September 19, 2023 • 34 mins
What is a novated lease, how does it work, what should you consider, and what are some of the pros and cons of this arrangement? Today's episode is full of tips to help you make the best decision when considering whether novated leasing is right for you!
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Episode Transcript
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Speaker 1 (00:00):
Hello.
Speaker 2 (00:01):
My name's Santasha Nabananga Bamblet. I'm a proud yr the
Order Kerney Whoalbury and a waddery woman. And before we
get started on She's on the Money podcast, I would
like to acknowledge the traditional custodians of the land of
which this podcast is recorded on a wondery country. Acknowledging
the elders, the ancestors and the next generation coming through
(00:23):
as this podcast is about connecting, empowering, knowledge sharing and
the storytelling of you to make a difference for today
and lasting impact for tomorrow.
Speaker 1 (00:33):
Let's get into it. She's on the Money.
Speaker 3 (00:36):
She's on the Money.
Speaker 4 (00:57):
Hello, and welcome to She's on the Money podcast for
millennials who want financial freedom. My name is Beck Sayed
and Victoria Divine is with us to talk about something
many of you listening will know about, but I don't
know anything about dovated leasing.
Speaker 1 (01:15):
Hello, my friend today. Yes, indeed, we are going to
run through what it is, how it works, the pros
and cons, and so much more. I feel like we
get so many dms on a regular basis, like Hey,
my work it offers novated leasing. Should I do it?
And I'm like, well, I can't answer that, but you
know what I can do to a podcast? Ah, let's
do it. It's the only thing we've got going for
(01:36):
us at this point in life.
Speaker 4 (01:37):
Beck, I'm happy about that. Actually, what is a novated lease?
Speaker 1 (01:41):
So anvated lease is a way that you can finance
a new or used car. You can make your repayments
from your pre tax salary, which is why so many
people find it so damn attracting. With approval from your
employer under what's called a salary sacrifice arrangement, this can
effectively reduce your taxable income. It also allows you to
(02:03):
bundle your vehicle's expenses into one simple payment. Oh okay, yeah,
I'm so you're like, I would love that. So how
does anvadd lease work? So what you'll do is you'll
find a new or a used car that you want
to purchase. You'll decide whether it's good. I can't help
you with that as to what a good car is.
You enter into what's called a lease agreement with a
(02:24):
finance provider or a bank. You then enter into what's
called a salary sacrifice arrangement with your employer to cover
the car lease with repayments coming from your pre tax salary.
You can also sometimes include car running costs in your lease,
so things like servicing back and petrol, which is very
attractive because you know what's really expensive petrol? Very true.
(02:46):
I don't even want to talk about it. How salty
I get with how expensive it is to fill up
my entire tank, which is a privilege in itself.
Speaker 2 (02:54):
I know the.
Speaker 1 (02:54):
School Sten so expensive school Sten. Anyway, then your employer
makes repayments to your finance provider on your behalf from
your pre tax salary. Sure, but if you change jobs,
you take the card with you and continue to make
repayments directly, or you transfer your agreement to your new employer.
So there's a bit of a boy and if you
(03:15):
transfer it to your new employer, you have to make
sure that your new employer approves it. Okay, And there's
the probability that they may go, oh, I'm so sorry, Beck,
we don't offer that. Sure, which is okay because they
don't have to offer that. I wonder about credit checks.
I'm sure we'll get to that at some point. What
do you mean, of course there's a credit check. You're
speaking out of line of credit. Absolutely, there's the employers
paying them, Yes, but it's in your name, coming from
(03:38):
your income. I about them. Yeah, so your employer also
pays money into your account.
Speaker 2 (03:43):
Yep.
Speaker 1 (03:44):
From the top. What would happen is you've got your
salary that is allocated towards you. Your employer already takes
out your tax and pays that on your behalf, so
you don't have all of the money coming into your account,
and then you pay tax r like a business would.
So you pay your tax, they would allocate supranuation to you.
They would also allocate the money that goes into your
take home salary, which gets transferred to your bank account.
(04:05):
And then this would be an additional add on where
they actually slice some of your take home salary off
and transfer it to pay off your car lease. So
it's not as though the lease agreement is with them.
What happens is the lease agreement is with you, but
the agreement is that your employer uses your pre tax salary,
which means it can't come through your bank account. Right, Okay,
(04:26):
so clear that up. Yeah, But just for the sake
of people listening, can you give us an example.
Speaker 2 (04:31):
Wow?
Speaker 1 (04:31):
Yeah, I get it, But give us an example just
for someone you're like somebody that's clearly not me doesn't
get his all right, So Lert's use the example of
a seventy thousand dollars before tax salary, right and your
novated lease payments they come to ten thousand dollars. This
means that your quote taxable income becomes sixty thousand dollars
(04:54):
if you pay all your novated lease payments from your
pre tax salary, So what you actually declared to the
tax office and pay tax on is sixty thousand dollars
instead of the seventy thousand dollars, which is arguably very sexy.
This means you'll obviously pay less tax over that year,
which is why so many people are attracted to novated leases.
Your finance provider or an accountant can obviously help you
(05:15):
work out the potential savings and other things you're going
to need to consider before entering into a novated lease
based on your personal circumstances. So obviously, I keep saying
it's really sexy, and I really need to get a
better descriptor, but I have none, and I lack a
lot of creativity, so we're just going to keep calling
it sexy again and again. But that means obviously you're
reducing the tax that you pay, but another sexy option
(05:40):
is that it could drop you down a tax bracket.
So if you're sitting on what's called a CUSP, which
is where we know that the average marginal and most
common marginal tax bracket in Australia is between forty five
thousand and one dollar to one hundred and twenty thousand
dollars per annum, which means you pay five thousand and
ninety two dollars in tax plus thirty two point five
(06:02):
cents in every dollar over forty five thousand dollars earned. Okay,
that means that hypothetically, beck if you earned twenty thousand
and one dollar, it would mean that you fall into
the tax bracket of paying twenty nine thousand dollars in
tax plus thirty seven cents in every dollar, which is
different to the five thousand plus twenty two point five.
(06:23):
That's a lot of a difference. It means that if
you then maybe used a structure like this on your
twenty thousand and one dollar salary and you had no
vated lease payments of ten thousand dollars, you would actually
drop to having a taxable income of one hundred and
ten thousand dollars, which actually takes you back to that
thirty two point five cent tax bracket, gotcha, which could
(06:44):
be very attractive. And obviously it only works in very
specific circumstances where you know you are on that cusp,
you're just over and the payments that you're making on
an ovated lease actually take you down a tax bracket.
But sure, it's definitely worth looking into. Yeah, like if
it makes sense for you and your personal circumstances. So
if it's a lease, is it like a real debt?
(07:06):
That is a very good question, and yes it is,
And I think that that's where we need to really
talk about it. I called it sexy multiple times because
that's really attractive. Right, it's pre tax Right, we can
buy a bigger, better car, Beck, we can all go
get land cruisers. Do we need land cruisers? No, you
(07:26):
live in the city, you don't need a land cruiser.
You don't even go four wheeling, Like that's not an option.
But you mate has one, so you need one. And
you know what, I guess my work, they often evaded leasing.
It's a slippery slope of making a decision because you're
justifying that it's a good financial decision. Yeah, because you're like, well,
it's pre tax, that's very attractive, and it means like
(07:47):
you get a more expensive car totally and the money
would go further. And you're not wrong, But any debt
that is not creating wealth for you is a bad debt.
