered writing it all and you would like me to ring you please sms 0411 444 334 and I will call you back.

Thanks in advance.

Bronze.

I know a bit about it with cars...but 100000 on a motorbike is a lot of K's...have you thought about a lesser term so the bike can be upgraded before it wears out?? We looked at getting a car last year and the lease contained everything including service and fuel /insurance etc...you simply gave it back at the end of the term or paid the difference and kept it. The only thing that stopped us was we owned a new car anyway that we paid for outright and i probably would have wasted the $$ on another buggy if we had leased😵.......the wife thinks 2 is enough..😬

100,000 K's does seem a lot for 5 years but I'm sure of all the bike out there on the market a BMW tourer would be well and truly up to it. I bought an Ex-police K100 at 80k and sold it at 120k and it was a beautiful bike. I'm looking at the R1200RT. It might be hard to sell at 100k after 5 years but it will be in immaculate condition despite the K's.

Thanks for you input. I appreciate it. Keep em coming. I need to answer the minister of finances' questions.

B.

rnrnBronze.



Novated Lease:
3 way lease arangement between lender,employer and employee. The employee signs a lease agreement with a financier, and subleases the goods to the employer.
A "Deed of Novation" is signed so that the employer is committed to pay the lease payments while employee is EMPLOYED!

If for any reason the employee is no longer employed by his employer, the Deed becomes null and void!

THE EMPLOYEE THEN BECOMES LIABLE FOR THE LEASE PAYMENTS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

A novated lease covers costs associated with the item:
Such as- petrol,tyres,rego,insurances etc.

Security is taken over the item and if a client defaults on the contract, the lender is entitled to sell the goods and the client is STILL LIABLE FOR ANY SHORTFALL!.

Tax deduction is made by claiming the repayments as an expense. The balloon or residual payment at the end of the term is calculated generally by using TAXATION GUIDELINES.

rnrnBronze,

I must stress, talk to your ACCOUNTANT and or your FINANCIAL ADVISOR ABOUT YOUR PARTICULAR NEEDS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Because everyone's personal situation is different and your Accountant and or your FINANCIAL ADVISOR will guide you to do the best possible financial arrangement to suit YOUR INDIVIDUAL REQUIREMENTS!!

The amount of K's, personal usuage, type of vehicle, brand of vehicle etc will determine what is required and only YOUR ACCOUNTANT and or your FINANCIAL ADVISOR is qualified to best consult you on this matter!

HOpe this helps...And post a pic when and if you decide to go ahead.

Kind regards


Craig

And just to reinterate....YOUR ACCOUNTANT and or your FINANCIAL ADVISOR is qualified to best consult you on this matter!

I bought my car at the end of the lease when it expired this past January after four years. I can't say it's a path that I'll walk again in a hurry. I liked the convenience of having all expenses paid for (petrol and everything) from one deduction from my pay, but you've got to watch that the budget they allow for in deductions is sufficient. The period I had the lease saw petrol prices jump from less than 90cents to over $1.50 so my budget was woefully inadequate, which meant to try and catch up before the end I had to fork out a few hundred extra each month. It's also fair to suggest I'm not as kind to tyres as the average person and went through at least one extra set over what they allowed.

I also unfortunately got caught out with the floor falling out of the used car market for six cylinder cars, so my residual value was far in excess of the market value.

Two other things to consider:
* You have to be earning some pretty considerable money these days to have any real tax advantage, as FBT will be charged at the top marginal rate, and every employer I've ever heard of will pass that expense on to the employee.

* Most people now do a part pre and part post income tax deduction from their pay to optimise any tax advantage

Overall, if you were planning on buying a new bike anyway, then there is the potential to save some tax, but that's only if everything statys equal over the period of the lease.

Good luck

Craig

The last time I leased was in 1998, however the rules are still the same. For any lease to be of real tax value to yourself, the more KMs, the better. Anything over 25,000 km pa, is of good value. I'm sure you can find another 4000 km per year on your bike. It also depends on what else you can pay pre-tax. eg, rego, insurance, fuel, servicing, tyres, etc, etc....everything that you can put into this lot and pay pre-tax is always beneficial. At the end of lease we had the choice of handing the car back, or buying it out at whatever the residual value was. The advantage was that you could then sell the car afterwards for the tidy profit, because the residual was quite low. I leased through my work, so there were alot of controls and safety measures in place, however if you are going to lease privately, as everyone else has pointed out, speak with your accountant to work out the best way to set it up. Remember, the reason that you're doing it is to reduce your take home pay, and therefore reduce your taxable income.

Bronze,
I'd check with Tax as well about even the possibility of novate leasing a bike. I haven't enquired lately, but I never did a bike lease as the were non-FBT items at the time, ergo - no leasing.

What Beetlejuice has said is utterly true. There are so many pitfalls one can fall into if you aren't careful. Don't even think about shortfalling your K's (car or bike).
My car was off the road for 3 months (all of summer a couple of years ago) and I couldn't make the mark. Got stuck with a 3 1/2K tax liability. The only saving grace was at least the re-payments came out of pre-tax. Still hurt a hell of lot though...

