Novated Lease "TAX" Changes effective immediately.

[Eaturbo]

Sorry but novated leasing is a crock. I use to sell HSV's and have seen the figures. It worked OK at the 11% rate if you were earning 100k plus. This was every miner in my area. If you earn $180k that who cars what it costs anyway. The best figures i saw was using an XR6 based at about $35k doing 25,000km a year and earning $100k per year. This way you paid the 11% rate and the car was the right price bracket to not take all your wage. The resale was also very good. Mark my words this change will cost sales as nobody i know would bother leasing a car before at under 25,000km as it was too dear. The cost of an XR6 doing 15000km per year was close to the same as one doing 25,000km per year because of the extra FBT. Cant say i am surprised as i have always wondered how the goverment let people do it as most are private cars yet claimed they were for work use.

[Trendseeker]

It wasn't a crock but it is now. The savings were borderline if you were doing between 15,000 and 24,999km per year, but it was quite good if you were doing more than 25,0000km per year. As for the comments about people not understanding the costs or savings, most would have used the calculators on the fleet manager's websites to assess the potential benefits. And the opinions about the fairness of the tax could be applied to any part of the tax law. You look at the rules and decide on your strategy. Yes, it might still be worthwhile if you buy a second hand car and lease it for 12 months, but most of your benefit relies on making a profit on the sale, so it's arguable whether it's the lease that is providing the benefit or if it's your skill as a used car salesman. Someone asked why businesses would put up with the administration effort. Here's a clue: the employees' salaries are reduced by the annual lease cost, so the company doesn't have to contribute as much to their super. The company's 9% contribution to super is calculated on the salary after pre-tax deductions. In the end, the government has taken away a perk. They won't lose because all the people who don't go for a new lease will pay some more income tax, but will still be better off in terms of vehicle expenses. The car industry will be worse off because new car sales will fall. And that will flow through to other service providers in the car industry. The perk was originally introduced to stimulate car sales. Now that it is no longer worthwhile for the majority they will re-assess and make other plans.

[blueoval]

Interesting observation fellas. Can I ask what other options there are that can still beneficial?

[jpd80]

Originally Posted by 2008WhiteSR

It wasn't a crock but it is now. The savings were borderline if you were doing between 15,000 and 24,999km per year, but it was quite good if you were doing more than 25,0000km per year. As for the comments about people not understanding the costs or savings, most would have used the calculators on the fleet manager's websites to assess the potential benefits. And the opinions about the fairness of the tax could be applied to any part of the tax law. You look at the rules and decide on your strategy. Yes, it might still be worthwhile if you buy a second hand car and lease it for 12 months, but most of your benefit relies on making a profit on the sale, so it's arguable whether it's the lease that is providing the benefit or if it's your skill as a used car salesman. Someone asked why businesses would put up with the administration effort. Here's a clue: the employees' salaries are reduced by the annual lease cost, so the company doesn't have to contribute as much to their super. The company's 9% contribution to super is calculated on the salary after pre-tax deductions. In the end, the government has taken away a perk. They won't lose because all the people who don't go for a new lease will pay some more income tax, but will still be better off in terms of vehicle expenses. The car industry will be worse off because new car sales will fall. And that will flow through to other service providers in the car industry. The perk was originally introduced to stimulate car sales. Now that it is no longer worthwhile for the majority they will re-assess and make other plans.

Those calculators on the website change the buyers gaze form what the fleet managers are charging to how much you salary sacrifice. What people need to do is look at the vehicle price charged, and the total costs over the lease and work out just how much you are being charged in pre-tax dollars, do the calculations and work out just how much these guys are making Vs you position if getting a discount price on a PI loan, doing a standard vehicle claim on business usage and claiming variation in taxation ahead of payments, that way you get to pay stuff in pre tax dollars too and know all the costs in front of you.

Do your sums people, don't be buying $40000 XTs and pay $1,100/month fully maintained payments..