So I would look at an ovated lease as a
bad debt. Let's see it as a good debt. I
see it as something that is not helping you create
future wealth. And I mean there is the argument that
(08:07):
the car could be worth more when you come to
get rid of it or dispose it. I don't give
two flying slippers say it said that. I kind of
look at it and go no. At the end of
the day, a car is a depreciating asset. And I
would hate for people to justify buying more or spending more,
(08:28):
because ultimately that impacts your take home income, and that
ultimately impacts your ability to invest and save and create
financial freedom. And as much as you can justify it
and be like, oh, we need this, we need that,
like you arguably don't. Okay, Like it is a luxury
to afford a brand new car. Even now I'm looking
at purchasing a new car, Beck, And you know, Steve
(08:51):
and I are in a financial position where we could
afford a brand new car. I could go and get
a lease on a brand new car tomorrow. I can't
think of anything worse. I will not be buying a
car on finance. Is it a good financial decision? Sometimes? Yeah,
a car lease, especially as a business owner where it
can be in the business right, like I could novate
lease my own car. I'm terrified of bad debt because
(09:13):
I'm not responsible. I can't be held responsible, Beck. So
at the end of the day, you've got to know
yourself as well as know the structure. And it's like
credit cards, right, some people are really good at managing
credit cards and they use them for cycling through points
and they get all these business class flights. Like we've
spoken about Brooke before on the podcast, who is one
of our team members. She like stealtz credit cards like
(09:37):
she is the queen of making sure that she's getting
all of the sign on bonuses and then disposing of
the credit card or using them in really constructive ways.
I'm going straight to Lululemon. If you give me a
credit card, cannot be trusted, Beck, And that's where you
should look at an ovateed lease and go, well, actually,
is this a good financial decision If you need a
new family car and it's something where you go, Beck,
(09:59):
we've been meaning to get it, Like the only option
is going to be you know, a car loan. That's fine,
This could be a really really valid option that actually
puts you in the best financial position for taking on
debt for a car. Sure, and that's great, but it's
still debt for a car, and we need to see
it as that, not some shiny benefit that your business
offers and you can absolutely take advantage of it, Yeah,
(10:22):
because I think a lot of businesses use it as
a shiny upgrade, like, oh, well, if you're signing on
beck one hundred thousand dollars salary package and we do
novated leasing, Okay, that is great if it applies to
your circumstance, But more often than not, it's just a
way to keep you in debt.
Speaker 4 (10:41):
Right, Okay, we keep saying lease. But if you do
an ovated lease, does that mean you own the car?
Speaker 2 (10:47):
No?
Speaker 1 (10:48):
Oh okay, Well the finance company owns the car. Sure
are then leasing the car from them? Sure? Do you
actually ever own the car? Beck, Well, technically no, while
you're running an ovated lease, In fact, you don't actually
want to own the car because all your tax benefits
would completely disappear. You okay, the finance company to own
your car. Okay, So it sounds good, but it doesn't
(11:12):
necessarily mean it is. I see. So this kind of
sounds like a hack to get a new car every
three years. Yeah, that is what a lot of people think.
So a lot of people go, all right, well, I'll
get an ovated lease, you never own the car, I'll
pay my novated lease payments, and then in three years,
once I'm done that lease, what we'll do is we'll
go back down to Toyota. We'll get a new car
that on a ovated lease and start cycle again. So
(11:35):
you never actually ever own a car that you're paying off. Right,
it sounds really tax effective, but you're leasing it instead
of paying the car off completely. There are certain circumstances
where when your norvated lease has expired, you can purchase
the car for a discounted rate and it sends up
being okay, and it would then move into your personal
name and not have the tax advantages that it previously had. However,
(12:00):
rocks in their head. Nobody in their right mind needs
a new car every three years. Controversial opinion. I hope
my friends aren't listening to this episode because I've got
a couple of them that literally get a new car
every three years, because they're like, oh, it's three years old.
I've got to get rid of it. Clah, My car's
from two thousand and six. I've been driving it since
twenty eleven. You will have to pry it from my
(12:22):
cold dead hands. And I've been talking to my husband.
The only reason that I would feasibly get rid of
it is because it's a two door Coupei. Because like
when I bought it, I thought I was so cool. Back,
I thought I was so cool, right, I bought it
at university and like hot stuff. Two doll coupei all
on debt. Obviously, of course all on det But I
have my two dog Coupay, and I was very excited
(12:44):
about I still love her a lot. But the only
reason I'd get rid of that is because a two
door Coupei didn't suit our lifestyle anymore, right, gotcha? You know?
Putting baby seats in the back of a two door Coupei,
that would be hell, this is not great. I mean,
we could make it work technically, but I'm not that stubborn.
That's obviously my personal opinion. You might think, oh, well,
(13:07):
I actually do for these reasons, for safety reasons, like
you could come up with so many good debate. Sure
to go, but V yes, I do need a car
every three years. I've done all the maths, I've done this,
I've done that. At the end of the day, a
car is a depreciating asset, and if you have one
and you completely pay it off and then you run
it into the ground, that will arguably, always, always, always
be a better financial decision. Then you're getting a new,
(13:30):
shiny car every three years.
Speaker 2 (13:31):
Yep.
Speaker 1 (13:32):
You can't argue that. Cannot argue that your values might
be different. And that's totally okay, Like that is so
fine if you go. But b I am such a
petrol head. I love cars. Cars are my thing. Like
every three years, I get a new one. I am
so car proud. Like you're the dude or the chick
down at the car wash every Saturday morning, Like you
(13:52):
go your little chammy out in buff and your car up,
like that's your favorite thing in the entire world. You
sacrifice other things in your life so that you can
have that. I'm not gonna argue with your values. That's
what I am going to do is make sure that
you're as educated as possible so you know the ramifications
of the decision that you're making, and then you can
still make it. That's fine as long as you've got
the education behind you so that you go. You know what,
(14:14):
I don't care like some things in life are wastes
of money. Yeah. You know what's a waste of money?
My eyelash extensions. Am I still gonna get them? Absolutely?
Because I feel real hot when I have them back? Absolutely?
Does that mean that everyone always has to make the
best possible financial decision. No, no, but you have to
make it in line with your values, and you have
(14:36):
to be educated to know that the decision you're making
might not be the best one, but it's the best
one for you.
Speaker 4 (14:41):
Speaking of education, what are some of the benefits of
nevated leasing? With anovated lease, you can use your car
for personal use, which is quite helpful. You don't just
have to be using their car for like business or
work purposes, which I think is a common misconception. Your income,
the cost of your car and ongoing running costs each
year will actually decide how cost of efective a norvated
lease might actually be for you. The result will be
(15:03):
that your taxable income is reduced. The benefits also depend
on the way that your lease is actually structured BECK.
Some leases might package car expenses like registration and fuel
and tires and insurance together, so your repayments cover all
of these as well, Whereas some employers may also allow
you to pay part of your norvated lease from after
(15:23):
tax dollars.
Speaker 1 (15:24):
Which is called an employee contribution. If you're not on
the highest marginal tax rate, this can actually be cost
effective because fringe benefits tax, which is based on the
highest marginal tax rate BECK may not have to be
paid to your employer from your pre tax salary in
addition to your norvated lease for payments, nervated leases can
(15:45):
effectively mean motoring costs are goods and services tax free,
so GST free for employees. The GST you would ordinarily
pay on the purchase price is covered by the finance
provider and they can claim an input for tax and GSD,
by the way, is ten percent if running costs are
included in your novated lease. These can actually be packaged
(16:06):
to employees with their lease payment without GST, as the
employer claims the tax component back as an input tax
as well. I see. Okay, just means again you know
how we talk about like franking credits and stuff. Things
have little tickets on them to be like by the way,
this one's tax free, or by the way, it comes
with a certain benefit, and input tax credit is the
(16:27):
same as that, but it's for a business. Okay. Yeah,
So like GST is kind of like left pocket right pocket.
Like when you're a business owner, you pay GST and
then you also get GST, but all the GST that
you collect actually gets paid back to the government, so
it's like I charge it, but that doesn't come into
play with my profit. Whereas for you, beck, as a consumer,
(16:49):
when you go to the shops and you buy a
new drink bottle, for example, there will be a goods
and services component that you pay, but you can't claim
that tax time. This changes that circumstance. So someone in
the background is making the GST effective for you, which
is kind of attractive. Yeah. I love that. Also, last
point on this, like in the pros area, is compared
(17:10):
to other kinds of finance like a direct car loan,
an ovated lease gives you a few different options for
what you do when the lease term ends. So you
can pay off the residual so that you then own
the vical like we're talking about before, you could renew
the lease for a longer term, either with the same vikel,
or you could upgrade, like you were explaining every three
is you could upgrade to a new car. Or alternatively,
(17:32):
you could sell the car and pay the residual off
to the financer, and then any profit you make is
actually yours to keep. That's free. That's pretty cool. Yeah, Okay,
now I know it's not all pros. So we need
to bring the mood in here to you need.