One other thing not blatantly obvious is - if you extend the lease the car/bike is NOT REVALUED! You pay like it is still new.

Oh yeah..make sure the lease managing mob (if so done and who get a monthly slice) are not a pack of clowns. If you want a company name to avoid like the plague, PM me.

DO talk to an expert, not the 10X4 brochure merchants or you'll find yourself in a world of hurt.

ohhhh...the fuel stuff is a biatch if the price does skyrocket. Luckily I crystal balled enough at the start and only got touched up a small amount.

HTH
Ctefeh

Thanks Craig.

We have a financial advisor that counts the clams coming in and out. Mostly due to the fact that we are new home owners and my wife runs a small business on top of both of us having full time jobs. Nothing would happen without running it past her (the financial advisor). She's into getting living expenses down and putting every penny into the house. I'd rather ride a bike at 4l/100ks then a tonne of steel at 8. Other than the fact I'll be saving fuel (and money) I just love bikes and can think of nothing better at the beginning and end of a day at work. Gotta be better maths in the long term.

If I lose my job I won't need the bike to go to and from anyhow. I could either sell it or continue to use it. Either way we have enough equity in other vehicles (VW's and Subaru's) to personal loan the remainder should I want to keep it or can't sell it.

I've spoken to a few people about this and they seem to know what they are talking about but can't seem to get through my thick head the financial benefit. I get the fact it's like 'renting a vehicle' and that all the expenses are paid from your salary and are in pretax dollars but how but how is that a benefit?

Regards and thanks in advance.

B.

Some maths for you:

Without lease
Annual Salary: $100,000
Tax Rate: 40%
Annual Income Tax = $40,000

With lease
Annual Salary: $100,000
Tax Rate: 40%
Lease Costs: $8,000
FBT: $2,000
New Taxable Income = $100,000 - $8,000 - $2,000 = $90,000
Annual Income Tax = $36,000

Total tax saved = $2,000


This is obviously not a real example, but gives you the gist.

Cheers

Craig

Bronze,
The tax stuff is a bit of the brochure at work. Sure everything comes out pre-tax and even better if your notional salary (Base less pre-tax lease payments) just cracks you into a lower tax bracket. That stuff can work out good.

It's the end of the lease that has most of the punchlines attached to it, hence caution and eyes wide open.

I can't type fast enough😂

HTH
Ctefeh

Wow! Thanks guys. You have given me a lot to think about.

I posted the above and then there were two more posts to read. Gwendolyns, Squizy and ctefeh. Cheers chaps.

I will print this thread and talk it over with the FA and wife. Sounds a little daunting but like what was mentioned I was thinking of buying a bike anyhow. The difference before was I wasn't doing the k's to achieve any benifit living only 5 minutes from work. Now I'm 45 minutes I thinking more about the leases.

I did read somewhere about an hour ago that bikes arn't included in novated however you can still do it. BMW is offering leasing but I don't have any fine print yet. Perhaps I have the type of lease wrong and it not novated but another type.

Thanks all for the replies. As you can tell I have no clue. I need to know a bit more than I do to explain it to the boss before we go to the FA. I don't want to get my information from the glossy brochures and salesmen as they just want a signature on a page not to pick up the pieces when it all goes pear shaped.

Again. Thanks all.

B.
PS - I will be sure to post pics if we do go ahead. In the meantime here's a link to a slide show.
http://www.haakman.ca/main.php?g2_view=slideshow.Slideshow&g2_itemId=2954

How to keep everyone happy....sell the wifes car and subaru......buy yourself a good bike with the sale $$$..Get her to "lease" the vehicle and claim it as an expense on her tax😂
BMW leasing....hmm... a mate of mine has done that and still has the bike. He was happy with the way it worked out,had NO spare cash at the time,tyres cost A LOT and wear very fast- from memory the first set lasted 2 months LOL. He bought the bike after the lease expired for a good price and still has it after 5 years.
Speak to the money munchers and do what makes you happy,you only live once.

i'm looking into that at the moment and I need to do 25k pa for it to make sense. A 45k car is a bit over 1k a month (you don't pay the gst on the purchase price of the car) but you do pay it on the sale at the lease end. If you have an ABN it may make more sense to but and get the gov rebate + depreciate.

my 2c

I believe novated leasing is a way a person who is not entitled to a car (from their work or falling withing Tax dept requirements for work use on a normal lease) can lease one. You don't have to keep log books etc because they smash you on the FBT side, and as someone has already said the FBT is relative to the amount of k's you do (I think once you hit 25 000km the FBT drops down to about 10%). The leasing company will tell you they will price and purchase the car for you but you will normally be able to do a better deal if you shop around.

Someone mentioned re-sale which is an issue on any vehicle so look very closely at the re-sale % by vehicle not by brand. (eg: VW golf have a great re-sale value but step up to the Passatt and it is terrible).

Someone else mentioned paying GST at the end of a novated lease, make sure you factor this in to your re-sale calculations. (a standard lease or HP does not attract this GST component at the end of the lease).