[devilcv8]

Originally Posted by 2008WhiteSR

so the company doesn't have to contribute as much to their super. The company's 9% contribution to super is calculated on the salary after pre-tax deductions.

Not all companies do this. My pre deduction salary is used for the super calculation, although it is 15.4% employer contribution.

[Magna]

im looking at getting a new XR6 ute when the lease on the territoy finishes in 2 years and using it just to drive to work and back NO work kms. from what i've researched they are fbt exempt and have a carrying capacity of less than 1 ton so theres no fbt to be paid. the tax office says the only private use i can drive is to work and back and that suits me as i drive 120kms each day and thats the only driving i'll do.

i think it means instead of the tax office getting 11% they will get nothing from me and i get a brand new half price ute fully maintained! have i got it right?

[Trendseeker]

Originally Posted by jpd80

Those calculators on the website change the buyers gaze form what the fleet managers are charging to how much you salary sacrifice. What people need to do is look at the vehicle price charged, and the total costs over the lease and work out just how much you are being charged in pre-tax dollars, do the calculations and work out just how much these guys are making Vs you position if getting a discount price on a PI loan, doing a standard vehicle claim on business usage and claiming variation in taxation ahead of payments, that way you get to pay stuff in pre tax dollars too and know all the costs in front of you.

Do your sums people, don't be buying $40000 XTs and pay $1,100/month fully maintained payments..

Most of the people with novated leases don't have any business usage - that's why they've gone to a novated lease - so comparing it a business lease is pointless. The fleet managers charge a piddling amount ($300 per year) to manage the operational expenses. They make most of their money from commissions on arranging finance and brokering comprehensive insurance. But you are not obliged to use the fleet company's finance or insurance - I don't. The calculators tell you how much it is going to cost, and then you can compare it with the cost buying privately and paying operating costs out of post-tax dollars. There are no tricks in the calculator. Who pays $40K for an XT - the fleet company will seek best offers from several dealers and provide a fleet discount or you can go through your own broker.

[gtfpv]

most employers signed with fleet companies for employees novated leases , will not allow a ute to be leased .

[Ausfire]

Originally Posted by blueoval

Interesting observation fellas. Can I ask what other options there are that can still beneficial?

+1

I have signed a new novated lease, it was dated prior to Goverment cutoff of 7:30pm on the 10 may 11. I was due to pick up new 300c today, but have put it on hold due to this change of rules.

Ok for starters pretty ****ed that SGFleet (Name and shame i say) would have a pretty good Idea that these changes were coming.

Next, I thought if you signed a contract that the date signed was the date everything takes effect, SG trying to tell me that its the date of delivery of vehicle?? They then want to change the rate which is stated here on their web site, http://www.sgfleet.com.au/news/Fring...axChanges.aspx

They want to round it off for next 4 years which will be closer to 20% as told to me by their rep. I reckon if you sign new contract today, its at the 14 % rate for next 4 years???

So will be seeing accountant on monday or tuesday to see if its worth going through with the lease, which will then make me push them to honour the contract originally signed by me.

Bugger!!!!!

[GT0132]

Originally Posted by devilcv8

Not all companies do this. My pre deduction salary is used for the super calculation, although it is 15.4% employer contribution.

Ours does the same as yours. but we have had a drop off on cars now. Only one employee has a novated lease whereas we used to have quite a few

[Magna]

Originally Posted by gtfpv

most employers signed with fleet companies for employees novated leases , will not allow a ute to be leased .

this is what is says on the smartsalary website

•ATO rules mean that the following vehicle types cannot be salary packaged:

1. Dual or single cab utility vehicles with a load carrying capacity that exceeds 1tonne, and

2.Vehicles designed to carry more than 8 passengers.

so it probably rules out most utes, but checking the ford site and it says the XR6 ute has a payload of 585kg. i'm hoping i've found a loophole so everyone can go out and buy a new ute and not have to pay fbt

im hoping smartsalary reply to my email and if its positive i'll let everyone know!

