Salary sacrificing/novated leasing

[Brij]

A question for the many varied and experienced forum members.

Looking at a new job, managerial type position. I have only ever had jobs on wages (ie hourly rate for 38hrs then penalties applied) so I have very little knowledge of "packages" for this type of position. The "package" includes a company supplied vehicle (most likely a new or newish 4wd hilux) and will allow "some" personal use. I have pretty much always had company supplied vehicles which have had very limited (due to type of vehicle ie 7 tonne maintenance truck, or type of job ie public service which forbade having non public service passengers) personal use.
I have always estimated the value of a "taxi" to get to and from work at about $3000 based purely on the fuel saving to get to and from work in the work supplied vehicle. Of course that value changes once we include a bit of person use, so lets increase it to say $10000.

Now for the guts of my query, or actually 2 queries.
1. What is a bit of an idea as to what the cost of that vehicle would be to the company?

2. If I had full personal use of that vehicle (and the vehicle was of my choosing, ie 4wd wagon suitable for touring) is there a substantial benefit of maybe negotiating the removal of the Hilux from the "package" and adding a km rate to the use of my "own" car for work purposes. This is where I would look at utilising a novated car.

The big benefit for us is the full personal use of the car. This ties into the fact that our current tourer needs replacing. If I wasn't looking at replacing it there wouldn't be an issue. I'd just grab the company supplied car and keep the existing tourer for .....touring . I estimate that the full personal use of the car may be worth in excess of $10,000/yr to us if we don't have to purchase a newer tourer to sit in the shed most of the year.

As a bit of an idea for the amount of kms we do (I assume that would have a bearing on the economics of the whole scenario) the current tourer does about 15,000km a year, however that may be exaggerated by 2 10,000km return trips to visit my best mate in the opposite end of the country in the last 3 years. But now that number one son has moved to Perth we will also see a few km over the next few years as well. Our shopping trolley does about 30,000km a year.

I estimate that the work car will probably be doing 30,000km/yr, plus 10,000km/yr for personal "local" use (including taking some of the load off the shopping trolley) and upto 10,000km/yr (but probably a lot less dependant on annual trip) touring, for a total of 40-50,0000km/yr.

Ultimately I am hoping that the sums work out that the company has no net increase in costs but I get the benefit of sacrificing a little more pay, but less than if I purchased a newer tourer outright. 

Any suggestions, advice or ideas on where to get info would be much appreciated.

I should add that if we were buying a tourer purely for touring purposes we would only be spending $20-25,000. A novated lease car probably $50,000.

Peter

[Ynot]

Most companies will put a value to the company vehicle and there is a value nominated as a minimum by various remuneration specialist which is around 18k for a falcon or commodore.
A prado would be closer to around 28k.

I am able to cash out the company vehicle and supply my own. In my case i decided to salary sacrifice and it works out about net even.

Dont forget to check into fbt as with personal use of their vehicle the will need to report fbt. Usually they pay this tax but it will still show up on your group certificate and will count as total earnings. 


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[markg66]

Commonly a package work vehicle available for personal use would be valued to the company at about the 21k mark and that's the value they will pay the FBT on, also the value they will say you are getting. So if you take an allowance instead of the vehicle the value should be the same only you will pay the tax on it instead of them paying the FBT and they might specify what sort and age of vehicle you are allowed to spend it on. Every company is different though...........


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[nbd73]

The real keys here are: is the company offering you the option, and what's in it for them either way? Very few employers will run vehicles if they don't need to, if they are offering a vehicle it will usually be because they have a purpose in mind, and that being the case will probably want some level of control over the type of vehicle and how it is used. Despite the new fed govt reversing the FBT changes on leased vehicles the fact remains an employer is far better off paying you rather than packaging a vehicle, certainly from their point of view. If a vehicle is necessary that changes obviously. Our cruiser is salary sacrificed thru a novated lease, however my wife is a police officer and the private sector won't have the same approach to benefits etc as a govt that is desperate to attract people to a pig sh#t job. There were other considerations to the deal such as the effect the wage cut had on gross income with regard to other benefits & penalties, + the retained value of a Toyota vs payout figure at end of lease makes it viable. Not sure what arrangement your workplace would have at the end and would need to be discussed & considered up front. Good luck with your choice, works for us but different situation.