I remember one Novated lease company used to offer a handback option with no penalties if you left the company you are working for, I think you had to have been working for them for at least 3 years to be offered this and from memory it was $100.00 insurance at the start of the lease.

I have leased cars for as long as I can remember and only once did I novate (not out of my pay but out of my car allowance) and would never do it again, I was just lucky that I leased a GTi Golf and ended up with good re-sale value at the end of the lease.

My current lease is using a manufacturers finance which offers a great interest rate and guaranteed re-sale at the end of the lease which is the best deal I have ever come across.

I am not expert on leasing these are just some of my experiences which may be out of date now, and you may find Novated leasing suits your situation.

Cheers

Bobby

Hi Bronze,
This is completely off topic but your avatar is great.

Yogie

No one has mentioned FBT except Gwendolyns Masterand this is what matters with Novated lease. FBT is based on the amount of Ks you cover every year. If I recall correctly, Novated lease will make most sense if you exceed 25,000ks per year. Your FBT goes down to something like 4%. Ie you will be paying 4% rather than the highest tax margin if you just buy the bike and spend the maintenance/rego/insurance/etc out of your after tax money. Under 12,000 per year is a waste of time and money. You will not save enough in tax to pay for what Novated lease will cost you to run per year. Novated lease can be on anything, bike, car, classic car, etc. I looked into it few years ago and eventually my accountant said not worth it. I just keep a diary of the work related milage and claim it at tax return time. As far as I can recall, you can claim up to 10,000ks a year just based on a diary. So if you do 10,000ks at a tax deduction of lets say 61c/klm then that's $6,100 of tax deduction you can claim without the hassle & cost of Novated lease or any lease for that matter
Good luck
Raf

FBT brackets are ...
less than 15000 is 26%
15001 - 24999 is 20%
25000 - 39999 is 11%
over 40000 is 7%

there are two ways to do FBT... you can salary sacrifice the entire amount (pre tax payments) and pay FBT, or you can make post tax contributions which deduct from the FBT payable.
there are websites that will help with this stuff..
sgfleet.com.au and nlc.com.au are two providers that my work uses. and there are more.

forgot to mention... the classic car one is a real bummer. i looked into this and was told by the providers that the car must be valued at more than $20000 (independant valuer of course) and be a recognised classic car.
you CANNOT use the lease method on classic cars to rebuild them... lol.. the maintenance budget is designed to maintain the vehicle in its present condition.. not turn a $2000 beetle into a $20000 show stopper. 😁

my 2c

I have a "leased" car - well i have a "commercial hire purchase"

The novated lease means you are responsible if you leave.
You get the car and payments when you resign/leave/whatever

the down side of CHP is you pay all the interest first

just by the way
the standard is
5yrs - 30%
4yrs - 40%
3 yrs - 50%

The upside is it is a better tax deduction

It is good as long as you take it over the 5 years

Whoa!!!!

My head is spinning. So many options.

I think what I might do this weekend is print out all this information (and the PM's, Thanks dudes) and sit down with a cup of tea and read through them all slowly again, just to get an idea.

I'm really glad I asked now. And what the community here is saying is that Novated is an option but probably not the best option. The FA will be the best support here but I need to understand the lingo like FBT, CHP, GST implications, ABN and balloon options. BMW does offer bike leasing and I'm sure it's Novated but I don't know how they can offer it is the Tax system does not allow it. Perhaps as a provider they have there own exemption some how.

It seems there is a lot of experience behind these posts (and PM's) and I need to read into this much more over the weened. Mick H is right they do go through the Tyres if you ride them hard. There not a light bike, especially the tourers.

Thanks blutopless2 for the links I will check them out too. I will certainly shop around by the sounds. I like the $100 insurance idea for the hand back option. I don't think it will be too hard to clock up 25k a year. Especially if i visit family in Qld. once a year. I do have an abn number but its more for a hobby business I have that only make about $1500 dollars a year. I doubt I could use it for the lease since the bike will be used to commute to and from my day job. i will be sure to ask the FA though since I may be able to be used somehow.

Others I have spoken to have said the if I want to pay a single price i might be just better off to bundle purchase and expenses into a monthly loan payment over several years instead of a lease but then I'd be paying interest on the purchase of tyres, fuel, rego and insurance. Dosen't make a lot of good financial sense to me.

Thanks Yogie for the Avatar complement. Not my design. I just pinched it off my brother. Feel free to use it if you like.

Well hopefully this thread has helped out a couple of other people considering the same thing.

Warm regard and wishing all a wonderful weekend wherever they may be.

B.

I did it once. Won't be doing it again. MIss your estimated kilometers per month and you get whacked big time. Then we mine ended it w as a pain. Kept the car, paid the ballon but has othre hassells like insurance. The company mine was insured with during the lease was good so I thought I will just roll that cove over. Now way Hosey. Like others said talk to a financial advisor about your situation first. I dind't do it again when we needed a replacement car after the Pasha Bulka storms in June 2007. Remember the kilomenters. If you don't get them, they get you with charges.

Thanks Red. cheers mate.

Made an appt with the FA. Have quotes and they are sending on the fine print.