novated leasing, ecm method confusion

Dilan · 18-07-2007, 04:20 PM

Hi guys,

Just to learn a bit before I see my accountant I decided to play around with some online novated lease calculators. Firstly I used the site:
http://www.fleetpartners.com.au

Put in the following details:
Ford, 6-cylinder, $40k, 25,001 km, and a gross salary of $65k.

Alright according to that, if I purchase the above car it will mean my net annual salary will be: $37300.

This is using the ECM option, so that in my opinion seems a bit high.

Next I tried: http://www.leasexpress.com.au/ calculator
Same details and it says it will reduce my take home weekly pay by $272. Now this seems more realistic. This means my anual pay should be around the high $40,000 mark.
This is also using the employee contribution method.

What am I missing, why is there a massive difference?

Matty4 · 18-07-2007, 04:48 PM

It may depend on the leasing company's method of calculating the running expenses of the vehicle. One may allow say $1200pa for insurance, the other $600. The fuel costs, ie., cents/litre that they allow may also differ. One may average it to $1.30 and the other $1.50
You'd need to get more specific answers before you sign away, as the benefits of a novated lease can be great, if you do your homework.

Outbackjack · 18-07-2007, 05:23 PM

The amout financed will be the RRP minus GST and fleet discount. The difference might also be in the residual payment at the end of the lease. There are lots of variables. You really should get a detailed quote from the lease company. That amount seems high for a 6 cylinder falcon. You could probably get a XR8 for 40K now.

sarrge2001 · 19-07-2007, 10:33 AM

Yep - second hand 2006 demonstrators etc with less than 10,000km for 39K ~ 43K - You can usually novated lease a used vehicle under 3 years old.

Been looking around myself to use up my newly negotiated car allowance and was pretty settled on an XR8 manual - then drove the XR6 turbo - man, what a choice to have to make!!!

For a secondhand car it seems hard to get the leasing companies to give you a ballpark quote for a fully maintained novated lease over the phone - most of them want the dealers name and vehicle details (probably so they can negotiate a better price, which is fair enough).

Outbackjack · 19-07-2007, 11:57 AM

Quote:

Originally Posted by sarrge2001

Yep - second hand 2006 demonstrators etc with less than 10,000km for 39K ~ 43K - You can usually novated lease a used vehicle under 3 years old.

Been looking around myself to use up my newly negotiated car allowance and was pretty settled on an XR8 manual - then drove the XR6 turbo - man, what a choice to have to make!!!

For a secondhand car it seems hard to get the leasing companies to give you a ballpark quote for a fully maintained novated lease over the phone - most of them want the dealers name and vehicle details (probably so they can negotiate a better price, which is fair enough).

Be very carefull leasing a used car. Like I said, once GST and fleet discount has been taken from the price of a new car, you are looking at about the same as a used car. Go new if you can....

Grasshoppr · 19-07-2007, 12:43 PM

Exactly OJB, a work collegue got a brand new XR6 Turbo for $40,000 for his lease, so it must be in the same ball park as your looking sarrge2001.

At least ask the question to find out what price they can get a new car for. You will at least know for sure that you can get what you want

Ringo · 19-07-2007, 01:02 PM

Ok first up a novated vehicle lease is a finance product and concept and has a list of variables to take into consideration from company to company.

The list inlcudes:
Lease company fees

Fuel price (as mentioned earlier)
Fuel economy (they never set it at manufacturer)

Fuel - this can have a $50-100 per month impact on overall lease costs easily

Maintenance and tyres cost - An assusmption is made how long your brakes and tyre will last....usually conservative

(Fuel, Maintenance & Tyre costs you have some control over with driving style and YOU are responsible for any shortfall or will get back any money not spent at end of lease)

FBT - is it being charged at company tax rates (30%) or full rate, which is more common - 48.5%

Insurance can be a massive difference as well - it should be within the ball park of retail insurance companies.

Up front discounts can be different as well in terms of dealer discounts..it vary's a little...hundreds perhaps.

Thing to worry about is the residual value of the lease compared to the car market value. Consider it carefully when you see $20,000 as residual value. Can you sell the car for $22,000 (20k + GST) at three years with 75,000k on it ??? I think XR6's will be lucky to get 19,000 leaving you with a 3k shortfall.

Buying second hand will allow you to write it down faster than it is depreciating and reverse this situation - buy for $16k sell for $19k.

Also IF you need/want to bail out on the lease part way through the lease term the payout amount may be the same or lower already than the market value...

Buying a 2 year old Falcon with a little warranty left and running it for one year or two years is a pretty safe bet.

Other wise look at cars tha will retain their resale value better than Ford 6 cyl product. Wheels mag has a residual value % after three years for all passenger cars in the back of each issue - its amazing.

PS - I have a novated lease, I drive a Mazda6 (60+% residual after three years - Subaru & Honda are similar %), I kicked in a little bit of money to buy the car and reduce the FBT base value, I am using full ECM, I am doing 25k per year...just

Ringo · 19-07-2007, 01:09 PM

You don't state over how many months. What services your taking....etc

MON10A · 19-07-2007, 02:08 PM

all ive got to say on novated leasing is you are MAD to get ford or holden, as they are worth squat at the end of the lease period.