[Dave3911]

Originally Posted by Ausfire

+1

I have signed a new novated lease, it was dated prior to Goverment cutoff of 7:30pm on the 10 may 11. I was due to pick up new 300c today, but have put it on hold due to this change of rules.

Ok for starters pretty ****ed that SGFleet (Name and shame i say) would have a pretty good Idea that these changes were coming.

Next, I thought if you signed a contract that the date signed was the date everything takes effect, SG trying to tell me that its the date of delivery of vehicle?? They then want to change the rate which is stated here on their web site, http://www.sgfleet.com.au/news/Fring...axChanges.aspx

They want to round it off for next 4 years which will be closer to 20% as told to me by their rep. I reckon if you sign new contract today, its at the 14 % rate for next 4 years???

So will be seeing accountant on monday or tuesday to see if its worth going through with the lease, which will then make me push them to honour the contract originally signed by me.

Bugger!!!!!

A mate of mine is in the exact same situation as you are.

You'll find the date of signing the contract isn't relevant, it'll be the date of disclosure which is. That date will be the date that everything is finalised and the lease begins - which will be the date you pick up the car. Are you currently making any lease payments? any money changed hands? Nope, not until you get the keys. No keys, no lease, you missed the cut. End of story.

The federal government's new legislation is based on this date of disclosure. Sorry dude, but there isn't anything you can do about it. The FBT rate you pay is not set by your leasing contract and if you go over your contract you'll find your leasing company doesn't lock in the rate in any way at all - as it's not controlled by them. So you can't argue that they have to honor the contract, as your contract with them deals with the lease of a vehicle - not the amount of tax you pay. Your contact will likely clearly state that your lease is likely to be subject to FBT as per the ATO - if it mentions it at all.

The leasing company is only trying to set a higher rate now so you don't have to vary your payments over the next 3 years. The federal government has set out a schedule to increase your FBT that means this year you'll pay 14%, next year 17% and from 2013 the final, new 20% figure (assuming your at the +25K level). You don't get the 14% for the life of your lease, you get it for the first year only.

**** situation mate, but that's how it is unfortunately.

[FPVF6X201]

Originally Posted by blueoval

Interesting observation fellas. Can I ask what other options there are that can still beneficial?

I use a car allowance paid by my employer. It is not taxed when i receive it, however i have to justify in my tax return that i have used the whole amount for "work related" usage of my car. I claim 90% of that allowance as used for work usage (i'm a sales rep). But with all the other expenses i can claim, i always end up $3k or more in front as a tax return. No kilometer requirements, but good practice to do a log book for 12 weeks and keep ALL receipts.

[Rodp]

Originally Posted by FPVwannabe

I use a car allowance paid by my employer. It is not taxed when i receive it, however i have to justify in my tax return that i have used the whole amount for "work related" usage of my car. I claim 90% of that allowance as used for work usage (i'm a sales rep). But with all the other expenses i can claim, i always end up $3k or more in front as a tax return. No kilometer requirements, but good practice to do a log book for 12 weeks and keep ALL receipts.

I do the same, typically my tax returns are in the $10k+ mark though (more if I dispose of a car during that financial year).

[Dusty1]

I work in not for profit, and salary sacrifice the lease. I pay everything else. I also claim back a % of the price of the car when new each year as I do more than 5k for work.

The sacrifice puts me about $500 in front each year and I get about $5k each year back in tax. I'd reckon I'd work out about even. And I get to drive a new car every three years. My brother is buying the Mondeo for about $14k, and it's done 62k. He's happy, I'm happy.

I'm doing the same thing with a Territory when they are released. But I might buy it at the end of the lease.

[jpd80]

Originally Posted by 2008WhiteSR

Most of the people with novated leases don't have any business usage - that's why they've gone to a novated lease - so comparing it a business lease is pointless.

I suspected as much when the treasurer changed the rules, those people getting a new car without any actual business usage are still ahead with pre tax dollars being used even thoug the nominated Fringe benefit is now 20% across the board.

If employees can substantiate higher business usage by logs, then that suits their needs better.

