NOVATE LEASE - thoguhts?

[Androo]

Novated leases... do your own homework. I've already said this in another thread and I'll say it again. Novated leases are a smart way to purchase a vehicle, put your money to good use purchase a property or invest in something while you pay the lease per pay via your salary. In doing so you reduce your tax bracket and banks do not count a Novated Lease as a debt compared to a personal loan.

You will always pay more at the end of the lease, not much more e.g. $2000-$3000 more on a 3 year loan based on a $25,000 car. In the next few years the percentage will be 20% for all KM brackets. I do novated leases because i can budget a lot better, also a piece of mind that my car is always under factory warranty. Come to the end of the lease you pay the balloon + GST by either hoping the trade in value will cover the costs and you move along, I love doing this I never have to lump sum touch my bank account for a car. No strings attached, it's not my car.

Shelley, you should see an accountant... your situation is more complicated to calculate. Don't quote me on this but child support is calculated BEFORE deductions.

[Qyng]

I know this topic has been battered to death but Novated Leasing can work in your favor if you know a bit about leasing and how capital works - not rocket science however.

Few points to note:

Someone here wrote about how they got penalized for cutting a lease early - this might be the case if you structure your lease in a way to get the lowest possible monthly debt service. The best way to do this is to write a long term lease, say 3 or 4 years. Finance companies will typically charge break costs on a discounted rate on a NPV basis so cutting a 4 year contract at year 1 will not be viable.

However there is no reason why you can't structure the lease on a 12 month basis depending on your circumstances and increase the term as you go. Nothing wrong with that and you will not incur as heavy penalties when breaking out early. Also you get pay down on more principal earlier so overall less interest expenses.

On a second note, notwithstanding the benefits of a lower tax bracket and fuel, rego, insurance, maintenance costs that are taken out pre tax (leasing companies will also typically offer you a fuel card that has a specific cents per litre discount), a lease like an op lease will offer you a much higher ballon percentage. This essentially means you have less debt service say on a monthly basis and you will be paying a lot less on a net present basis assuming that you pay capital carrying costs. (everyone does in debt or opportunity cost in the case of equity).

Another point which hasn't been discussed is that the leasor will obtain better buying power in some cases and your empoyer will typically be able to claim an input tax credit on the gst of your car and therefore you do not incur borrowing costs on that 10%. Though you pay the gst at rv should you purchase the vehicle at end of term, but that will always be less than at purchase and given the timing, it means you did not finance that extra amount across your term.

Just my 2 cents.

And yeah unfortunately, I have spent the majority of my career in structuring corporate finance transactions so I have some idea when it comes to monkey business!

[Kid Danny]

Need the tax/fbt gurus for a dilemma that I now have.

I leased my car in the last FBT year and I had a concern on why I couldn't make reimbursements to my account (ECM) as it was always in a debit balance. I raised this to the company during the FBT year but received a response of 'I need to look into this more as I know there was an issue'.

Short story, I have now been hit with an FBT shorfall that I am required to pay and in light of this I called the company up to get an understanding on why I pay a management fee and how this was not brought to my attention earlier. The response was

My employer did not provide my details until 2 months after the lease had already commenced, therefore I did not pay FBT for a certain amount of days (which gives me my liability). I would have thought that the employer or leasing company would have identified this discrepancy after I had raised my concerns and because I pay a management fee each year!

My first question:

1. Is the liability I'm subject to an 'additional cost'. By additional cost I mean, I essentially have 4k a year for running costs (ECM so my FBT is nil). Will this now be reduced to 3.3k to factor in my shortfall, therefore coming 'out of my own pocket' or is something I would have incurred as part of my lease payments and they are simply playing catch up?

2. Do I have a case as to why I shouldn't pay this out of my own pocket and to whom should I raise this against. i.e. leasing company, employer, ATO?

Cheers

[donovan_ferguson]

Need the tax/fbt gurus for a dilemma that I now have.

My lease company (Maxxia) offers me a reference number every time I talk to them about anything. Did you get a reference from your lease company? If not, rather than calling all guns blazing, give them a bell and simply enquire as to whether there is a record of your previous conversation with them. More likely to willingly give you this "reference" if you don't call and start threatening to sue them.

Aside from that, I think you should speak to an accountant ASAP (which I know is not what you want to hear). This forum offers good general advice for people who don't have legal/fiscal problems.

[Kid Danny]

I have an email trail which is sufficient. I am an accountant but tax isn't my speciality and do have access to the tax division. I'm more interested in if anyone else has been through a similar process and how they went about it because you hit the nail on the head.. I'm an emotional child and ready to go in all guns blazing..

[Silvrfoxx]

Methinks you will get hammered.. it will be like the ATO.. they don't care how complex it is or how it happens.. just how much did you earn and how much tax did you pay.. if it matches their calculations then no worries. If it doesn't then you get a bill ( or refund ) argueing with them about your employer, your accountant, the dog ate your homework just ends up in pain.

IMHO you owe 2 months regardless of who said what to whom and when

[Kid Danny]

Yes I agree I owe 2 months, which I have happily made an extra payment for. What I can't get a clear cut answer is my FBT shortfall. As per my lease contract I pay 12k a year. Now that they have taken an extra 1k I should have made my 12k in payments for this year (lease started July 2011). I'm not sure if this FBT shortfall is covered by the 12k payments I have made or if this is an 'extra' 700 bucks due to a screw up on their end, hence me paying 12.7k instead to cover the penalty out of my own pocket.

Agree with ATO as well! ha