Never leased before....What's involved??

[Lionking]

Hi there. I'm thinking of leasing my cars from now on and upgrading every couple of years. What's involved?

[SSV8pilot]

Choose vehicle (use lease company to try and get fleet discount)

Choose finance company

Work out repayment period - usually 3 to 4 years

Agree residual value - usually 40% - Amount left owing at end of lease

Work out annual mileage - the higher the better for FBT tax relief

Agree if its a fully maintained lease (includes fuel, servicing etc) or just a finance lease

Have monthly repayment calculated

Talk to accountant

Order car

Get car - enjoy

[Lionking]

SSV8Pilot, do you lease yours? What's the difference between getting a loan to buy a car, then sell after a couple of years? It's just that I'm a teacher so I won't be able to claim tax?

[SSV8pilot]

Until recently I did lease. i used to do about 25000klms per year and so the FBT rate was reasonable.

Main benefits are that you have a fixed cost each month (if fully maintained lease) - plus you can keep changing cars regularly (just need to make sure that the payout figure is covered on the old car on any trade in or private sale price).

On my new car I decided not to lease but to use the equity on the house loan - aim to pay off the car in 3 years.

I found that leasing is about break even in terms of benefit these days. With no lease I dont have any finance or management costs (only the home loan interest rate).

Best talk to your accountant or finance manager (be aware of any self interest they may have in selling you a product).

In Summary - leases can bea good thing depending on mileage done. Need to check the tax implications

[mustanger]

A lease is like renting, but hire purchase is like paying off a loan. Both types can have a residual at the end (payout figure).The higher the residual,the lower the repayments,but be careful because you always want to have some equity in your vehicle at changeover.

[Lionking]

cool. so when it comes to changing the car after say 2-3 years, do you still continue the same payments? (if new car is same price) what happens at changeover? Btw thanks for the info guys.

[SSV8pilot]

When you change vehicles - the old lease stops and the vehicle loan has to be paid in full (so you either sell the car and use the proceeds to pay off the loan or you just pay out the loan and keep the car).

The new car is a new lease and if similar to the old car then yes the payments will be around the same - but the new loan starts afresh and becomes a new 3 or 4 year committment

[Lionking]

oh now I understand. so the idea would be to have enough equity in the car at the end of the lease to "pay out" the residual. Is that right?

[mustanger]

oh now I understand. so the idea would be to have enough equity in the car at the end of the lease to "pay out" the residual. Is that right?

Correct and then you start again with the new one. If you have any equity left after paying out your old car,it doesn`t hurt to tip it into the new one.

[Lionking]

ok thanks guys. I'll look into it now

[caseyp]

Hi there. I'm thinking of leasing my cars from now on and upgrading every couple of years. What's involved?
For my 2 bob's worth "it is come in spinner!"
i leased a SV8 for three years. It cost me $60 k over the time and then I had to catch a cab home. I was lucky. The lease companies are there to make money, not look after you. One of the guys at work lease involves paying out the car at the end , and he will pay out $22.5 k and going by the used car prices, he will get about 15 to 17 k if he sells it. Thats a cost to him between 7 to 5K.
All the money people I have spoken to say unless you are big money, it is not worth it due to the drop in the tax limits and the used car price.
You will get 20 different answers to the pros and cons. see a tax accountant and he will give the best advise in your situation.

[NRD80Y]

Here's a simple presentation that explains basicly how a novated lease works

http://www.smb.com.au/NovatedLeaseVehicles/Presentation/default.aspx

This is the leasing company that my company use but most of the info is general to all leasing and not just them.

[Vulture]

All the money people I have spoken to say unless you are big money, it is not worth it due to the drop in the tax limits and the used car price.
You will get 20 different answers to the pros and cons. see a tax accountant and he will give the best advise in your situation.

Some good advice here. You need to consider it in relation to your overall financial position, income level etc. Best to get some professional advice.

[HSVREDSLED]

If it wasnt for leasing, I would still be driving a $2000 sh1tbox. If you are going to struggle with the repayments, take it over 5 years. The payments will be cheaper and the residual lower.