Speaker 4 (17:47):
To bring the mood down. What are some things we
need to consider when it comes to novated lea.
Speaker 1 (17:52):
So the first thing I'd want you to consider is
that if you are going to change employer or change
your job or stop working, the responsibility for making the
repayments that still remains with you should remain with the
employer you set it up with. You might be able
to transfer your lease to a new employer if they
actually offer novated leasing, and it is a bit of
(18:12):
work to set it up. But you might also want
to just take over the repayments completely, which would mean
that they are no longer pre tax than our post tax.
But you can just keep paying off the lease. It
just means it would be more expensive technically, gotcha. When
you have a car under a novated lease with your employer,
the federal government considers it to be a fringe benefit,
so then fringe benefits tax might apply. So while employers
(18:36):
are liable to pay fringe benefits tax, in the case
of novated leases, this cost is generally then passed on
to you to pay from your pre tax salary because
the employers are kind of like, well, this is all
benefiting you. Why would we pay a different tax on
your behalf when it's you incurring it directly because you
wanted a car. It's also really important to understand how
(18:58):
this and any other financial imployers arising from entering into
an ovated lease can impact you. So I guess my
last point Slash it's not a con but it's a
point is if you're going to do it, please just
talk to your accountant or a financial advisor or someone
in the know, so that you can look at all
the personal pros and cons and what it actually means
for your financial situation, because, as I said, I just
(19:19):
think people get a bit like really excited about it
because it's such an attractive option and like obviously, innovated
leasing companies have spent a lot of money on their
marketing to be like, Beck, this is such a tax
effective thing for you. You're basically making money and then
does look pretty sweet. Yeah, but then you go down
to Toyota or whatever. We're not sponsored by Toyoda. Just
I walk past a Toyota dealership most days, so it's
(19:41):
just like the one in my freshad.
Speaker 2 (19:42):
Right.
Speaker 1 (19:43):
Anyway, you go down to Toyota and like maybe you
had planned to get like you know, the base model
of like a camera or something that makes sense for
your financial situation. Then you're kind of like, oh, what's
the matter, Like, let's get the luxe version I deserve it. Yeah,
it's all online thenovated lease anyway, Sure doesn't matter, does
it back or come out in the wash? No, We're
(20:05):
making financial decisions that ultimately impact your ability to create
financial freedom, and that's important to understand. It's a really
good place to go on a quick break, A little
quick break after the break.
Speaker 4 (20:15):
I have some questions about how the discounts work and
many other things.
Speaker 1 (20:19):
Sexy, let's go. I'm quite all right, v we are back.
This is I'm the only one excited to be back
in this room.
Speaker 4 (20:32):
So I'm actually excited about this part. I have to
be honest because we're talking about discounts.
Speaker 1 (20:36):
Yeah, I knew that to get you, so I put
it right at the top hooks. I didn't sinker. Don't
you do anything for you? Honestly, what discounts can you get?
All right? So, as I said before, you're not going
to pay GST on the purchase price of the vehicle,
which is approximately ten thousand dollars, So this can save
you've done the mouths up to one hundred and ninety
one dollars in the financial year of twenty twenty three
(20:58):
twenty twenty four. Obviously, different financial years are going to
be different, so diy your own mats if the year
is different to when you are listening to this. Any
car running costs that are included will also be GST free,
so you're not paying GST on petrol, you're not paying
it on servicing. It's like a little ten percent discount
right there. You'll be saving on income tax by making
(21:19):
novated lease payments from your pre tax salary, so like
salary sacrificing your car. And if you're nervating an electric
vehicle or plug in hybrid, see this is where people
are going to start justifying Tesla's beck. Obviously, up to
the luxury car threshold, you won't be subject to fringe
benefits tax or FBT on your lease. So that's what
(21:40):
we said before. You could if you buy a hybrid
vehicle or electric vehicle. Sure, well there you go.
Speaker 4 (21:45):
Okay, So how do you salary package fuel and services.
Speaker 1 (21:50):
So this is called a fully novated lease, So they're
like anovated lease, and then there's like the fully novated lease.
So sometimes you might just have the car like it's
up to you to get your insurance and pay for
petrol and like your actual debit card. But the fully
novated lease means that under that part, apart from paying
for the car repayments, the employer would normally pay for
the car's running costs like fuel and maintenance and registration
(22:13):
and car insurance. And it's like then all combined into
your lease repayments, so it's a set figure every single month.
And then for fuel, you get given what's called a
fuel card. So you might have heard of those before.
And it will depend on where you live as to
what service stations you can go to fill up, because
you'll need to pay for fuel from your fuel card
because it has the allocated pre tax dollars on it.
(22:36):
Oh okay, that's pretty fun. I wonder if you can
slip in a like cheeky little curly wurly while you're
at the chickau a little sausage roll, Oh, sausage roll card.
I'm just wanting to get the like ninety cent curly Welly.
Do you think curly wellies are still ninety cents? I
think so?
Speaker 5 (22:49):
Yeah.
Speaker 1 (22:50):
I reckon, I reckon it would be fair for them
to still be ninety cents. If they're not, let's talk.
If they're not, I will still buy them anyway. And
I just want to know, does this tie you to
your employer?
Speaker 2 (23:01):
Ah?
Speaker 1 (23:01):
Yes and no. Anovated lease is obviously only used by employees,
which means the lease agreement is actually tied to the employee,
not the employer. It's more about whether your new company
is going to offer novated leasing, which means they would
offer to pay your novated lease from your pre tax income,
which is obviously another admin hassle. It's something that not
(23:24):
every single employer offers. And if you leave your job
with a novated lease, the car will be what's called
denovated and you're going to make payments as you would
with a standard lease, from your own funds, so like
from your post tax income directly from your salary until
you're employed again and pay a salary if your employer
(23:44):
consents to, you know, putting your car or novated lease.
And if you find a job with an employer who
agrees to pay for a novated lease, you're going to
be able to what's called renovate your lease and then
continue to make payments as you did with your last job.
So no, it doesn't tie you to your job, as
the tax free component might not be that attractive to
you if you have to pay it for any period
of time.
Speaker 2 (24:05):
Yeah.
Speaker 1 (24:05):
Wow, so many play on words in this. Yes, sorry,
I'm trying my custard be if clean and clear is possible,
a great job.
Speaker 4 (24:13):
I do want to know, though, V what happens when
you get to the end of the lease, or if
you want to cancel it in the middle. So when
the end of an ovated lease happens, typically you have
three different options. So you could pay the residual and
then you own the car outright. Your tax benefits cease
then because it's then owned in your personal name. It
is your personal asset to run. Nobody else is going
(24:33):
to be giving you some tax benefits for that. The
second option BECK is refinancing the residual value to continue
using the car. You know, let's pretend you're three year
lease ended and you're like, okay, cool, but I really
want to keep the car, don't really want to pay
it out because I either don't have the funds or
actually still want the tax benefits of it. Can I
keep paying it off in the same way that I am.
(24:53):
Let's you know, do a longer lease period, renew it
same car, let's go and it continues off. Or you
could trade that cut in and upgrade to a new
vehicle and enter into a fresh please agreement. And that's
where I think it's a slippery slope because.
Speaker 1 (25:09):
I look at it and I go I know that
it was like beneficial for the first couple of years
because like you're paying off this car rah rah. But
if you then renew it every single three year period,
or you know, you might have a five or a
seven year period, it really depends on like what agreement
you've entered into. It's kind of like, you know, when
we talked about a thirty year term on a mortgage
(25:30):
and I'm like, all right, well, let's say you've got
a five hundred thousand dollar house and at the end
of your thirty years, Beck owns one hundred percent of
that property because you're paying your principal and interest off, right,
So it gets to five years and you go and
sit down with Kate, your Zella money broker, and Kate says,
all right, well, let's refinance. Thankfully, Kate's really smart because
(25:53):
she's a Zello money broker, and like, we literally care
so much about your financial futures that we would never
let you reset that term. Sure, we would always go Okay,
instead of re entering into a thirty year term, we're
going to enter you into a twenty five year term
for this. We're obviously going to reset, you know, your
interest rate, you know, bring it down a little bit,
but we really don't want you to have to redo
that five years that you've already been paying your property off.
