Another EV Novated Lease Question

thrillhouse on 11/12/2023 - 12:39
Last edited 11/12/2023 - 13:03

I'm really struggling to wrap my head around whether or not this is a deal, and I think the novated leasing company make it intentionally difficult to understand. So I'm coming to the powerful minds of OzBargain to help me decide.

The car is a Tesla Model 3 LR at $78,119 drive away. We can afford to pay cash, no problems. But, my SO is offered novated leasing through her employer so I am thinking in terms of opportunity cost (FBT exemption for EV + having that money stay in our offset).

Her annualised salary before tax is around 105,000k so not in the top bracket. Unfortunately my employer doesn't offer novated leasing (else I would be putting it against my salary instead).

The lease would be a 36 month (3 year) term at 13% interest (yikes!), and leaves us with a balloon of $40,315.07 at the end. So, as you can tell I'm a little unsure exactly how this is going to be a good deal. There is a proposed "tax-saving" of $28,418.34 over the life of the lease, but it's all swallowed up by the interest rate.

So the basics are:
$53,953.62 after tax for the duration of the lease
$40,315.07 balloon

That's $94,268.69 for a $78,119 vehicle. Is that right?
Yes; that does include an insurance, registration, maintenance budget which is $10,587 for the 3 years (seems a bit high, to be honest …)

I have asked if they allow a self-managed novated lease (that is, I source financing myself, ideally at a lower rate). Waiting to hear back. I think this is the sole reason the deal is terrible. What would an appropriate novated lease interest rate be? I'm seeing others say around 8%.

Basically, I only want to do this if after all tax savings and considering the $78,000 remains in our offset (2.14% rate right now, but sure to go up) if I end up coming out on top (or break even).

I can also reduce the term to 2 years if that's a better move? The repayments are not an issue. It's just about maximising the benefits / savings in the long-run.

I've tried using this calculator found on Reddit, but I can't wrap my head around it.

PS: I know the cheapest option is keeping our current car, but that will be sold in favour for an EV which suits us better. The car has been ordered and we'll be going ahead regardless. OzBargain card can be handed in, no problem. What I am asking is whether the novated lease is a better deal than just taking cash out of our offset.

Edit: Summary of quote here: https://imgur.com/cI2oJi5

Automotive Electric Vehicle Novated Lease

Comments

  • sumyungguy on 11/12/2023 - 12:48
    +1

    Novated leases are one of the few remaining unregulated lending products. The goverment is now incentivising EV purchasing via these unregulated products, so you know who's gonna win…

    • netjock on 11/12/2023 - 14:02

      You know the government is looking after corporate interests.

      When I first heard of this plan so get more EVs into the hands of people by putting them through as company cars, you know who benefits. (They could just as easily put 0% GST on all electric cars)

      If anyone is in doubt I don't see people queuing up at council offices and rental car companies to take their bog standards cars home like it is gift from the universe.

      • sumyungguy on 11/12/2023 - 14:12

        It's federal government greenwashing. Novated leases are accessible to only a small segment of potential vehicle purchasers. Of those who have access, only a small proportion will purchase an LCT-exempt EV. So the government creates the illusion they support EV purchases; but hardly any buyers can actually benefit. But the novated leasing sector would have hosted fabulous Christmas parties this year.

  • FoxJump on 11/12/2023 - 12:55

    please state all the running costs and fees stated on the lease proposal

  • Drakesy on 11/12/2023 - 13:07
    +1

    Yep that's right.

    Novated Leases are almost not worth the hassle anymore. That's in line with what i've been quoted.
    The interest rate drops as you increase the term which is dodgy. Just means they can milk it for longer.

    I think mine was around 14% if it was a 12 month term, went down to 8% for a 5 year term.

    • thrillhouse on 11/12/2023 - 13:09

      What a bummer. Everything I had read suggested that it’s a good deal for an EV. If I can get the interest rate down, I wonder at what point it becomes a better option.

      • Drakesy on 11/12/2023 - 13:11
        +3

        I think if it's a cheaper one like a BYD or MG where the FBT, GST and EV rebates take a fair chunk out of the car's price then it's worthwhile, as soon as you get up to the $60k+ area it gets exxy.