[Mik01]

why novate? unless you do bulk kms its not really worth it. plus they are overpriced.
i have run leased vehicles and had company cars for 14yrs.
a lot depends on you personal circumstances, preferences and good accountant. i always prefer to lease vehicles now and run them myself - keep a log book once for 3mths and you can claim the business use portion on tax. much more flexible. you can have any car you like, make any mods to it you like, and always refinance again if you love it and carry on.
of course, your log book should reflect your peak business use %, so dont take any long personal trips during that time.

much to talkk about on this topic and i could fill a volume. suggest you talk too your accountant - they will steer you in the right direction with respect to your personal circumstances.
by the way, if your company are offering a falcadore for supposedly 21k, ask to take the money. i run a prado on a private lease, and all up it cost me about 16k per year to run. and thats before tax deductions. happy to chat to you mate about it - but remember i am not a financial expert etc etc...

[D4D]

I agree with Mik01

[Swannie]

Yep, I had the choice Kluger or money. Took money so I could get the 4by. As I bought an 80 ( could have leased a new Prado or Pajero) I have plenty of spare $$$ a month & no worries about logbooks, fbt etc. Also taking the extra $$ adds more to your super & any potential Redundencies that may pop up.

But each persons circumstances are different and only you can decide what is best for you.
Swannie

[Brij]

Thanks for the comments peoples.
First off, I would be seeing accountant before I took the plunge, The queries here are more just a bit of ground work since I have never been in a position to have "private use" of a company supplied vehicle.

Yes. A vehicle is a requirement for the position.
Yes. The vehicle that would be preferable for my private use would be adequate for the position (may even be cheaper than the companies standard issue).
A leased vehicle that provides for work and unlimited private use is a huge sweetner for this particular job. The increase in $ with the new job over the current public service job is also accompanied by a similar increase in hours (makes the public service job look like part time ). However the stability of the hours of the new job may provide a better work life balance than the current jobs extreme variety of hours (termed "shiftwork", half the shifts are day work, the other half are all times of the night with very little regularity) that make it very hard to establish any regular sleep patterns which in turn mean "Dad's always grumpy" . The longer but regular hours may improve that.

The extra $ for the new job with the change in hours could be worth the risk of hopefully providing a better net work/life balance. The potential preferred vehicle with private use may be the icing on the cake. , but only because it is needed anyway.

In 4 years time we pay out the residual, keeping it for pure touring use and go back to the companies supplied vehicle. More accountants sums for another day.

Thanks for the suggestions.

Ultimately the biggest question is will I get the job .

That's really the first hurdle.

Peter

PS all this rambling is just me thinking out loud. Thanks for putting up with it

[Mik01]

There's lots to consider. Most of all is which car do you want to buy!!!
I have turned mine over every couple of years - it helps if your finance company has no penalties for selling and refinancing whenever you want - but now I want to keep this one long term.
Just keep in mind with residuals, you want to buy a vehicle that has a rock solid value retention.
If you finance over 5 years, look at what the current 5yr old model sells for with expected k's you think yours will be. That will guide you. You can manipulate the residual vs mthly payments as suits your financial situation.
I never buy brand new vehicles any more. The money you lose out of the showroom I would rather let someone else suffer. A good quality second hand vehicle you can flip every few years if you want and just refinance. If you buy well to begin with, you can make a k or two on the sale without the taxman having to benefit.
Note that interest on your lease is tax deductible as is the running expenses. Also note that if you have a second vehicle in the household, you would 'obviously' only drive that vehicle on the weekends and your work related vehicle really only gets driven for work purposes during the week, with the only personal driving to and from work.
Unless you happen to divert on the way to and from work for work purposes, then the trip to and from home is classed as a work trip. As I said, lots to consider!
 Good luck with the job mate

[Jon]

As above, depends on many things-
1. Company guidelines around type of vehicle
2. type of financial package your company is offering
3. KMs per year
4. "Some personal use" ATO defines some for FBT reasons as "Infrequent and irregular usage" Does this fit your intended usage?
5. What your intended non company usage is.
and many more.

Traps-
Dont buy something you dont need or cant feed, including service costs, fuel when it hits $2/ litre, rego, insurance etc. Lots of costs to be aware of.
Lease types- I use a plant and equipment lease from a local bank, for which the payments are tax deductible. Personal loans only the interest is tax deductible. Novated leases are very exxy, but if you can do it, saves a lot of headaches.

Dont let your employer cut your package because you are taking a car allowance. You are generally reducing his capital expenditure and risk as he does not have to worry about maintenance to your car.
Lease costs vary based on residual value of the vehicle, length of the lease etc. Like a mortgage, they are set up so the lessor ( the bank) will break even after selling the vehicle for a rock bottom price if you default. Or you can keep the vehicle by purchasing it from the lessor for the residual value, nominated at the start of the lease.

Lots of things to consider.

[haywas]

Hey mate, as a guide try the smart salary or EPAC salary packaging calculators.  Having just re packaged a vehicle, they were pretty close to the final cost per fortnight for me, but remember that you will pay less for the vehicle than they quote, as they quote RRP.  fuel etc is pretty close but for the final price.