(26:16):
So we're going to just set this term over twenty
five years, so that in that same thirty year period,
you're going to end up with one hundred percent of
this property. Okay. Whereas with car loans, if you get
three years in and then you say, hey, Beck, one
new one going to go upgrade, you go back to
the very start and you start paying off another car. Sure,
you're never going to own one hundred percent of that asset.
(26:36):
Yet you're paying thousands of dollars towards this asset for
the privilege of driving it, but never fully owning it.
I don't know, a waste. Hey, that's where we're trying
to go. I see, I see, I see. I'm not
saying it is a waste. It can be very constructive.
As we've said, there's so many benefits to it. But
I think we need to balance those benefits and go, well, actually,
(26:59):
what's the ultimate out? Sure, because like if I sit
you down and go, Beck, well you know you need
a car, and you go yeah, absolutely, Like V it's
not an option. I have to get from A to B.
I need a car. I've looked at every other options
and horse is not going to work. I can't ride
a kangaroo to work every day. Like, it's just not
gonna work, okay, right, non negotiable. Beck acquires car? Yes,
(27:20):
but Beck, what's the long term goal with that car? Like,
you're gonna have to get from A to B. Yes,
I guess for the next thirty or forty years, because
it's gonna keep working, right, So car might be completely necessary.
You drive to Sydney a fair bit, so, like, that's
important that you have access to a car. So it's
not that you're gonna have the car for the three years, right,
You're hopefully going to be a car owner for the
(27:42):
rest of your life or as long as your license
allows you, you know what I mean? Like, why are
we only looking at the first three years when you
know tax efficiency means that yes, it is the most
beneficial tax option in the short term, but in the
long term, is it not better to buy one car,
pay it off completely and have these costs coming out
(28:04):
of your post tax income and not be paying a
consistent lease for a brand new vehicle. Yeah. So I
think it's just really important to understand why we might
make these decisions. Okay, in the short term and in
the long term, like you might go, you know what,
I've looked at this, and anvated lease really works for
me because I actually don't own a car at all
at the moment. These tax benefits are going to really
(28:24):
work for me. I'm going to get this novated lease.
I'm going to you know, paid off for three years.
In three years, they're going to offer me the opportunity
to pay the residual value on the car, because like, oh,
can we renegotiate that, just stretch it out a bit further.
I'll pay more off, but I want the tax benefits.
So you stretch it out for another three years. You
show a car for six years, car's basically completely paid off.
Now you decide to put that in your personal name
(28:46):
and go, you know what, we had a really good run.
I was paying for fuel and stuff out of my
pre tax income. Now it's out of my post tax income.
But I don't have a car repayment anymore, so actually
have a lot more money to play with.
Speaker 4 (28:58):
Gotcha.
Speaker 1 (28:58):
Okay, But what happens if you want to cancel in
the middle of a lease? All right, So if you
want to cancel in the middle of the lease, you
essentially have to pay out your lease early. Just like
in any lease contract, you'll have like a get out
of jail early clause. Right, So when you take on
an ovated lease, you agree to lease the vehicle for
a set period of time, and then if you break
the lease early, you're going to have to pay the
(29:19):
remainder left on the lease along with the residual value
of the vehicle including gst Okay, So if you want
to get out of it early, it might not be
the best financial decision because it might actually cost you
a bit more. Sure, but you've just got to be
careful read all your terms and conditions and make sure
that you understand all the t's and season fees involved. Huh,
(29:41):
I'm just really good at reading ads. You've done that.
Speaker 2 (29:44):
I've tried.
Speaker 1 (29:45):
I've tried my best, So say anything else I should consider. Look,
there's a whole heap. I'm just going to list off
a few. Obviously, understand your income. You need to make
sure that the income tax savings will actually be enough
to offset the cost of the lease. So, for example,
it might not actually makes sense for people on lower
incomes to do this because it's like, well, the benefits
are negligible, what kind of vehicle are you actually going
(30:08):
to lease? So, as we said before, novaded leases are
particularly attractive for people who want to buy like electric
Vickles are hybrids, because you get out of the FBT,
which is kind of attractive because they now have that
exemption as long as the value of the car is
below what's called the luxury car tax threshold for fuel
efficient vehicles, which this year in the twenty twenty three
(30:28):
twenty twenty four tax year is eighty nine, three hundred
and thirty two dollars, which is so much money for
a car. Beck, Yeah, And obviously this considerably boosts novaded
least tax savings. Yeah, okay, okay, I got you when
it comes to how many kilometers you're going to be
driving on this. So generally, people who use their car
a lot are going to get a whole heap more
(30:48):
benefits through saving on fuel and other running costs, including
part of the lease. So I've worked with clients where
it actually genuinely makes financial sense for them to consistently
have an ovated lease. Good example, they're a BDM for
financial advisors. Their job is to drive around all the
financial advisors in the state that they manage. So they
(31:09):
go from their house every single day. They might come
into the city and go to the office. They might
then go out to you know, none a Wadding and
then they might be in Dandingong, and then they might
be over in elston Wick, and like they drive around
the city a lot. In these circumstances, anvated lease might
make sense because you're putting your car through a lot.
There's obviously a lot of wear and tear happening on
their car. There's obviously a lot of fuel costs in
(31:31):
that circumstance, and that could actually make sense as a
part of that salary conversation when you go, hold on
like this is actually more of a work vehicle than
it is actually just like a I really wanted to
drive a Tesla, got a situation, you know, gotcha? So
the purchase price of the vehicle we also want to
look at, So like too low, the GST savings might
(31:51):
not be enough to offset the lease costs. But then
too high and the savings as a percentage of the
vehicle's value will become very low. And mistake to avoid
there is buying a more expensive bigle than you need
in an attempt to maximize tax savings. Gotcha cut that out.
Don't do don't do that, don't do that. We need
to understand lease costs, so innovated lease will work best
(32:13):
if you can get a deal with a competitive interest
rate and low lease fees. So, as I said before,
we need to understand our t's and season fees. Don't
agree to anything without that. And obviously we need to
understand things like administration fees that are going to be
charged by the lease company, not just your competitive interest right.
Understand what the least term is. So similar to other
(32:36):
kinds of finance, you could reduce your interest or other
costs by choosing a shorter term. So you might be
offered a seven year lease, go what would it look
like over three? What would it look like over five?
Can you will afford that? Does that make sense for you?
And a smarter proach I've scene for some people is
to choose the shortest term possible while maximizing the percentage
of the vehicle you pay off by the end of
(32:57):
the term, and then do it across as many financial
years as possible, so you're maximizing tax savings. That is
so clever. I've talked about nervatedly sing a million times
before with like friends and family and trying to understand it.
And I think the one thing that I really want
you to understand is that nervatedly thing makes sense. Yeah, Like,
I've just explained it all. They are obvious pros and
obvious cons. Sure, but the thing I don't want you
(33:19):
to get stuck on is justifying a more expensive purchase
because it's better for tax. Right, So we're not going
to do that, are we back?
Speaker 4 (33:28):
No, We're not going to do that. This is definitely
a lot of information. If I were a listener, I
would listen twice.
Speaker 1 (33:34):
In a row. Just so not you dirty, dirty liar,
I am not. You are, little fibber.
Speaker 4 (33:41):
Just in case you need to, we are here for you.
This is a lot of information taken. Go absorb it
and have.
Speaker 1 (33:47):
The best week of weekday? Bye? Guys, did buy shared
on cheese?
Speaker 5 (33:58):
On the Money is generally and does not consider your
individual circumstances. She's on the Money exists purely for educational
purposes and should not be relied upon to make an
investment or financial decision. If you do choose to buy
a financial product, read the PDS, TMD and obtain appropriate financial.
Speaker 1 (34:16):
Advice tailored towards your needs.