        • thrillhouse on 11/12/2023 - 13:11

          Thanks for the reply, appreciate it. Will probably just spend the cash (unless I can get a secured loan at 2% hahah).

  • Muzeeb on 11/12/2023 - 13:08
    +1

    I haven't done a novated lease since Julia Gillard killed the sliding FBT scale but I do recall some employees on lower pay scales using post tax contributions to be better off. Not sure if this works out today but may be worth investigating.

  • Evoque10 on 11/12/2023 - 13:16

    There are many factors but I think it's down to:

    1. Your wife's salary is not high enough hence less impact for the lease
    2. The interest rate is just too high

    Is that the only novated lease company you deal with?

    For example, I have multiple novated lease companies arranged for where I work and I requested quote to all of them.
    Those quotes range from 400-650 for the take home pay.

    I'm not an expert but that's what I think might happen here

    • thrillhouse on 11/12/2023 - 13:19

      Thanks. I believe it's the only one offered by her employer.
      I'm going to try and see if they'll allow for a self-managed lease where I am sourcing the loan, but I suspect not.

  • Euphemistic on 11/12/2023 - 13:42
    +1

    If it’s not making sense it’s down to the lease company muddying the water to help you decide to sign up.

    Either way, you could potentially save more by not buying LR version or potentially buying a cheaper EV. Think about your realistic range requirements and buy the shortest range vehicle that suits your regular usage - then make arrangements for those extended trips.

  • areustillpretty on 11/12/2023 - 13:43
    +2

    That interest rate is just nuts. I did mine early this year, and it was about 7.8% for a 3-year lease. I suggest she talk to her employer again to make sure they don't deal with other NL companies. They may be able to offer far better deals.

    • thrillhouse on 11/12/2023 - 13:56

      Thanks for the feedback. I'll get her onto that.

  • burningrage on 11/12/2023 - 13:57
    +1

    Also remember participation in Novated Lease even if it is FBT exempted, will increase your Adjusted Taxable Income which will affect your Government Benefits if you receive any and that includes Private Health Rebate.

    I have done the calc on mine, your (tax) savings are largely milked by the Novated Lease operator in the form of higher interest rates and/or maintenance costs.

  • freefall101 on 11/12/2023 - 14:32
    +1

    The interest is killing you, basically you're paying $25k in interest over the 3 years.

    Add in the admin fees, the upfront fee pushing it over $80k, the carbon fee (on an ev, lol) and the massive hassle if your wife changes jobs it really doesn't look worth it.

    I wound up paying 2% over market for my novated lease so it was well worth it. 13% is bonkers.

  • frank1416 on 11/12/2023 - 14:42

    Think the general calculation you should run is total take-home cash under these scenarios:

    1. 3 years x ($105k less tax) less $78,119 less car operating costs vs
    2. 3 years x (Reduced salary under the arrangement less tax) less balloon payment. Can factor in time-value of the balloon payment if you really want but a simple nominal comparison is fine.

    Will depend on your own lease provider but on a 3 year lease, generally should be 34 months worth of lease payments and then the balloon payment.

    Lease provider should have given you a repayment schedule so you can work out the reduced salary amount.

    Maybe the tax savings on the $105k isn't sufficient to offset the interest rate on the lease but generally should be better under scenario 2 given no FBT on the EVs.

  • 1st-Amendment on 11/12/2023 - 15:17

    I know the cheapest option is keeping our current car, but that will be sold in favour for an EV which suits us better.

    Quick calculation says that this will cost you $350/week for the next 3 years to have a car sit in your driveway for 95% of the day, then have nothing to show for it at the end.
    If throwing money down the toilet is what suits, maybe you're on the wrong website…

    • Muzeeb on 11/12/2023 - 15:37
      +1

      But how cool, rich and environmentally conscious will they look with a TM3 in the driveway?

      Priceless.

      • thrillhouse on 11/12/2023 - 17:37

        But how cool, rich and environmentally conscious will they look with a TM3 in the garage?

        Fixed that for you!

    • thrillhouse on 11/12/2023 - 17:34
      +1

      There's always one isn't there? :)

      I don't understand why people get all bent out of shape for what others do with their money, nor do they have a picture on an individuals circumstances. I won't lecture you when it's time to get a new car.