Some good advice above re the accountant.

Steve

[Symon]

The big trap with novated leasing is that unless your lifestyle requires those amount of k's, it isn't worth it.  Don't sign up thinking "I'll just do a couple of big trips to get the k's up", the reality is you never will.

Last time I had a novated lease I had to commute 100km a day to get to work, and travelled 500km on the weekends to see my then girlfriend.  I was easily able to make the nominated k's of 40,000 per year and so it was worth it.

As soon as I moved to the coast my lifestyle changed and I didn't need to drive so much, so I ditched the lease.

[D4D]

The big trap with novated leasing is that unless your lifestyle requires those amount of k's, it isn't worth it. 

One of Krudd's legacies was the abolishment of the klms and introduction of a flat tax rate.

[Symon]

One of Krudd's legacies was the abolishment of the klms and introduction of a flat tax rate.

Shows how long it's been since I last had a NL!

[WilSurf]

Bringing an older topic back to life.

Thinking of replacing our Fiesta as my wife doesn't trust the gearbox after the 4th repair/replacement.
Is it worth having a novated lease for a new car like Mazda CX-5?

[chester ver2.0]

As above With tax changed the shine has well worn off novated leasing unless you are doing bulk k's and turning over every 3 years or so it does not add up

For example in Sydney and melbourne the missus and i used to have the 1 car and i used to travel regularly between Syd, Albury and Melb about 35,000k a year so well worth it

Now in perth i am doing only 16,000k a year so no it is not worth it

However on the other side of the coin after doing it once i will never again acept an allowance for using my own provate vehicle no matter the rate you always come out behind then it also gets ugly with insurance of business vs private if you need a vehucle for work always take the white hilux or go for a lease you can normally work it out with an employer for example at one of my jobs the white hilux was for limited personal use and i simply organised for myself to be paid 3k less per year then it became unlimited use.

The only other thing to keep in mind with your novated lease is that it usually comes out of your pretax dollars this is important cause if you change jobs and your new employer wont pick the lease up or you loose your job it all of a sudden comes out of your post tax dollars so the monthly bill all of a sudden goes up. Some will even demand that you pay it out and i can be hard to go to the bank for a loan if you have not job

[Swannie]

Negotiate hard on a car allowance, buy a cheaper car cash, pocket the monthly $$ and claim it all back at tax. Leasing cars used to be worthwhile.


Swannie

[CBRK]

One of Krudd's legacies was the abolishment of the klms and introduction of a flat tax rate.

I used to work for a Salary Packaging company about 10 years ago, it was funny the number of people who would tell porkies to get to the next band (to lower the FBT liability), so they would sign a stat dec saying yep I did xyz kms which was typically 10 to 15% off.  What they didn't seem to realise is that the next year it gets worse and worse, so after 3 to 4 years of them telling stretching the truth they had to drive heaps in the last year as the end KM's are supposed to match (many didnt), funny thing was many would drive the kms in the last 6 months thinking it was all getting checked, like most things it wasn't - it would only be caught if you got audited.

[wartim]

So my work place takes out $15,000 a year for a vehicle ( Duel Cab 4 x 4 Dmax) which includes a fleet card for all fuel, servicing and tyres from our salary package and we have full use of the vehicle.  Some of the guys are now taking the money and funding their own vehicles.  When they take they money they only get $11,000.00 out of the $15000.00 however also get a Fleet card which covers all fuel, servicing costs and tyres.

Interested to hear what may be the best way to finance a vehicle based on the above info?

[dmax13]

Salary packaging is very much a personal circumstance, as it is based on how much you earn, what benefits the government is giving you for childcare if applicable. It is best that you get specific advice for your circumstances. General rule of thumb for working out the salary packaging cost is take 20% of the cost of the vehicle then double it, that is a rough estimate of the reportable value. I have ignored the luxury car tax implications.

Unless you are in the top bracket, above 150k most salary sacrificing won't work in your favour. This is because the FBT legislation uses the highest tax rate to gross it up as being the benefit you receive.

Best advice speak to a specialist financial planner.

[Mik01]

Have run my own vehicle for years. Think I replied to another thread on this subject previously.
I could never make the figures stack up for novation vs running own vehicle.
Take the money, especially if you get a fuel card and servicing as well - that's gold. My prado costs about 16k per annum to run inc loan repayments. Fuel is about 6k of that
Interest is tax deductible, as is all other costs of running. Yes it's post tax $$, but I get on average 30% back of every dollar spent on it. So I'm up for about 11k per annum and I get the car I want to do what I want with, and modify how I want to.