The fleet managers charge a piddling amount ($300 per year) to manage the operational expenses. They make most of their money from commissions on arranging finance and brokering comprehensive insurance. But you are not obliged to use the fleet company's finance or insurance - I don't. The calculators tell you how much it is going to cost, and then you can compare it with the cost buying privately and paying operating costs out of post-tax dollars. There are no tricks in the calculator. Who pays $40K for an XT - the fleet company will seek best offers from several dealers and provide a fleet discount or you can go through your own broker.

OK Thanks for the info regarding lease managers and best price vehicle / costs being passed onto clients.

[devilcv8]

Originally Posted by Magna

this is what is says on the smartsalary website



so it probably rules out most utes, but checking the ford site and it says the XR6 ute has a payload of 585kg. i'm hoping i've found a loophole so everyone can go out and buy a new ute and not have to pay fbt

im hoping smartsalary reply to my email and if its positive i'll let everyone know!

I have a novated VE SS ute and pay fbt, well would be if the ECM didn't reduce the fbt to zero

[Magna]

Originally Posted by devilcv8

I have a novated VE SS ute and pay fbt, well would be if the ECM didn't reduce the fbt to zero

thats interesting i know the tax office says its fbt exempt where the load capacity is less than 1 ton. you my be making post tax contributions when there is no need to. i emailed smartsalary (they do salary packaging for Defence) and i'm waiting to hear back so i'll keep you posted. thanks.

[something wrong]

Originally Posted by FPVwannabe

I use a car allowance paid by my employer. It is not taxed when i receive it, however i have to justify in my tax return that i have used the whole amount for "work related" usage of my car. I claim 90% of that allowance as used for work usage (i'm a sales rep). But with all the other expenses i can claim, i always end up $3k or more in front as a tax return. No kilometer requirements, but good practice to do a log book for 12 weeks and keep ALL receipts.

This is how i do my, Car allowance and i novate a car out of that. I had a 2008 Hilux dual cab and did not have to keep a log book but i did anyway. I claimed it at 85% work 15% private. Also made 12k when i sold it.

I now have a SV6 wagon (5 weeks old) and i am doing the same thing, Best advice is speak to a accountant, that way they look at your situation. Leases are not a one size fits all.

[devilcv8]

Originally Posted by Magna

thats interesting i know the tax office says its fbt exempt where the load capacity is less than 1 ton. you my be making post tax contributions when there is no need to. i emailed smartsalary (they do salary packaging for Defence) and i'm waiting to hear back so i'll keep you posted. thanks.

An off topic question... What salary packaging companies work with defence apart from smart salary. Reason is I'm considering applying for an aps position at my level, but depending on costs to change lease over may not make it worthwhile.

[gz1]

Originally Posted by gtfpv

disagree . completely mate . for my circumstances that is . before my employer signed up to novated leasing , i had no right to lease a car as an employee ,----
---
MANY OF US OUT THERE will also do the same .

Totally agree with this as I'm in the same boat. Before the employer offered novated leasing I also got used cars and ran them to the ground. THe last car I had before leasing was an old Honda prelude that had 400,000 k's on the clock literally, which I bought used and kept for 10 years.
With leasing I was changing into a new car every three years, and I made a conscious effort to only have Australian made cars.
Won't be happening now.

[Matty4]

Originally Posted by gz1

Totally agree with this as I'm in the same boat. Before the employer offered novated leasing I also got used cars and ran them to the ground. THe last car I had before leasing was an old Honda prelude that had 400,000 k's on the clock literally, which I bought used and kept for 10 years.
With leasing I was changing into a new car every three years, and I made a conscious effort to only have Australian made cars.
Won't be happening now.