Speaker 5 (34:18):
Victoria Divine and She's on the Money are authorized representatives
of Money Sherpa pty Ltd ABN three two one six
four nine two seven seven zero eight AFSL four five
one two eight nine
Hello.
Speaker 2 (00:01):
My name's Santasha Nabananga Bamblet. I'm a proud yr the
Order Kerney Whoalbury and a waddery woman. And before we
get started on She's on the Money podcast, I would
like to acknowledge the traditional custodians of the land of
which this podcast is recorded on a wondery country. Acknowledging
the elders, the ancestors and the next generation coming through
(00:23):
as this podcast is about connecting, empowering, knowledge sharing and
the storytelling of you to make a difference for today
and lasting impact for tomorrow.
Speaker 1 (00:33):
Let's get into it. She's on the Money.
Speaker 3 (00:36):
She's on the Money.
Speaker 4 (00:57):
Hello, and welcome to She's on the Money podcast for
millennials who want financial freedom. My name is Beck Sayed
and Victoria Divine is with us to talk about something
many of you listening will know about, but I don't
know anything about dovated leasing.
Speaker 1 (01:15):
Hello, my friend today. Yes, indeed, we are going to
run through what it is, how it works, the pros
and cons, and so much more. I feel like we
get so many dms on a regular basis, like Hey,
my work it offers novated leasing. Should I do it?
And I'm like, well, I can't answer that, but you
know what I can do to a podcast? Ah, let's
do it. It's the only thing we've got going for
(01:36):
us at this point in life.
Speaker 4 (01:37):
Beck, I'm happy about that. Actually, what is a novated lease?
Speaker 1 (01:41):
So anvated lease is a way that you can finance
a new or used car. You can make your repayments
from your pre tax salary, which is why so many
people find it so damn attracting. With approval from your
employer under what's called a salary sacrifice arrangement, this can
effectively reduce your taxable income. It also allows you to
(02:03):
bundle your vehicle's expenses into one simple payment. Oh okay, yeah,
I'm so you're like, I would love that. So how
does anvadd lease work? So what you'll do is you'll
find a new or a used car that you want
to purchase. You'll decide whether it's good. I can't help
you with that as to what a good car is.
You enter into what's called a lease agreement with a
(02:24):
finance provider or a bank. You then enter into what's
called a salary sacrifice arrangement with your employer to cover
the car lease with repayments coming from your pre tax salary.
You can also sometimes include car running costs in your lease,
so things like servicing back and petrol, which is very
attractive because you know what's really expensive petrol? Very true.
(02:46):
I don't even want to talk about it. How salty
I get with how expensive it is to fill up
my entire tank, which is a privilege in itself.
Speaker 2 (02:54):
I know the.
Speaker 1 (02:54):
School Sten so expensive school Sten. Anyway, then your employer
makes repayments to your finance provider on your behalf from
your pre tax salary. Sure, but if you change jobs,
you take the card with you and continue to make
repayments directly, or you transfer your agreement to your new employer.
So there's a bit of a boy and if you
(03:15):
transfer it to your new employer, you have to make
sure that your new employer approves it. Okay, And there's
the probability that they may go, oh, I'm so sorry, Beck,
we don't offer that. Sure, which is okay because they
don't have to offer that. I wonder about credit checks.
I'm sure we'll get to that at some point. What
do you mean, of course there's a credit check. You're
speaking out of line of credit. Absolutely, there's the employers
paying them, Yes, but it's in your name, coming from
(03:38):
your income. I about them. Yeah, so your employer also
pays money into your account.
Speaker 2 (03:43):
Yep.
Speaker 1 (03:44):
From the top. What would happen is you've got your
salary that is allocated towards you. Your employer already takes
out your tax and pays that on your behalf, so
you don't have all of the money coming into your account,
and then you pay tax r like a business would.
So you pay your tax, they would allocate supranuation to you.
They would also allocate the money that goes into your
take home salary, which gets transferred to your bank account.
(04:05):
And then this would be an additional add on where
they actually slice some of your take home salary off
and transfer it to pay off your car lease. So
it's not as though the lease agreement is with them.
What happens is the lease agreement is with you, but
the agreement is that your employer uses your pre tax salary,
which means it can't come through your bank account. Right, Okay,
(04:26):
so clear that up. Yeah, But just for the sake
of people listening, can you give us an example.
Speaker 2 (04:31):
Wow?
Speaker 1 (04:31):
Yeah, I get it, But give us an example just
for someone you're like somebody that's clearly not me doesn't
get his all right, So Lert's use the example of
a seventy thousand dollars before tax salary, right and your
novated lease payments they come to ten thousand dollars. This
means that your quote taxable income becomes sixty thousand dollars
(04:54):
if you pay all your novated lease payments from your
pre tax salary, So what you actually declared to the
tax office and pay tax on is sixty thousand dollars
instead of the seventy thousand dollars, which is arguably very sexy.
This means you'll obviously pay less tax over that year,
which is why so many people are attracted to novated leases.
Your finance provider or an accountant can obviously help you
(05:15):
work out the potential savings and other things you're going
to need to consider before entering into a novated lease
based on your personal circumstances. So obviously, I keep saying
it's really sexy, and I really need to get a
better descriptor, but I have none, and I lack a
lot of creativity, so we're just going to keep calling
it sexy again and again. But that means obviously you're
reducing the tax that you pay, but another sexy option
(05:40):
is that it could drop you down a tax bracket.
So if you're sitting on what's called a CUSP, which
is where we know that the average marginal and most
common marginal tax bracket in Australia is between forty five
thousand and one dollar to one hundred and twenty thousand
dollars per annum, which means you pay five thousand and
ninety two dollars in tax plus thirty two point five
(06:02):
cents in every dollar over forty five thousand dollars earned. Okay,
that means that hypothetically, beck if you earned twenty thousand
and one dollar, it would mean that you fall into
the tax bracket of paying twenty nine thousand dollars in
tax plus thirty seven cents in every dollar, which is
different to the five thousand plus twenty two point five.
(06:23):
That's a lot of a difference. It means that if
you then maybe used a structure like this on your
twenty thousand and one dollar salary and you had no
vated lease payments of ten thousand dollars, you would actually
drop to having a taxable income of one hundred and
ten thousand dollars, which actually takes you back to that
thirty two point five cent tax bracket, gotcha, which could
(06:44):
be very attractive. And obviously it only works in very
specific circumstances where you know you are on that cusp,
you're just over and the payments that you're making on
an ovated lease actually take you down a tax bracket.
But sure, it's definitely worth looking into. Yeah, like if
it makes sense for you and your personal circumstances. So
if it's a lease, is it like a real debt?
(07:06):
That is a very good question, and yes it is,
And I think that that's where we need to really
talk about it. I called it sexy multiple times because
that's really attractive. Right, it's pre tax Right, we can
buy a bigger, better car, Beck, we can all go
get land cruisers. Do we need land cruisers? No, you
(07:26):
live in the city, you don't need a land cruiser.
You don't even go four wheeling, Like that's not an option.
But you mate has one, so you need one. And
you know what, I guess my work, they often evaded leasing.
It's a slippery slope of making a decision because you're
justifying that it's a good financial decision. Yeah, because you're like, well,
it's pre tax, that's very attractive, and it means like
(07:47):
you get a more expensive car totally and the money
would go further. And you're not wrong, But any debt
that is not creating wealth for you is a bad debt.
So I would look at an ovated lease as a
bad debt. Let's see it as a good debt. I
see it as something that is not helping you create
future wealth. And I mean there is the argument that
(08:07):
the car could be worth more when you come to
get rid of it or dispose it. I don't give
two flying slippers say it said that. I kind of
look at it and go no. At the end of
the day, a car is a depreciating asset. And I
would hate for people to justify buying more or spending more,
(08:28):
because ultimately that impacts your take home income, and that
ultimately impacts your ability to invest and save and create
financial freedom. And as much as you can justify it
and be like, oh, we need this, we need that,
like you arguably don't. Okay, Like it is a luxury
to afford a brand new car. Even now I'm looking
at purchasing a new car, Beck, And you know, Steve
(08:51):
and I are in a financial position where we could
afford a brand new car. I could go and get
a lease on a brand new car tomorrow. I can't
think of anything worse. I will not be buying a
car on finance. Is it a good financial decision? Sometimes? Yeah,
a car lease, especially as a business owner where it
can be in the business right, like I could novate
lease my own car. I'm terrified of bad debt because
(09:13):
I'm not responsible. I can't be held responsible, Beck. So
at the end of the day, you've got to know
yourself as well as know the structure. And it's like
credit cards, right, some people are really good at managing
credit cards and they use them for cycling through points
and they get all these business class flights. Like we've
spoken about Brooke before on the podcast, who is one
of our team members. She like stealtz credit cards like
(09:37):
she is the queen of making sure that she's getting
all of the sign on bonuses and then disposing of
the credit card or using them in really constructive ways.
