Please Review My Novated Lease Quote

justwii on 08/11/2022 - 23:20
Last edited 08/11/2022 - 23:28

I just did a sale and lease back quote, doesn't seem its any better for me in my case, but I would love to double check my calculation with you guys, thanks a lot!

tldr: I need to spend at least $20000 on fuel each year to start saving with the novated lease

Here is my quote:
Car base value (loan amount) $24000
Residual after 1 year @66% = $15840
Lump sum payment at the end of year to keep the car = $15840 plus GST = $17424

Monthly Repayment:
Car finance = $959.95
Other finance (not sure what this is) = $38.02
Admin fee = $39
Total = $1036.97
Annual total plus GST = $1036.97 x 12 x 1.1 = $13688

Post tax payment to remove FBT = $24000 x 20% = $4800
Pre tax payment with input tax credit = ($13688 - $4800) / 1.1 = $8080
Assuming 20% tax rate for my income, the pre tax payment is equivalent to $8080 x (1 - 20%) = $6464 post tax

So ultimately, I am paying $17424 + $4800 + $6464 = $28688 for a $24000 loan, which works out to be a 19.53% interest rate loan!

At the end of the day, if my saving on the car running cost using pre tax money is not larger than the interest $4688, I am actually losing money.
In order to break even, with my 20% tax rate, I need to spend at least $4688 / 20% = $23440 on the car each year, which is almost the same as the car value!
Deducting rego, CTP, comprehensive insurance, servicing, etc., I need to spend $20000 just on fuel each year???

Tell me if I miss anything here because there is no way I can spend that much on fuel even with petrol at record high these days.

Automotive

Comments

  • justwii on 08/11/2022 - 23:23

    Its interesting though, if my income increases and my tax rate becomes higher, say at 30%. Then I can spend only $12933 a year on car running cost in order to start saving, which is much more realistic. Is novated lease a thing for higher income people?

    • Soluble on 09/11/2022 - 06:36
      +2

      You need to be in a higher tax bracket to get the benefit.

    • justwii on 08/11/2022 - 23:44

      The quote? Or my calculation?

      • elgrande on 08/11/2022 - 23:44
        -4

        Your post..

        • justwii on 08/11/2022 - 23:45
          +2

          What do you even mean?

    • randomusername2017 on 09/11/2022 - 00:29
      +4

      ⭐ encouragement award for the inclusion of calculations used to achieve answer.

  • Nutrino on 09/11/2022 - 02:18
    +9

    Thank you for contacting the OZ accounting hotline….

    Please hold the line…

    Your call is important to us….

  • redfox1200 on 09/11/2022 - 04:28
    +4

    Just drive around the suburbs every night so you can hit the 20k fuel costs

    • justwii on 09/11/2022 - 12:28

      20k fuel, say $2/L, means 10kL. If fuel efficiency is 100km/10L, then I need to drive 100,000km a year…

  • Euphemistic on 09/11/2022 - 06:27
    +2

    I haven’t looked at the calcs, but I think you’ve worked out when novated leases work. When you do lots of kms in a pricey car and your income is fairly high.

    • justwii on 09/11/2022 - 12:28

      Pretty much sums it up

  • FoxJump on 09/11/2022 - 06:35
    +1

    yep.sale and lease back sucks.

    with a new car you save the original gst and they probably get you a better price on the car (but nor accessories)

    and you need to spend 4688/0.8 to break even not divide by 0.2

    • justwii on 09/11/2022 - 12:33

      Its like when my tax rate is 20%, then if I spend $100 pre tax, I can pocket $20 (comparing to spending $100 post tax situation).

      Spend $1000 pre tax, pocket $200. Spend $10000 pre tax, pocket $2000., Spend $20000 pre tax, pocket $4000…

  • thedeep on 09/11/2022 - 07:39

    You should probably use your marginal tax rate for the calculation, which means it would either be 21% if it stays above $18,200 (after subtracting your $8080 pre tax payment), 34.5% above $45000 etc..

    • justwii on 09/11/2022 - 12:33
      -1

      Yeah I get that. 20% tax rate is just an averaged out number.

  • AndyC1 on 09/11/2022 - 08:11
    +1

    Speak with your accountant for financial advice like this.

    • justwii on 09/11/2022 - 12:34

      Yeah, and I just did the calculation that my accountant would have done (or may be not)?

      • Muzeeb on 09/11/2022 - 12:48

        If your accountant knows your income they wouldn't even do the calculations. Your accountant would just say…

        Dude, you don't make enough money to make it worthwhile

        • justwii on 09/11/2022 - 14:11

          For real? I am that kind of person who needs fact to back up claims, I won't just take "believe whatever I said because I am professional" that kind of stuff, I would still ask for some figures from the accountant. Hummm, properly it won't go well if I go see an accountant.

  • Bid Sniper on 09/11/2022 - 08:24
    +3

    Yes numbers seems fine, ie f'd. Saving is marginal and it based on tax saving on fuel but overall get ripped everywhere else.

    I could never get the numbers to work for a Novated Lease no matter how many people said it was a good deal. To me never a good deal unless driving 15,000km per year, even then worse off vs buying outright.

    • justwii on 09/11/2022 - 12:38

      Thanks for confirming. I reckon if I am earning $200k a year then its doable. But then hey, if you are earning that much, why border with the little saving?

  • brad1-8tsi on 09/11/2022 - 08:25
    +1

    Not worth it on 20% tax rate.

    Buy back generally not worth it.

    1 year lease generally not worth it.

    The interest rate doesn't surprise me. Mine was 18% in 2008 and only "worth it" because I was on 3?% and doing 25k+ per year (different rules then).
    I was saving $2k-$4k net per year and when I went to extend in year 5 the saving was only $250 so I bought the car.

    • justwii on 09/11/2022 - 12:43

      I guess if its at 30% tax rate, in my case I only need to spend roughly $9500 on fuel, which is like driving 47500km a year. Still a lot to me (I only do 10000km a year), but should be doable for most.

  • Muzeeb on 09/11/2022 - 08:35
    +2

    Novated leases have always financially favoured those in the top tax bracket otherwise it's a waste of time.

    • justwii on 09/11/2022 - 12:43

      Wish this is more commonly known!

      • Muzeeb on 09/11/2022 - 12:52

        Before Julia Gillard destroyed novated leases as a benefit there used to be a sliding scale for FBT calculations.

        If you did more than 40k kms per year (which I do) and in the top tax bracket (which I am) the FBT rate was 7%.

        Those were the golden days of novated leasing. It was bloody awesome. Thanks for nothing Julia.

        These were the old FBT scales

        • justwii on 09/11/2022 - 14:12

          I kinda understand the old method could encourage people to drive more unnecessarily.

          • Tleyx on 09/11/2022 - 14:43

            @justwii: That is correct people ended up dping thousand km trips for no reason than tax

  • BewareOfThe Dog on 09/11/2022 - 08:55
    -1

    Bikies

  • DarkOz on 10/11/2022 - 09:17
    +1

    It's always better if you don't have to finance the car. Why pay interest rate if you don't have to?

    If you need to finance the car anyway then Novated Leasing will be better for you if you you are in the high income tax brackets and you negotiate for a low interest rate.

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