Yep....me too!!
Will be giving serious thought to going to a 3rd novated lease via salary sacrifice with the new changes. There may well be one more new car not sold due to this

[gtfpv]

OK HERE IS SOMETHING NEW , I JUST REALISED !!!!!!!

my FG 2009 XR6 is now coming to its lease end JAN 2013 .
the lease company contacted me telling me the options i have .
that is
#1 buy the vehicle at the residual %47 of purchase price .
#2 they sell the car for me and supply an updated model of my choice , effectively starting a new lease on a new vehicle .
#3 re- lease my current vehicle at the residual price .

so i asked them to supply a quote for option #3.
the quote was prepared , so the vehicle finance amount is less , around 16k.
BUT THE FBT STILL ON 35K @ 20% !!!!!!!
upon my queery REPLY .
I asked the question why do i still have to pay FBT @ 20% OF 35K pa , when i will be re leasing the car at a value of 16K.
wouldnt it be logical as the vehicle is now under a recommitment lease policy where new tax laws will apply , so the new value of a 3 year old car is now 16k , why charge FBT ON THE NEW PURCHSE PRICE OF 35K ??

THE REPLY WAS : the ATO will not allow the purchase price to be changed when re 'leasing a vehicle unless you change employers . or 4 financial years have passed .

this effectively means i'll be paying FBT TO THE TUNE OF %40 PER YEAR ON a market value of 16k.
i just think this is wrong !!!!!

SO IN SUMMARY . the current lease expires and is finalised . the new lease and finance is prepared at value 16k , but the FBT tax applied goes back to the vehicle price when new 35k and is applied annually from year 3 to year 6 of vehicle age . on a new lease plan that starts on a 2nd hand vehicle valued at 16k ?


CAN ANYBODY CONFIRM THIS ??????

[gtfpv]

if this formula really applies . i might be better off buying it , selling it, then buying another 3 year old one , and leasing that . then i would be leasing a car and everything would apply on the purchase price ! of another vehicle the same as mine .

[jpd80]

Originally Posted by gtfpv

OK HERE IS SOMETHING NEW , I JUST REALISED !!!!!!!

my FG 2009 XR6 is now coming to its lease end JAN 2013 .
the lease company contacted me telling me the options i have .
that is
#1 buy the vehicle at the residual %47 of purchase price .
#2 they sell the car for me and supply an updated model of my choice , effectively starting a new lease on a new vehicle .
#3 re- lease my current vehicle at the residual price .

so i asked them to supply a quote for option #3.
the quote was prepared , so the vehicle finance amount is less , around 16k.
BUT THE FBT STILL ON 35K @ 20% !!!!!!!
upon my queery REPLY .
I asked the question why do i still have to pay FBT @ 20% OF 35K pa , when i will be re leasing the car at a value of 16K.
wouldnt it be logical as the vehicle is now under a recommitment lease policy where new tax laws will apply , so the new value of a 3 year old car is now 16k , why charge FBT ON THE NEW PURCHSE PRICE OF 35K ??

THE REPLY WAS : the ATO will not allow the purchase price to be changed when re 'leasing a vehicle unless you change employers . or 4 financial years have passed .

this effectively means i'll be paying FBT TO THE TUNE OF %40 PER YEAR ON a market value of 16k.
i just think this is wrong !!!!!

SO IN SUMMARY . the current lease expires and is finalised . the new lease and finance is prepared at value 16k , but the FBT tax applied goes back to the vehicle price when new 35k and is applied annually from year 3 to year 6 of vehicle age . on a new lease plan that starts on a 2nd hand vehicle valued at 16k ?


CAN ANYBODY CONFIRM THIS ??????

What about extending your lease for 12 months?
That will make your vehicle five years old and applicable for a revision of the FBT liability.....

[vanman_75]

Yer many don't realise its very close to same cost to lease /release their existing vehicle , only good thing about it is if you want to buy it as your personal vehicle the residual will be less and less ....worth doing on say landcruisers etc that last forever and will hold their value , but pointless on a cheaper car such as Hyundai I30 , just get a new one and pocket the profit .