I'm going straight to Lululemon. If you give me a
credit card, cannot be trusted, Beck, And that's where you
should look at an ovateed lease and go, well, actually,
is this a good financial decision If you need a
new family car and it's something where you go, Beck,
(09:59):
we've been meaning to get it, Like the only option
is going to be you know, a car loan. That's fine,
This could be a really really valid option that actually
puts you in the best financial position for taking on
debt for a car. Sure, and that's great, but it's
still debt for a car, and we need to see
it as that, not some shiny benefit that your business
offers and you can absolutely take advantage of it, Yeah,
(10:22):
because I think a lot of businesses use it as
a shiny upgrade, like, oh, well, if you're signing on
beck one hundred thousand dollars salary package and we do
novated leasing, Okay, that is great if it applies to
your circumstance, But more often than not, it's just a
way to keep you in debt.
Speaker 4 (10:41):
Right, Okay, we keep saying lease. But if you do
an ovated lease, does that mean you own the car?
Speaker 2 (10:47):
No?
Speaker 1 (10:48):
Oh okay, Well the finance company owns the car. Sure
are then leasing the car from them? Sure? Do you
actually ever own the car? Beck, Well, technically no, while
you're running an ovated lease, In fact, you don't actually
want to own the car because all your tax benefits
would completely disappear. You okay, the finance company to own
your car. Okay, So it sounds good, but it doesn't
(11:12):
necessarily mean it is. I see. So this kind of
sounds like a hack to get a new car every
three years. Yeah, that is what a lot of people think.
So a lot of people go, all right, well, I'll
get an ovated lease, you never own the car, I'll
pay my novated lease payments, and then in three years,
once I'm done that lease, what we'll do is we'll
go back down to Toyota. We'll get a new car
that on a ovated lease and start cycle again. So
(11:35):
you never actually ever own a car that you're paying off. Right,
it sounds really tax effective, but you're leasing it instead
of paying the car off completely. There are certain circumstances
where when your norvated lease has expired, you can purchase
the car for a discounted rate and it sends up
being okay, and it would then move into your personal
name and not have the tax advantages that it previously had. However,
(12:00):
rocks in their head. Nobody in their right mind needs
a new car every three years. Controversial opinion. I hope
my friends aren't listening to this episode because I've got
a couple of them that literally get a new car
every three years, because they're like, oh, it's three years old.
I've got to get rid of it. Clah, My car's
from two thousand and six. I've been driving it since
twenty eleven. You will have to pry it from my
(12:22):
cold dead hands. And I've been talking to my husband.
The only reason that I would feasibly get rid of
it is because it's a two door Coupei. Because like
when I bought it, I thought I was so cool. Back,
I thought I was so cool, right, I bought it
at university and like hot stuff. Two doll coupei all
on debt. Obviously, of course all on det But I
have my two dog Coupay, and I was very excited
(12:44):
about I still love her a lot. But the only
reason I'd get rid of that is because a two
door Coupei didn't suit our lifestyle anymore, right, gotcha? You know?
Putting baby seats in the back of a two door Coupei,
that would be hell, this is not great. I mean,
we could make it work technically, but I'm not that stubborn.
That's obviously my personal opinion. You might think, oh, well,
(13:07):
I actually do for these reasons, for safety reasons, like
you could come up with so many good debate. Sure
to go, but V yes, I do need a car
every three years. I've done all the maths, I've done this,
I've done that. At the end of the day, a
car is a depreciating asset, and if you have one
and you completely pay it off and then you run
it into the ground, that will arguably, always, always, always
be a better financial decision. Then you're getting a new,
(13:30):
shiny car every three years.
Speaker 2 (13:31):
Yep.
Speaker 1 (13:32):
You can't argue that. Cannot argue that your values might
be different. And that's totally okay, Like that is so
fine if you go. But b I am such a
petrol head. I love cars. Cars are my thing. Like
every three years, I get a new one. I am
so car proud. Like you're the dude or the chick
down at the car wash every Saturday morning, Like you
(13:52):
go your little chammy out in buff and your car up,
like that's your favorite thing in the entire world. You
sacrifice other things in your life so that you can
have that. I'm not gonna argue with your values. That's
what I am going to do is make sure that
you're as educated as possible so you know the ramifications
of the decision that you're making, and then you can
still make it. That's fine as long as you've got
the education behind you so that you go. You know what,
(14:14):
I don't care like some things in life are wastes
of money. Yeah. You know what's a waste of money?
My eyelash extensions. Am I still gonna get them? Absolutely?
Because I feel real hot when I have them back? Absolutely?
Does that mean that everyone always has to make the
best possible financial decision. No, no, but you have to
make it in line with your values, and you have
(14:36):
to be educated to know that the decision you're making
might not be the best one, but it's the best
one for you.
Speaker 4 (14:41):
Speaking of education, what are some of the benefits of
nevated leasing? With anovated lease, you can use your car
for personal use, which is quite helpful. You don't just
have to be using their car for like business or
work purposes, which I think is a common misconception. Your income,
the cost of your car and ongoing running costs each
year will actually decide how cost of efective a norvated
lease might actually be for you. The result will be
(15:03):
that your taxable income is reduced. The benefits also depend
on the way that your lease is actually structured BECK.
Some leases might package car expenses like registration and fuel
and tires and insurance together, so your repayments cover all
of these as well, Whereas some employers may also allow
you to pay part of your norvated lease from after
(15:23):
tax dollars.
Speaker 1 (15:24):
Which is called an employee contribution. If you're not on
the highest marginal tax rate, this can actually be cost
effective because fringe benefits tax, which is based on the
highest marginal tax rate BECK may not have to be
paid to your employer from your pre tax salary in
addition to your norvated lease for payments, nervated leases can
(15:45):
effectively mean motoring costs are goods and services tax free,
so GST free for employees. The GST you would ordinarily
pay on the purchase price is covered by the finance
provider and they can claim an input for tax and GSD,
by the way, is ten percent if running costs are
included in your novated lease. These can actually be packaged
(16:06):
to employees with their lease payment without GST, as the
employer claims the tax component back as an input tax
as well. I see. Okay, just means again you know
how we talk about like franking credits and stuff. Things
have little tickets on them to be like by the way,
this one's tax free, or by the way, it comes
with a certain benefit, and input tax credit is the
(16:27):
same as that, but it's for a business. Okay. Yeah,
So like GST is kind of like left pocket right pocket.
Like when you're a business owner, you pay GST and
then you also get GST, but all the GST that
you collect actually gets paid back to the government, so
it's like I charge it, but that doesn't come into
play with my profit. Whereas for you, beck, as a consumer,
(16:49):
when you go to the shops and you buy a
new drink bottle, for example, there will be a goods
and services component that you pay, but you can't claim
that tax time. This changes that circumstance. So someone in
the background is making the GST effective for you, which
is kind of attractive. Yeah. I love that. Also, last
point on this, like in the pros area, is compared
(17:10):
to other kinds of finance like a direct car loan,
an ovated lease gives you a few different options for
what you do when the lease term ends. So you
can pay off the residual so that you then own
the vical like we're talking about before, you could renew
the lease for a longer term, either with the same vikel,
or you could upgrade, like you were explaining every three
is you could upgrade to a new car. Or alternatively,
(17:32):
you could sell the car and pay the residual off
to the financer, and then any profit you make is
actually yours to keep. That's free. That's pretty cool. Yeah, Okay,
now I know it's not all pros. So we need
to bring the mood in here to you need.
