Car Allowance High - How to Maintain Effective Tax Deductions on Car, which car to buy?

PaperplaneXXX on 13/05/2017 - 22:15
Last edited 15/05/2017 - 05:01 by 1 other user

Hi OzBargainers,

I really need help here.
Have been in Australia for 4 years so far bust still have not figured out how the TAX system works.

I am a Service Engineer and drive a lot - 30 000 km for business purposes annually.
My Employer pays car allowance 23500 AUD annually on top of base .

I noticed that most of colleagues driving luxury cars - to make sure they use car allowance and don't pay higher threshold tax.

Well, I'm not in the same boat as them as I believe my base pay is well below the market.
Secondly most of people have properties, etc. So they can afford a Range Rover and maintain it.

All I want to know is how to estimate effectiveness?
I mean I drive 2010 Lancer - no value in depreciation claim.
I spend every year on service and running costs 4000
so therefore 19 500 AUD added to my taxable income. So I pay higher tax.
Not sure how high though.

What I Mean…if I spend let's say 15 000 of car allowance on car I might be happy with Lexus and thanks to lower taxes not big difference in terms of money after taxes?

I really need opinion and maybe how to calculate that.

I am also paid sometimes overtime rates which are significant, one night job might be 2000-2500. this also adds painfully into taxable income.
So not easy to predict year to year and number of critical breakdowns.

All thoughts are welcome!

P.S. Recently been to Lexus. Quoted 59 999 got Lexus Nt200. <profanity removed> I love that car)))))
3 years lease 90 000 kms.
Value trade in fixed 30 000 AUD after three years.
Repayments 1150 AUD a month.
Plus running costs.

P.S.2 - not gonna buy any property in the nearest future. Don't buy this bullshit about the currently overpriced market.
Not gonna commit to mortgage.

Automotive

Comments

  • Findo on 13/05/2017 - 22:23

    Holy shit. Your situation sounds an awful lot like how my old man's workplace does things. He's a service engineer working on similar things going by your previous posts. I wonder if anyone in his team has bought a Lexus recently…
    You can buy a cheaper car and use the money for servicing costs, after all you'll need to turn over a new car every few years for depreciation to be effective.

  • PaperplaneXXX on 13/05/2017 - 22:28

    well, taking into account higher taxes, medicare Levy possible increased, why pay more taxes? Maybe instead driving a nice car.
    Cas is the office for a Service Engineer.

  • resubaehtgnolhcs on 13/05/2017 - 22:42
    +3

    P.S. Recently been to Lexus. Quoted 59 999 got Lexus Nt200. (profanity) I love that car)))))
    3 years lease 90 000 kms.
    Value trade in fixed 30 000 AUD after three years.
    Repayments 1150 AUD a month.

    Paying $1150 over 36 months on a car quoted to you at $59,999, means you are only paying $41,400! Then you're getting a fixed trade in after 3 years and 90K kms of $30,000, meaning you would have only paid $14,400 for the 3 years you had the car!

    There is so much here that just doesn't add up!

    • PaperplaneXXX on 13/05/2017 - 22:59

      That's actually the point there… I don't get it right too.
      I have all the paperwork from Lexus maybe they didn't explain correctly.

      What they mean is probably I will get a value 30 000 AUD for trade in and upgrading to the next car.
      Of course they will not give back 30 000

    • PaperplaneXXX on 13/05/2017 - 23:03

      …
      May its is really how it works. With all this Lease options for business use.
      Thats probably why its affordable - if you around in the industry for a long time.
      Its like changing cars every 3 years and upgrading all the time using this fixed trade in Value.

      • resubaehtgnolhcs on 13/05/2017 - 23:11

        Not sure I agree with you. The dealer is losing money on the car. Are you sure the repayments are not based on a 5 year lease? Also, the fixed value trade in deals I have seen are around the vicinity of 15K kms a year. To be getting back (even in trade in value) $30,000 for a car that has done 90K kms seems to good to be true!

        • PaperplaneXXX on 13/05/2017 - 23:21

          Thanks for a reply, mate.
          https://www.lexus.com.au/finance/personal/personal-ownership…

          I agree its a bit vague. Especially if you read the link. There are three options at the end of three years. You can even return it…mmm..

          Maybe they did wrong calculations?
          I am sure its 3 years lease. I have all quotes and paperwork on hand.
          An 90 000 kms also stated there in quotation.