      I'm asking a question for those who have been in a similar position because I am trying to save money in this scenario. Yes, not buying a car will save me money, I am fully aware of this, but thank you for trying to help me. ;)

      PS I also don't understand the 95% comment, but I don't need an explanation if it'll just upset you further.

      • 1st-Amendment on 12/12/2023 - 07:16

        I don't understand why people get all bent out of shape

        Why did you assume that I was 'bent out of shape'? You asked for opinions and I gave you one, and now it appears that you are the one 'bent out of shape' because you didn't like the opinion that YOU asked for?

        You never said what suits you about burning money? Maybe you could expand on this point since this website is about saving money?

        • thrillhouse on 12/12/2023 - 08:02
          +2

          I asked a question about novated lease vs paying cash and your response didn't answer either? I didn't once ask "should I get this car?" which seems to be how you've interpreted it.

          My question is literally about trying to save money in this particular scenario, so I think it's entirely relevant for this website. Do you genuinely think we (the community) need many of the things posted on this website every day, and that the alternative should just be not buying anything ever? Did you know that saving money and buying something don't need to be mutually exclusive? I'm sure you do, which is why you browse this website.

          I need a new car, this is the car I have decided on for many personal and pragmatic reasons (of which you know none, nor need to know in order to answer the question). I've received many helpful responses in regard to the question I asked, which has been great.

          Then there's you, posting the token snarky comment about someone else's financial position. I'm doing just fine thank you! :)

          But if you must know, I just love burning money. Let me do that please!

          • 1st-Amendment on 12/12/2023 - 08:11
            -2

            @thrillhouse:

            My question is literally about trying to save money in this particular scenario,

            Yeah, and so how does spending more money save money? You still haven't expanded on this point…

            Do you genuinely think we need…

            What we don't need is people telling other people what they can and can't do. If you don't like something, you are free to ignore it…

            posting the token snarky comment

            Your interpretation of my comment is all on you. Offence is never given, it is only taken…

            • thrillhouse on 12/12/2023 - 08:24
              +1

              @1st-Amendment:

              What we don't need is people telling other people what they can and can't do. If you don't like something, you are free to ignore it

              Do you not see the irony in this?

              Have a great day :)

              • 1st-Amendment on 12/12/2023 - 08:33
                -2

                @thrillhouse:

                Do you not see the irony in this?

                Uh-oh, looks like someone can't read… talking about bent out of shape lol…

                Have a great day :)

                Watching you flop about here has made it great. Thanks!

  • 911r on 11/12/2023 - 15:49
    +2

    the short answer is if your wife is in the highest tax bracket, yes you will be ahead with the lease. If you are planning to buy outright your best bet is a 1 year lease to pay the least interest. Also I'm not sure what you mean by your "After tax" figures (its an EV so its all pre-tax hence the benefit) but is that your change in take home pay? i.e. (change in take home pay) x (pay periods in 12 months) + balloon.
    If you're in the right tax bracket you basically should be paying less after 12 months than you would if you bought it outright today but you could also factor in offset savings/investments with the capital saving up front to see if it still work out. These guys are scum bags and I hope there is a royal commission into them soon, they purposely withhold info and don't give you straight answers so just make sure you are ahead $$ wise before signing up.

  • rickdwp on 11/12/2023 - 16:22
    +1

    The answer is really no. The majority of the tax benefit gets sucked up by the Lease provider, even if you do end up 'ahead' the second you need to deal with the dodgy slimy shifty bastards and money saved will be smoked in time wasted dealing with their nonsense.

    Leasing is a crock of shit corrupt ass industry, there is no reason you shouldn't be able to just buy your own car with your own finance and either have it paid directly pre-tax or even just claim at the end of the year.

    • thrillhouse on 11/12/2023 - 17:40

      Yeah, I feel you. That would be ideal, but being a personal car I can't see a world in where I could get away with that.

    • 911r on 12/12/2023 - 14:54
      +1

      EV is all pretax so it'd be hard to not make some level of saving over paying cash, even if not in the top tax bracket when you factor in offset/investment for a year you should be ahead. Most effective scenario for this is 1 year lease.

      • changyang1230 on 13/12/2023 - 19:28

        Incorrect. Longer lease achieves more saving for EV.