Speaker 4 (17:47):
To bring the mood down. What are some things we
need to consider when it comes to novated lea.
Speaker 1 (17:52):
So the first thing I'd want you to consider is
that if you are going to change employer or change
your job or stop working, the responsibility for making the
repayments that still remains with you should remain with the
employer you set it up with. You might be able
to transfer your lease to a new employer if they
actually offer novated leasing, and it is a bit of
(18:12):
work to set it up. But you might also want
to just take over the repayments completely, which would mean
that they are no longer pre tax than our post tax.
But you can just keep paying off the lease. It
just means it would be more expensive technically, gotcha. When
you have a car under a novated lease with your employer,
the federal government considers it to be a fringe benefit,
so then fringe benefits tax might apply. So while employers
(18:36):
are liable to pay fringe benefits tax, in the case
of novated leases, this cost is generally then passed on
to you to pay from your pre tax salary because
the employers are kind of like, well, this is all
benefiting you. Why would we pay a different tax on
your behalf when it's you incurring it directly because you
wanted a car. It's also really important to understand how
(18:58):
this and any other financial imployers arising from entering into
an ovated lease can impact you. So I guess my
last point Slash it's not a con but it's a
point is if you're going to do it, please just
talk to your accountant or a financial advisor or someone
in the know, so that you can look at all
the personal pros and cons and what it actually means
for your financial situation, because, as I said, I just
(19:19):
think people get a bit like really excited about it
because it's such an attractive option and like obviously, innovated
leasing companies have spent a lot of money on their
marketing to be like, Beck, this is such a tax
effective thing for you. You're basically making money and then
does look pretty sweet. Yeah, but then you go down
to Toyota or whatever. We're not sponsored by Toyoda. Just
I walk past a Toyota dealership most days, so it's
(19:41):
just like the one in my freshad.
Speaker 2 (19:42):
Right.
Speaker 1 (19:43):
Anyway, you go down to Toyota and like maybe you
had planned to get like you know, the base model
of like a camera or something that makes sense for
your financial situation. Then you're kind of like, oh, what's
the matter, Like, let's get the luxe version I deserve it. Yeah,
it's all online thenovated lease anyway, Sure doesn't matter, does
it back or come out in the wash? No, We're
(20:05):
making financial decisions that ultimately impact your ability to create
financial freedom, and that's important to understand. It's a really
good place to go on a quick break, A little
quick break after the break.
Speaker 4 (20:15):
I have some questions about how the discounts work and
many other things.
Speaker 1 (20:19):
Sexy, let's go. I'm quite all right, v we are back.
This is I'm the only one excited to be back
in this room.
Speaker 4 (20:32):
So I'm actually excited about this part. I have to
be honest because we're talking about discounts.
Speaker 1 (20:36):
Yeah, I knew that to get you, so I put
it right at the top hooks. I didn't sinker. Don't
you do anything for you? Honestly, what discounts can you get?
All right? So, as I said before, you're not going
to pay GST on the purchase price of the vehicle,
which is approximately ten thousand dollars, So this can save
you've done the mouths up to one hundred and ninety
one dollars in the financial year of twenty twenty three
(20:58):
twenty twenty four. Obviously, different financial years are going to
be different, so diy your own mats if the year
is different to when you are listening to this. Any
car running costs that are included will also be GST free,
so you're not paying GST on petrol, you're not paying
it on servicing. It's like a little ten percent discount
right there. You'll be saving on income tax by making
(21:19):
novated lease payments from your pre tax salary, so like
salary sacrificing your car. And if you're nervating an electric
vehicle or plug in hybrid, see this is where people
are going to start justifying Tesla's beck. Obviously, up to
the luxury car threshold, you won't be subject to fringe
benefits tax or FBT on your lease. So that's what
(21:40):
we said before. You could if you buy a hybrid
vehicle or electric vehicle. Sure, well there you go.
Speaker 4 (21:45):
Okay, So how do you salary package fuel and services.
Speaker 1 (21:50):
So this is called a fully novated lease, So they're
like anovated lease, and then there's like the fully novated lease.
So sometimes you might just have the car like it's
up to you to get your insurance and pay for
petrol and like your actual debit card. But the fully
novated lease means that under that part, apart from paying
for the car repayments, the employer would normally pay for
the car's running costs like fuel and maintenance and registration
(22:13):
and car insurance. And it's like then all combined into
your lease repayments, so it's a set figure every single month.
And then for fuel, you get given what's called a
fuel card. So you might have heard of those before.
And it will depend on where you live as to
what service stations you can go to fill up, because
you'll need to pay for fuel from your fuel card
because it has the allocated pre tax dollars on it.
(22:36):
Oh okay, that's pretty fun. I wonder if you can
slip in a like cheeky little curly wurly while you're
at the chickau a little sausage roll, Oh, sausage roll card.
I'm just wanting to get the like ninety cent curly Welly.
Do you think curly wellies are still ninety cents? I
think so?
Speaker 5 (22:49):
Yeah.
Speaker 1 (22:50):
I reckon, I reckon it would be fair for them
to still be ninety cents. If they're not, let's talk.
If they're not, I will still buy them anyway. And
I just want to know, does this tie you to
your employer?
Speaker 2 (23:01):
Ah?
Speaker 1 (23:01):
Yes and no. Anovated lease is obviously only used by employees,
which means the lease agreement is actually tied to the employee,
not the employer. It's more about whether your new company
is going to offer novated leasing, which means they would
offer to pay your novated lease from your pre tax income,
which is obviously another admin hassle. It's something that not
(23:24):
every single employer offers. And if you leave your job
with a novated lease, the car will be what's called
denovated and you're going to make payments as you would
with a standard lease, from your own funds, so like
from your post tax income directly from your salary until
you're employed again and pay a salary if your employer
(23:44):
consents to, you know, putting your car or novated lease.
And if you find a job with an employer who
agrees to pay for a novated lease, you're going to
be able to what's called renovate your lease and then
continue to make payments as you did with your last job.
So no, it doesn't tie you to your job, as
the tax free component might not be that attractive to
you if you have to pay it for any period
of time.
Speaker 2 (24:05):
Yeah.
Speaker 1 (24:05):
Wow, so many play on words in this. Yes, sorry,
I'm trying my custard be if clean and clear is possible,
a great job.
Speaker 4 (24:13):
I do want to know, though, V what happens when
you get to the end of the lease, or if
you want to cancel it in the middle. So when
the end of an ovated lease happens, typically you have
three different options. So you could pay the residual and
then you own the car outright. Your tax benefits cease
then because it's then owned in your personal name. It
is your personal asset to run. Nobody else is going
(24:33):
to be giving you some tax benefits for that. The
second option BECK is refinancing the residual value to continue
using the car. You know, let's pretend you're three year
lease ended and you're like, okay, cool, but I really
want to keep the car, don't really want to pay
it out because I either don't have the funds or
actually still want the tax benefits of it. Can I
keep paying it off in the same way that I am.
(24:53):
Let's you know, do a longer lease period, renew it
same car, let's go and it continues off. Or you
could trade that cut in and upgrade to a new
vehicle and enter into a fresh please agreement. And that's
where I think it's a slippery slope because.
Speaker 1 (25:09):
I look at it and I go I know that
it was like beneficial for the first couple of years
because like you're paying off this car rah rah. But
if you then renew it every single three year period,
or you know, you might have a five or a
seven year period, it really depends on like what agreement
you've entered into. It's kind of like, you know, when
we talked about a thirty year term on a mortgage
(25:30):
and I'm like, all right, well, let's say you've got
a five hundred thousand dollar house and at the end
of your thirty years, Beck owns one hundred percent of
that property because you're paying your principal and interest off, right,
So it gets to five years and you go and
sit down with Kate, your Zella money broker, and Kate says,
all right, well, let's refinance. Thankfully, Kate's really smart because
(25:53):
she's a Zello money broker, and like, we literally care
so much about your financial futures that we would never
let you reset that term. Sure, we would always go Okay,
instead of re entering into a thirty year term, we're
going to enter you into a twenty five year term
for this. We're obviously going to reset, you know, your
interest rate, you know, bring it down a little bit,
but we really don't want you to have to redo
that five years that you've already been paying your property off.