I would also suggest leasing a car which will hold its value. I was in the position to buy a VY series 1 clubby at a runout sale for the same price as the newly released SS series 2. A friend of mine bought an SS at the same time and took it over three years. His residual is $26,500. His lease is up and he just sold it for $25,000. Out of pocket $1500.

My lease is still going and my residual in 2008 will be $12,000. Surely I will get that!!!! Going on a 5 year old Clubby today, Redbook indicates between $15k and $23K for a 5 year old VX clubby.

The plan then is to time my next purchase and slide into a 18 month old VE GTS or similar which has all ready suffered the bulk of its depreciation and I will start the ball rolling again.

[Dacious]

If you can't salary sacrifice and your income is under $75K I think leasing is a waste of time. I was ahead on the Monaro by my running costs ($5K p.a.), but my lease ended Mar this year, and I was on a higher wage and could S-S which bought my taxable income down to the marginal threshold. If you can claim business expenses and do >25,000km a year, it comes back into the equation. FBT is the killer.

Now you're better using home-equity to buy outright if you can and have as much cash as a deposit as you can, because the interest is lower. Plus Holden's fleet discounts aren't as generous if you want a SS or Calais.

[HSVREDSLED]

If you can't salary sacrifice and your income is under $75K I think leasing is a waste of time. I was ahead on the Monaro by my running costs ($5K p.a.), but my lease ended Mar this year, and I was on a higher wage and could S-S which bought my taxable income down to the marginal threshold. If you can claim business expenses and do >25,000km a year, it comes back into the equation. FBT is the killer.

Now you're better using home-equity to buy outright if you can and have as much cash as a deposit as you can, because the interest is lower. Plus Holden's fleet discounts aren't as generous if you want a SS or Calais.


I agree... You must do 25,000ks per year plus. otherwise (generally) forget it.

[davidred]

As others have said, it's only worth it if your in one of the higher tax brackets as the main benefit to leasing is the salary sacrificing component. They take out a big chunk before tax so you pay less tax and your out of pocket a smaller chunk.

For example, the 'out of pocket' loss on my SS-V lease (which includes fuel, maintenance, tyres, rego & insurance) is about $100 more expensive than just the repayments on my Monaro. Once you factor in the running costs on the Monaro it was a hell of a lot cheaper for me to get the SS-V - which is how I managed to get the finance minister to approve it :yahoo:

[MADR08]

I'm actually an accountant with quite stong FBT knowledge. What everyone on here is pretty much on the ball. The more $$$ you make, the more advantageous it is to lease.

That said, someone on less $$$ can also make it work in their favour. It involves not taking out a fully novated lease, but instead, making some contributions of your own towards the running costs of the car. Every (after tax) dollar you spend towards the running cost of the vehicle reduces the taxable value of the vehicle from which the FBT is calculated.

These are the factors which will make it work in your favour (no matter how much you make);
1. Value of car - Lower the value of the vehicle, the lower the base value is in determining the FBT
2. KM's travelled - more km's travelled, lower the statuatory % is when calculating FBT
3. After Tax Contributions - if you are willing to make some after-tax contributions to the running of the car, then you can reduce the taxable value, therefore reducing/eliminating any FBT payable (this is especially applicable to those not in the highest tax bracket as FBT is based on 48.5%, so by using after tax dollars you are using dollars which are taxed on say 30% to eliminate a 48.5% tax)

Hope this helps
Dave

[Ako]

If it wasnt for leasing, I would still be driving a $2000 sh1tbox. If you are going to struggle with the repayments, take it over 5 years. The payments will be cheaper and the residual lower.


But you will pay more in the long run. Its the same as taking a home loan over 20 years or 30 years. Sure repayments are lower, but the leasing company makes more interest over that time. You are only moving the hurt.


All the money people I have spoken to say unless you are big money, it is not worth it due to the drop in the tax limits and the used car price.
You will get 20 different answers to the pros and cons. see a tax accountant and he will give the best advise in your situation.

Leasing should only be considered as an alternative to a personal loan or equity loan. If you have the money, then buying outright wins every time. And the big money comment is right as well. No point sacrificing a 30c tax dollar to pay a 48.5c FBT tax. The tax breaks just aren't as good as they used to be. Casey has some good advice there guys. A Tax accountant is the way to go, everyone's circumstances are different.