        "Shorter lease is more effective" used to be the case for ICE's novated lease; however with the exemption of FBT this is not true, in fact you achieve more saving when you lease for longer due to higher proportion of the car's value being paid with pre-tax money (interest notwithstanding) and a longer time you get to use pretax money to pay for all the running cost.

        • 911r on 13/12/2023 - 19:42

          If your goal is to pay the least possible amount for the car it makes sense to do a 1 year lease. Longer durations end up costing you over the cars price but I acknowledge what you're saying about additional savings. It basically makes no sense to buy outright vs 1 year.

          (But yes then you also may as well do a longer lease for more savings but some people don't want the liability to impact other borrowing etc))

  • seannami on 11/12/2023 - 17:38

    Compared to cash, probably not worth it at that interest rate but is is a good deal for getting the running pre-tax (and remember you pay the interest etc pre-tax too). Vs a car loan, the NVL is a no brainer. I took a 5 year instead of a car loan (friend in a can-pay-cash position took a 4) and we both worked it out that we save enough that, even if we pay the residual we're a chunk better off- though we're on 10% interest and I would have had to take a loan otherwise. I'd see if you can look at other NVL companies. If you look up "Novated on ZSEV" in this forum I put up my entire workings, maths and circumstances if that helps. Calculations for a ZSEV excite vs loans for both a ZSEV or a hybrid Corolla including savings on the running costs etc. I worked out that on NVL, the ZSEV is costing me something like $110/fortnight more than it was taking to run my Prius out of my take home pay, and that $110 is the car loan proper (I am also putting aside for the residual, but that is going into an offset so it's helping the mortgage interest too. YMMV, but a good idea if you can get a decent rate, but 13% is getting iffy.

    I think the adjusted income people mentioned essentially just puts it back up to your original income so you can't use the car to get you into a lower tax bracket, rather than making it looking like you're earning extra, but I haven't had a tax return on mine yet so I could be a bit off (I also don't get any of the relevant benefits, so hadn't paid much attention).

  • changyang1230 on 13/12/2023 - 19:21
    +3

    Hi there! The reddit calculator author here. I just tried to run your numbers.

    A few things.

    • Your actual quote doesn't seem to match the 78,119 driveaway price; are you confident that you guys sent NL company the detail of the same car you are after? The balloon payment for this car, based on the standard balloon % formula, should be $ 37,091.50 or thereabout (often some difference in last one or two digits due to small differences in how financiers calculate certain things e.g. amortisation of GST). In your case it's $40,315.07 so it's significantly different.
    • Ignore the "maintenance" bit which is set to ridiculous amount of 1065 dollars per year. I set it to zero. There is zero reason you need to budget for this much maintenance for EV. Even when you end up needing to pay for random things like air filter (<100 bucks), repair etc, you can always set a once-off deduction to claim it back; there's no need to budget it up front. The reason they like to set these high maintenance figures is so that they can sell the "you are saving so much tax!" at a higher figure. In other words, if they are budgeting 100,000 dollars of maintenance a year and claim that you can save 37,000 dollars in tax, that's obviously not true if you are not actually spending 100,000 dollars in maintenance.
    • the carbon offset program - I don't think it's mandatory to pay that. It's likely a bull-defecate add-on that they just put there. Your car is already green, you don't have to pay more to offset your carbon contribution.

    Given your current quote (with the uncertainty around your residual value - please kindly clarify)
    - the five-year global ownership cost is $ 68,287.42 if you went with your current lease, and $ 71,385.63 if you paid it from your offset account. A very modest 3,000 saving which is very little.
    - If I changed the service / maintenance to the more realistic zero, the two figures are $ 62,719.65 vs $ 64,133.34 respectively, which is even more negligible 1400 dollars.

    If this quote is not improved then I am sad to say that you are really not saving anything.

    I am attaching my adapted spreadsheet for your reference. This copy is filled with your individual figures.

    https://docs.google.com/spreadsheets/d/1jj5luF6HZ-DlLewo1WXP…

    Let me know if you manage to find out if there was indeed a mistake between what you think you are buying vs what the NL company thinks you are getting.

    • thrillhouse on 13/12/2023 - 20:27

      Thank you for jumping in, and thanks for your work on the calculator! Even though I'm too daft to understand it.