(26:16):
So we're going to just set this term over twenty
five years, so that in that same thirty year period,
you're going to end up with one hundred percent of
this property. Okay. Whereas with car loans, if you get
three years in and then you say, hey, Beck, one
new one going to go upgrade, you go back to
the very start and you start paying off another car. Sure,
you're never going to own one hundred percent of that asset.
(26:36):
Yet you're paying thousands of dollars towards this asset for
the privilege of driving it, but never fully owning it.
I don't know, a waste. Hey, that's where we're trying
to go. I see, I see, I see. I'm not
saying it is a waste. It can be very constructive.
As we've said, there's so many benefits to it. But
I think we need to balance those benefits and go, well, actually,
(26:59):
what's the ultimate out? Sure, because like if I sit
you down and go, Beck, well you know you need
a car, and you go yeah, absolutely, Like V it's
not an option. I have to get from A to B.
I need a car. I've looked at every other options
and horse is not going to work. I can't ride
a kangaroo to work every day. Like, it's just not
gonna work, okay, right, non negotiable. Beck acquires car? Yes,
(27:20):
but Beck, what's the long term goal with that car? Like,
you're gonna have to get from A to B. Yes,
I guess for the next thirty or forty years, because
it's gonna keep working, right, So car might be completely necessary.
You drive to Sydney a fair bit, so, like, that's
important that you have access to a car. So it's
not that you're gonna have the car for the three years, right,
You're hopefully going to be a car owner for the
(27:42):
rest of your life or as long as your license
allows you, you know what I mean? Like, why are
we only looking at the first three years when you
know tax efficiency means that yes, it is the most
beneficial tax option in the short term, but in the
long term, is it not better to buy one car,
pay it off completely and have these costs coming out
(28:04):
of your post tax income and not be paying a
consistent lease for a brand new vehicle. Yeah. So I
think it's just really important to understand why we might
make these decisions. Okay, in the short term and in
the long term, like you might go, you know what,
I've looked at this, and anvated lease really works for
me because I actually don't own a car at all
at the moment. These tax benefits are going to really
(28:24):
work for me. I'm going to get this novated lease.
I'm going to you know, paid off for three years.
In three years, they're going to offer me the opportunity
to pay the residual value on the car, because like, oh,
can we renegotiate that, just stretch it out a bit further.
I'll pay more off, but I want the tax benefits.
So you stretch it out for another three years. You
show a car for six years, car's basically completely paid off.
Now you decide to put that in your personal name
(28:46):
and go, you know what, we had a really good run.
I was paying for fuel and stuff out of my
pre tax income. Now it's out of my post tax income.
But I don't have a car repayment anymore, so actually
have a lot more money to play with.
Speaker 4 (28:58):
Gotcha.
Speaker 1 (28:58):
Okay, But what happens if you want to cancel in
the middle of a lease? All right, So if you
want to cancel in the middle of the lease, you
essentially have to pay out your lease early. Just like
in any lease contract, you'll have like a get out
of jail early clause. Right, So when you take on
an ovated lease, you agree to lease the vehicle for
a set period of time, and then if you break
the lease early, you're going to have to pay the
(29:19):
remainder left on the lease along with the residual value
of the vehicle including gst Okay, So if you want
to get out of it early, it might not be
the best financial decision because it might actually cost you
a bit more. Sure, but you've just got to be
careful read all your terms and conditions and make sure
that you understand all the t's and season fees involved. Huh,
(29:41):
I'm just really good at reading ads. You've done that.
Speaker 2 (29:44):
I've tried.
Speaker 1 (29:45):
I've tried my best, So say anything else I should consider. Look,
there's a whole heap. I'm just going to list off
a few. Obviously, understand your income. You need to make
sure that the income tax savings will actually be enough
to offset the cost of the lease. So, for example,
it might not actually makes sense for people on lower
incomes to do this because it's like, well, the benefits
are negligible, what kind of vehicle are you actually going
(30:08):
to lease? So, as we said before, novaded leases are
particularly attractive for people who want to buy like electric
Vickles are hybrids, because you get out of the FBT,
which is kind of attractive because they now have that
exemption as long as the value of the car is
below what's called the luxury car tax threshold for fuel
efficient vehicles, which this year in the twenty twenty three
(30:28):
twenty twenty four tax year is eighty nine, three hundred
and thirty two dollars, which is so much money for
a car. Beck, Yeah, And obviously this considerably boosts novaded
least tax savings. Yeah, okay, okay, I got you when
it comes to how many kilometers you're going to be
driving on this. So generally, people who use their car
a lot are going to get a whole heap more
(30:48):
benefits through saving on fuel and other running costs, including
part of the lease. So I've worked with clients where
it actually genuinely makes financial sense for them to consistently
have an ovated lease. Good example, they're a BDM for
financial advisors. Their job is to drive around all the
financial advisors in the state that they manage. So they
(31:09):
go from their house every single day. They might come
into the city and go to the office. They might
then go out to you know, none a Wadding and
then they might be in Dandingong, and then they might
be over in elston Wick, and like they drive around
the city a lot. In these circumstances, anvated lease might
make sense because you're putting your car through a lot.
There's obviously a lot of wear and tear happening on
their car. There's obviously a lot of fuel costs in
(31:31):
that circumstance, and that could actually make sense as a
part of that salary conversation when you go, hold on
like this is actually more of a work vehicle than
it is actually just like a I really wanted to
drive a Tesla, got a situation, you know, gotcha? So
the purchase price of the vehicle we also want to
look at, So like too low, the GST savings might
(31:51):
not be enough to offset the lease costs. But then
too high and the savings as a percentage of the
vehicle's value will become very low. And mistake to avoid
there is buying a more expensive bigle than you need
in an attempt to maximize tax savings. Gotcha cut that out.
Don't do don't do that, don't do that. We need
to understand lease costs, so innovated lease will work best
(32:13):
if you can get a deal with a competitive interest
rate and low lease fees. So, as I said before,
we need to understand our t's and season fees. Don't
agree to anything without that. And obviously we need to
understand things like administration fees that are going to be
charged by the lease company, not just your competitive interest right.
Understand what the least term is. So similar to other
(32:36):
kinds of finance, you could reduce your interest or other
costs by choosing a shorter term. So you might be
offered a seven year lease, go what would it look
like over three? What would it look like over five?
Can you will afford that? Does that make sense for you?
And a smarter proach I've scene for some people is
to choose the shortest term possible while maximizing the percentage
of the vehicle you pay off by the end of
(32:57):
the term, and then do it across as many financial
years as possible, so you're maximizing tax savings. That is
so clever. I've talked about nervatedly sing a million times
before with like friends and family and trying to understand it.
And I think the one thing that I really want
you to understand is that nervatedly thing makes sense. Yeah, Like,
I've just explained it all. They are obvious pros and
obvious cons. Sure, but the thing I don't want you
(33:19):
to get stuck on is justifying a more expensive purchase
because it's better for tax. Right, So we're not going
to do that, are we back?
Speaker 4 (33:28):
No, We're not going to do that. This is definitely
a lot of information. If I were a listener, I
would listen twice.
Speaker 1 (33:34):
In a row. Just so not you dirty, dirty liar,
I am not. You are, little fibber.
Speaker 4 (33:41):
Just in case you need to, we are here for you.
This is a lot of information taken. Go absorb it
and have.
Speaker 1 (33:47):
The best week of weekday? Bye? Guys, did buy shared
on cheese?
Speaker 5 (33:58):
On the Money is generally and does not consider your
individual circumstances. She's on the Money exists purely for educational
purposes and should not be relied upon to make an
investment or financial decision. If you do choose to buy
a financial product, read the PDS, TMD and obtain appropriate financial.
Speaker 1 (34:16):
Advice tailored towards your needs.
Speaker 5 (34:18):
Victoria Divine and She's on the Money are authorized representatives
of Money Sherpa pty Ltd ABN three two one six
four nine two seven seven zero eight AFSL four five
one two eight nine
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