          This is actually what one of my colleagues meant one day… he said its not about the cost of a vehicle.
          Its all about the cost of ownership.
          He said if you buy a holden commodore which depreciates a lot and no value after 3 years you are in trouble.
          Holden doesn't offer those financial deals too.

          This is apparently is not the case about some Luxary cars.
          He said Range Rover even more effective in terms of little depreciation.

          maybe I shall try it!))) ha ha!

        • PaperplaneXXX on 13/05/2017 - 23:34

          I checked and recalculated all three cars they quoted. 82 000, 67 000, 59 999.
          all the prices they don't divide into 36 months
          I am not sure how they come up with monthly repayments they quoted.

          Might have to go back and look further into it.
          Might be a BARGAIN:-)) driving luxury car for work such a pleasure.
          And as you said 14 000 for three years is really nothing. Its a proper car allowance use I would say.
          Plus road costs maintenance etc of course.

        • resubaehtgnolhcs on 14/05/2017 - 00:00
          +2

          @Furan: Just had a look at the link and I think I may have found my answer! They must have given you a balloon payment on the car which would be due at the end of the lease.

        • PaperplaneXXX on 14/05/2017 - 00:08

          @resubaehtgnolhcs:
          what it means this balloon???

        • Findo on 14/05/2017 - 00:16
          +1

          @Furan: the residual amount that's left on the car. You'll need to pay it out or refinance it somehow.

        • resubaehtgnolhcs on 14/05/2017 - 00:18
          +3

          @Furan: It is a lump sum repayment of the outstanding principal sum (i.e the $59,999 value of the car) made at the end of a loan period. This ballon payment is used to reduce your monthly repayments.

        • PaperplaneXXX on 14/05/2017 - 00:19

          @niggard:
          Yeah I read the article.
          https://www.strattonfinance.com.au/car-finance/learn/article…

          So it's sounds bloody good to me.
          I have to check the value of similar vehicle on car sales etc. Is that the correct value.
          Anyways if I will be able to trade in for 30 000 AUD or resale it for around - its bloody good.
          Isn't it?
          Seems still too good to be true.

        • resubaehtgnolhcs on 14/05/2017 - 00:23
          +2

          @Furan: Well that depends on your balloon amount. If you have to pay a lump sum of say $25,000, then your $30,000 trade in isn't as good.

        • Findo on 14/05/2017 - 00:28
          +2

          @Furan: it depends on the condition of the car too. One of my dad's workmates leased a BMW X1, the sums added up better than buying a Toyota Camry outright according to his calculations.

          If you service x-ray machines, you might need to park long hours at hospitals. Hospital car parks are not the greatest, every single car my father has driven in the course of his duties over 20 years have been scratched or dented at some point by careless (profanity) in hospital car parks. Have you looked into the possibility of acquiring a company car?

        • PaperplaneXXX on 14/05/2017 - 00:29

          @resubaehtgnolhcs:

          what do you mean.
          They say they give 30 000 for trade in after 3 years / 90 000.

          is that a ballon?
          Still confused
          dont undertand how they make money out of it

        • PaperplaneXXX on 14/05/2017 - 00:29

          @niggard:
          ha ha I service X rays too)

        • PaperplaneXXX on 14/05/2017 - 00:31

          @niggard:
          My company doesn't provide a company car.
          only car allowance

        • Findo on 14/05/2017 - 00:34

          @Furan: dad hasn't serviced x-rays in a long time, he's been doing nuclear medicine since I was in primary school. My point is try to get a car that depreciates the most and costs the least, and be prepared for (profanity) to scratch your car when you park for extended periods.

        • resubaehtgnolhcs on 14/05/2017 - 00:51
          +1

          @Furan: No, a balloon is an amount of money you have to pay them … before any trade value etc is applied. So, like in my earlier example, you pay the Lexus dealer $25,000 at the end of your lease and then they will give you a $30,000 trade in.