Outbackjack · 19-07-2007, 02:36 PM

Quote:

Originally Posted by MON10A

all ive got to say on novated leasing is you are MAD to get ford or holden, as they are worth squat at the end of the lease period.

There is some truth in that statement. It all depends on how good a deal your lease company gets for you. My BF XR8 has a 17K residual after 4 years. The car will have done 60k. I dont think that I will have any problems getting 17K for it.

Matty4 · 19-07-2007, 04:55 PM

My TS Terri has a 16K residual after 4 years, pretty safe to assume I'll get more than that for it, even with 100K on the clock

Sam · 19-07-2007, 05:11 PM

agreed, if you are leasing and paying full price for a ford/holden you are mad, fleet discounts make good things happen, 32K VE SV6 fleet price brand new.

Bucket · 19-07-2007, 05:28 PM

I'm Curious about the XR5 Turbo hey...will it hold its value?

Outbackjack · 19-07-2007, 05:47 PM

Quote:

Originally Posted by Bucket

I'm Curious about the XR5 Turbo hey...will it hold its value?

If it is anything like our little fiesta it will. Percentage wise, we are better off with the fiesta than the XR8.

Bucket · 19-07-2007, 05:59 PM

Quote:

Originally Posted by Outbackjack

If it is anything like our little fiesta it will. Percentage wise, we are better off with the fiesta than the XR8.

Awesome....thats encouraging...one of my options when time comes

what is it about your Av. that makes me want to be a kitten all of a sudden???

bingoTE50 · 19-07-2007, 07:44 PM

Hi Dilan ,
mate do you need a vehicle to carry out your employment , or you just need a new car. In other words is your salary 65k gross , or 40k plus 15k car allowance ?
If you just want a new car , a novated lease is usually paid by your employer ,and if you leave you own it . If the car is not required for your work ,do not get them involved .If you get them to pay the novated lease and you use up your gross dollars ,they do not have to pay super on that amount . You would normally just get a residual lease or hire purchase lease with no residual yourself .
If your salary is say 40k gross plus 15k car allowance , well a novated lease is ok if you feel comfortable that you are going to be there for 3 - 5 years ,whatever the terms are. I have a 15k allowance and bought a second hand car ( TE ) with relatively low k's myself cash , and will use the cents/klm method to offset FBT . I will also claim servicing , and repairs if possible . The temptation for you is to spend big dollars and get hit with a big FBT bill if you don't do the k's . You would want be doing 40k a year on something worth 40 plus grand , to offset the FBT. If you do say 10k , your bill could be 25% of the purchase price .Each year !!
The reality is that a company car is less hassle .. and they are the fastest and toughest go anywhere car you can have !!!

sarrge2001 · 19-07-2007, 08:41 PM

Yeah i've just started looking into it.

I got a 15K car allowance to play with, or a fully maintained car (which turned out to be a series II BA ute so i've taken that for 6 months or so to see how permanent the job turns out and i'll use that time to look further into novated leasing.

OBJ I think you are right with the residual vs what the car will be worth.

Will definately be pricing new cars as well as secondhand but secondhand is an attractive option - Best so far has been a Lightning Strike BFII XR8 Manual with 6,000km, December 06 build for $39K - by the time GST is taken off lease value is around $36K versus over 40K for new - just gotta do the sums!!!

Outbackjack · 19-07-2007, 09:49 PM

Quote:

Originally Posted by bingoTE50

If you just want a new car , a novated lease is usually paid by your employer ,and if you leave you own it . If the car is not required for your work ,do not get them involved .If you get them to pay the novated lease and you use up your gross dollars ,they do not have to pay super on that amount .

I dont think that is true.... Your super is paid on your TR (total remuneration) Is doesnt matter how you divvy that figure up. I know for a fact that my super is paid across the value of my lease.

wakeboardandy · 15-07-2008, 08:00 PM

sorry to bring up an old thread, but if you have a novated lease with ecm. ie. you are making some post tax contributions, can you claim the running costs through your income tax on those post tax contributions?

Ringo · 16-07-2008, 09:02 AM

Quote:

Originally Posted by wakeboardandy

sorry to bring up an old thread, but if you have a novated lease with ecm. ie. you are making some post tax contributions, can you claim the running costs through your income tax on those post tax contributions?

First up I am not an expert, not a tax agent and you are asking this question of a forum so take this as my disclaimer against being wrong....

No - you cannot. Your company is claiming your leasing expenses as a business expense, they are then simply deducting the lease payments from your pre and post tax salary in such a way for you to able to make and FBT liability deduction to reduce your FBT liability.

ECM is actually claiming an FBT tax deduction through using post tax income dollars so in actual fact you are claiming an FBT deductable expense as as an income tax deductable claim as well.. they are different taxes.

That said Glen Wheatly's accountant would probably do it...

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