I'm actually an accountant with quite stong FBT knowledge. What everyone on here is pretty much on the ball. The more $$$ you make, the more advantageous it is to lease.

That said, someone on less $$$ can also make it work in their favour. It involves not taking out a fully novated lease, but instead, making some contributions of your own towards the running costs of the car. Every (after tax) dollar you spend towards the running cost of the vehicle reduces the taxable value of the vehicle from which the FBT is calculated.

These are the factors which will make it work in your favour (no matter how much you make);
1. Value of car - Lower the value of the vehicle, the lower the base value is in determining the FBT
2. KM's travelled - more km's travelled, lower the statuatory % is when calculating FBT
3. After Tax Contributions - if you are willing to make some after-tax contributions to the running of the car, then you can reduce the taxable value, therefore reducing/eliminating any FBT payable (this is especially applicable to those not in the highest tax bracket as FBT is based on 48.5%, so by using after tax dollars you are using dollars which are taxed on say 30% to eliminate a 48.5% tax)

Hope this helps
Dave

Another damn accountant :whip:. All of what you have said is correct. And all items are variable. So again, best to see a tax accountant to determine what suits you. Don't just run of what "a mate" is doing with his. You never get the full story.

Brad

[superoo]

I'm actually an accountant with quite stong FBT knowledge. What everyone on here is pretty much on the ball. The more $$$ you make, the more advantageous it is to lease.

That said, someone on less $$$ can also make it work in their favour. It involves not taking out a fully novated lease, but instead, making some contributions of your own towards the running costs of the car. Every (after tax) dollar you spend towards the running cost of the vehicle reduces the taxable value of the vehicle from which the FBT is calculated.

These are the factors which will make it work in your favour (no matter how much you make);
1. Value of car - Lower the value of the vehicle, the lower the base value is in determining the FBT
2. KM's travelled - more km's travelled, lower the statuatory % is when calculating FBT
3. After Tax Contributions - if you are willing to make some after-tax contributions to the running of the car, then you can reduce the taxable value, therefore reducing/eliminating any FBT payable (this is especially applicable to those not in the highest tax bracket as FBT is based on 48.5%, so by using after tax dollars you are using dollars which are taxed on say 30% to eliminate a 48.5% tax)

Hope this helps
Dave



I may be mistaken (and not that it makes that much difference) but hasn't the FBT rate dropped to 46.5%?

[goofafidamedes]

If you can't salary sacrifice and your income is under $75K I think leasing is a waste of time. (snip)...

Exactly what my tax accountant said.

[Bravotwozero]

I've just started a lease on an 03 VY SS. Residual at the end is $11,000, so as long as I can get that much for it when the lease ends and I start another, I should be ok. I'm pretty confident I'll get 11K for a 6 year old SS.

The other option for me was to go get another 10k loan and buy a cheap used car like I did with my last. But working out loan repayments, fuel, servicing, rego etc etc, it only cost me an extra $60 per week to get behind the wheel of a nice SS rather than another Hyundai. Yeah I might never own it, but my Hyundai is now worth nothing anyway! :woot:

[csv rulz]

Im on a traineship and only earn $22,000 p.a. but i do 65,000-70,000km per year im guessing even tho i do high kms leasing is out of the question with such a low income?

[Marcus_h]

If you can't salary sacrifice and your income is under $75K I think leasing is a waste of time. (snip)...

I think you'll find you have it a bit arse about. This comment refers to the benefit of having the lease payments coming out of your wage pre-tax against the FBT you have to pay. If you earn for example $50k per year and do 30,000km you wont have as much benefit as someone on $75k and doing the same amount of kms.

Another thing, people are getting mixed up. There are two types of leases, basically a normal lease that you pay just like a car loan, and a novated lease (which is what I gave an example of above) where you pay for it out of your gross wage before tax comes out.

[Stevotski]

If you earn for example $50k per year and do 30,000km you wont have as much benefit as someone on $75k and doing the same amount of kms.


you would have exactly the same benefit (if any actually) as the income tax rate from $25K to $75K is only 30% now, and only 40% up to $150K

novated leasing as a tax reducing device is now a waste of time if you earn under around $80K, unless you can really reduce your FBT liability

[Marcus_h]

you would have exactly the same benefit (if any actually) as the income tax rate from $25K to $75K is only 30% now, and only 40% up to $150K

novated leasing as a tax reducing device is now a waste of time if you earn under around $80K, unless you can really reduce your FBT liability

Ok bad example, I should have said one tax bracket to the other.