      • Yeah, the price on the quote is a couple grand more and I don't know why. I definitely sent them the model and drive away price. I honestly haven't felt a tonne of care and competence from this group so far, so I'm not getting too hung up on that part (which I'll fix), and more focussed on things like interest rate. It's definitely an important factor, though.
      • I've asked them multiple times to take all of that garbage out and received a: "All allocations are generic for the average driver. Actual cost will be charged to the fund and unspent money reimbursed at term end. We must also assume increases throughout the term so it would be unrealistic to only budget in today’s terms"
      • Well noted, thank you. Not surprised here.

      Your response has been amazingly insightful and well appreciated! I'm pretty close to pulling the pin on this as the group are a punish to deal with and I no longer trust them. But, I will give it one last swing to control the quote a bit more before giving up entirely.

      I'll report back once they get it together. :)

      • changyang1230 on 13/12/2023 - 20:50
        +1

        Oh wow NL companies are now forcing people to budget the unrealistically high maintenance figure?? What a bunch of crooks. This reason alone would drive me away from them! Judging from the format I am guessing this is smart leasing right?

        Even though the unspent money is indeed reimbursed in the end, unspent money sitting at their account DOES cost you in the opportunity cost by the virtue of them being missing in your offset. They might as well say "hey just give us 20,000 dollars, who knows you might get into 10 different accidents and you need to pay this much in excess over time".

        The reason I am after accurate car value, balloon amount etc is that it does influence how much "interest" you are really charged. Not sure if you already got the impression from your reading, but from my months of helping people with these calculation I came to realise that all the supposed "interest" they self-report are not comparable to each other. So far I have your interest being calculated at around 17.5% (go to the scenario B tab); however knowing more accurate figures would help me revise my calculation further.

        For reference, a good NL company should still give interest in the range of 9 to 12% (mine was 8.6% effective).

        • thrillhouse on 28/12/2023 - 12:01

          Thanks again for your help, and sorry for the late response. I've been working with other banks on a NL loan.

          The NL company is Smart Salary, who are part of Smartgroup Corporation (so yes, Smart Leasing, but specifically for Government employees). They have approved me to seek an external financier for the NL agreement which is great.

          I now have the below information that I'd love to pop into your calculator to better understand if this is the right option for us:

          Tesla Model 3 LR (drive-away): $81,069
          Term: 36 months
          Interest Rate: 7.29%
          Monthly Payments: $1,594.91
          Balloon: $36,267.75 (45%)
          Establishment Fee: $595.00 (one-off)

          Are you able to assist a simpleton like me to use your calculator effectively? Thank you so much!

          • changyang1230 on 29/12/2023 - 00:46
            +2

            @thrillhouse: Might get back to you next day or two, just about to leave for a trip. :)

          • Poor Ass on 17/01/2024 - 17:04

            @thrillhouse: I would find it hard to believe smart would let you use an external financier at the end

            I work in NL

          • Poor Ass on 17/01/2024 - 17:07

            @thrillhouse: by the way if you really can use an external financier, make sure you have it in writing. Smart are famous for backflipping all the got is smart mouth sales people and shit after sales service. I deal with the company on a daily.

  • wog_ta on 10/01/2024 - 20:16

    Hi @thrillhouse, not sure if you have an update to your post that you would like to share. If you don't mind me piggybacking off this post I am in a similar situation.

    While my pay bracket is higher (in theory bigger potential saving?) I’m seriously contemplating a model 3. Here is my quote, but the buggers seem to hide the rate.

    I'm not amazing with numbers, I assume the effective rate can be calculated.

  • On1 on 11/01/2024 - 17:12

    @changyang1230

    Just wondering, if your spreadsheet can work with a 1year lease term as opposed to 5 years?

    I think for some people, doing 1 years terms and then getting a new new lease on the residual value for the 2nd year and so on .. can be beneficial.

    • changyang1230 on 14/01/2024 - 12:36

      Sorry for late reply; I’m not very active here and your tag didn’t notify me.

      The repeated 1-year leases works if the NL company is happy to apply the 65.63% repeatedly each year to the previous lease’s residual value. However my NL company says this is technically not in the spirit of ATO NL, if you repeat leases they should really keep following the standard depreciation schedule based on original value and applying the standard 1-5 year table.

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