[mash85]

Originally Posted by gtfpv

OK HERE IS SOMETHING NEW , I JUST REALISED !!!!!!!

my FG 2009 XR6 is now coming to its lease end JAN 2013 .
the lease company contacted me telling me the options i have .
that is
#1 buy the vehicle at the residual %47 of purchase price .
#2 they sell the car for me and supply an updated model of my choice , effectively starting a new lease on a new vehicle .
#3 re- lease my current vehicle at the residual price .

so i asked them to supply a quote for option #3.
the quote was prepared , so the vehicle finance amount is less , around 16k.
BUT THE FBT STILL ON 35K @ 20% !!!!!!!
upon my queery REPLY .
I asked the question why do i still have to pay FBT @ 20% OF 35K pa , when i will be re leasing the car at a value of 16K.
wouldnt it be logical as the vehicle is now under a recommitment lease policy where new tax laws will apply , so the new value of a 3 year old car is now 16k , why charge FBT ON THE NEW PURCHSE PRICE OF 35K ??

THE REPLY WAS : the ATO will not allow the purchase price to be changed when re 'leasing a vehicle unless you change employers . or 4 financial years have passed .

this effectively means i'll be paying FBT TO THE TUNE OF %40 PER YEAR ON a market value of 16k.
i just think this is wrong !!!!!

SO IN SUMMARY . the current lease expires and is finalised . the new lease and finance is prepared at value 16k , but the FBT tax applied goes back to the vehicle price when new 35k and is applied annually from year 3 to year 6 of vehicle age . on a new lease plan that starts on a 2nd hand vehicle valued at 16k ?


CAN ANYBODY CONFIRM THIS ??????

i work for a lease company and can confirm the above is correct. the fbt base value will not change until a) the car has been under lease for 4 full FBT years. emphasis on full years. the fbt year runs from april 1 through to march 31. if you started your lease on April 5 for instance, the 4 years would not start counting down until the following April 1. after the full 4 years the fbt base value will drop by 1/3

or b) you change employers and take the vehicle/lease to a new employer. at which point the fbt base value will be calculated as the current market value of the vehicle

[Dave3911]

Does your lease company lease 2nd hand cars? do they have a car buyback scheme?

If your able to get your hands on the 47% residual value. Buy the car off the lease company, keep it for a month, then lease it back to them again.

[graham_h]

Originally Posted by SB.1

The "if you don't do 25,000 kms then it is not worth it is one of the biggest myths going around". The 20% applies to the base value (essentially the GST inclusive cost) of the vehicle. If you choose a cheaper vehicle, or second hand vehicle then you can still come out much better off than buying the car yourself. You still get all of the running costs out of your pre-tax.

The other thing most people are not aware of is that you get to keep the surplus of your sale price over your residual and you get that tax free. This makes shorter term leases very attractive especially where you are buying second hand.

I have mainly done 1 year leases in the past (as you get a 65% residual). So if I buy a $20K 2 year old Berlina, I only owe $13K on it in 1 year's time. If I sell it for $16K I pocket the $3K tax free. That $3K will pay for a significant proportion of the following year's lease payments (after tax) on a replacement vehicle.

Additionally the 20% FBT is only based on $20K (so $4K), so I'm a lot better off than the bozo who paid $40K for one new on a 3 year lease and is still paying FBT on $40K (20% = $8K) on the exact same vehicle in Year 3.

Still lots to be had out of novated leasing, you just need to be clever about it and get good advice from an accountant.

Can we just go into this a bit deeper ?
Theoretically someone earning a modest 50k income with the option of leasing through their employer.
lets take a $20,000 XR6 for example.
on a short one year lease what would the payments be like ?
Would those payments include everything ? including fuel ? (I've heard some leases do)
So you run it for a year...modest kilometres, then sell it for 16k say.
Sounds like a good option always driving a 2-3yr old car.
Anyone fill in the gaps for me ?

[mash85]

if you buy back the same vehicle and lease it through the same employer, it will remain at the original fbt base value. it will not drop just because it has been sold and bought back.

the tax is based on the relationship the vehicle has with the employer.

it would be the same if you sold you car to a work mate who then wanted to lease it via the same employer. the original fbt base value would apply