And the above is correct, if you can do enough KMS however then it can be done

[Fudgey]

hey, my 2c worth

I run my own business and like to swap cars every 3 years or so plus run a couple of othe cars for staff and the wife, i've found CHP works best for me but will depend totally on your circumstances; get your acct to qualify this coz I'm no expert but I like the way it works for me;

- Nice GST Input Credit on the new vehicle if you are not trading in;
- I usually do a 5 yr 0-10% balloon, residual will reduce your monthly premiums but should be avoided or kept as low as you possibly can;
- Don't include on-road costs in the loan, try and pay these up front (Dlr Delivery, SD, Reg, LCT etc);
- FBT is nasty but it can be reduced/eliminated if you make your own personal contributions, ie pay fuel/tyres/servicing etc out of your own pocket, this will come off the FBT liability and depending on the kays you travel can easily eliminate it, it also means you can't get input credits for these expesnes but the way my business is structured is suits me to not have to pay a large FBT bill in one hit;

Your circumstances may mean the above is all irrelevant but it works for me and quite a few others I know - and you will get out of say a New HSV in 3 years for very close to payout figure, even at dealer trade, I can qualify that coz I just did it. (2 yrs, 10mths + $1222)

Cheers
Dave

[Marcus_h]

- FBT is nasty but it can be reduced/eliminated if you make your own personal contributions, ie pay fuel/tyres/servicing etc out of your own pocket, this will come off the FBT liability and depending on the kays you travel can easily eliminate it, it also means you can't get input credits for these expesnes but the way my business is structured is suits me to not have to pay a large FBT bill in one hit;

You can also split the loan repayment up into two portions, before tax and after repayments. Eg: $1000 repayment, you might pay $600 pre-tax and $400 after tax (as a normal repayment). This way you can reduce your FBT liability because you're only getting the benefit of $600, not $1000.

[muzza]

Two VERY IMPORTANT things not everyone seems to have noticed about the original question from Lionking is that he is a TEACHER, and on cars you dont pay FBT at 46.5% - a car's applicable FBT depends upon the km travelled.

As he works for a non-profit organisation he wont pay (for example) 20% FBT on the taxable value of the car yearly if he does 15000-25000km per year, he will pay around 11% as schools (and other like not-for-profit organisations) are called "Rebateable employers" and dont cop the full FBT.

So effectively by sacrificing the whole cost of the car lease and maintainance (novated best in this case) it all comes out pre-tax, you pay concessional FBT on the taxable value of the car (km dependant; best minimum is 15000km) and your nice employer will give you back GST (as input tax credits)on any car related cost so the running costs are effectively 10% cheaper.

So yes it's good for Teachers on average salary as long as you dont go bezerk on an expensive car - best to get one 1-4 yrs old, novate lease and go from there.

[theVman]

Very interesting ready as I have never got my head around the ins and outs of leasing.

My other half is a teacher and we have been discussing that it may be better for her to get the new car (mainly been looking at salary sacrificing - and that hers is getting rather old) rather than me in my industry as I can't seem to get much benefit from anything!!

Never knew the above about teachers being part of non profit org and the benefits - will have her research that some more.

Only negative with her getting the nice car is that I will never drive it - but it does give me some leverage to try and start a new project!!

[MADR08]

MY mistake, the rate is now 46.5%. I think the thing to remember for anyone who's income is taxed at less than 46.5% and wants to salary sacrifice a car is that you should make after tax contributions to the running of the vehicle to reduce the taxable value of the vehicle to $0 if possible. This will eliminate any FBT which is calculated at 46.5%.

The other up-side of this is that it doesn't matter how many km's you travel, the statuatory % used will be applied to a car with a $0 taxable value. So you wont have to have unnessessary km's reducing the value of your car :thumbsup:

[Devil CV8]

or if you employer offers operating leases then jump at it, especially if you end up with running costs far in excess of what the lease costs you..