        • PaperplaneXXX on 14/05/2017 - 09:00

          @resubaehtgnolhcs:

          I am not sure how does it work.
          They say 3 years passed on.
          the amount I Owe is 30 000

          I can either repair that and keep the car.
          Or sell it…
          or trade it in? right?
          so the value of the car is good and I wouldn't be left 30 000 out of pocket?
          Am I correct/

        • PaperplaneXXX on 14/05/2017 - 09:10

          @resubaehtgnolhcs:

          You right I think I got it now!
          36 months by 1150 =41000
          the cost total is 59 999
          difference 19 000

          They will give me a credit of 30 000 for a second hand car right?

          so I will have 11 000 at the end of the lease I suppose? to use against the next car ,

        • moonphase on 15/05/2017 - 10:59
          +1

          @Furan: it means you would need to pay 30000 to keep the car after 3 years or return the car to the lease company at no cost. Another option is leasing the same car again after 3 years.

          So end of the 3 years, your choices are:

          • Return car (no cost)
          • Re-contract the lease on the same car (payment you need to make will drop)
          • Buyout the car ($30,000)

          What they do is instead of you get any depreciation, they lend you the car for 3 years and they get the benefit by depreciate the value by themselves and get the depreciated value from you (by your monthly payment)

          It's not a bad business as long as you have some volume.

        • moonphase on 15/05/2017 - 11:12
          +2

          @Furan: No. The $30,000 is the value of the car that your lease company set, which is the value of the car after 3 years (i.e. value of the car after depreciation of 3 years)

          So in simple calculation, if you buyout the car, you are paying the car for:

          36 months payment made = 41000

          PLUS

          the value of car after 3 years = 30000

          Total = 71000

          The lease option is usually good for whom would need to replace the car every x amount of years or earning too much that they need some tax cut by spending it as a expense for business (not all but many companies allow you to get the contract before tax, which reduces your taxable salary)

          As you get 23500 x 3 = 70500, I think lease would be the good option for you. You can always change the car every 3 years + they normally provide add things like petrol vouchers, services, etc which reduces your running cost.

          However, this is based on the assumption that you would want to spend significant value of your allowance.
          If you are ok to use your allowance at your choice, it could be better for you to keep the money by buying a car in ~20000 range. You can get your tax cut by financing it as well as depreciation to get some tax cut.

          So this is where you will need to learn more and make decision.

  • Qroozn on 13/05/2017 - 22:49
    +11

    Treat the allowance as salary and pay tax on the gap. I would rather have 15k cash in my pocket then trying to work out how I can turn it into depreciation so as to avoid tax!

    • PaperplaneXXX on 13/05/2017 - 23:25

      Hi Thanks for opinion.
      I am not sure if there would be 15 000 cash after taxes left out of 23500 car allowance.
      Once again some money will be spend on car - running costs.
      Minus taxes fro, the rest of the money like 19500 will be taxed. At a higher rate .
      Plus base rate also will be taxed at a higher rate - because of those 19500 added to base as taxable income.

      So maybe I need an appointment with taxation specialist

      • resubaehtgnolhcs on 14/05/2017 - 00:03
        +1

        Just remember unless you are on the cusp of the next tax bracket you will not (overall) pay higher taxes. Whilst you may get taxed at higher rates for over-time and your allowance, this should all correct itself when you do your tax return each year - i.e. you should get money back to ensure over the course of the year you paid the correct tax.

        Yes, a financial consultant is your best bet!

        • PaperplaneXXX on 14/05/2017 - 00:20

          Always do a ta refund.
          Its just not too much…apparx 3 000 a year.
          Accountant said you might do better …

        • based on 15/05/2017 - 20:23
          +1

          AFAIK the only time going over the cusp is detrimental is with the HECS cutoff, for everything else only what is over the cutoff is taxed at the higher rate.

      • redfox1200 on 14/05/2017 - 07:00
        +4

        your base rate will not be taxed higher

        Taxable income
        Tax on this income
        0 – $18,200
        Nil
        $18,201 – $37,000
        19c for each $1 over $18,200
        $37,001 – $87,000
        $3,572 plus 32.5c for each $1 over $37,000
        $87,001 – $180,000
        $19,822 plus 37c for each $1 over $87,000
        $180,001 and over
        $54,232 plus 45c for each $1 over $180,000

      • WT on 14/05/2017 - 11:03

        try these guys in marrickville, my so has been using them and she is much happier. Give them a call and see if they can help you

        https://www.google.com.au/maps/place/Santax+Accounting+Servi…

      • prozerran on 15/05/2017 - 14:18
        +3

        I totally agree with ggqroozn. I would rather pay tax on $19,500 (32.5%, 37%, 45% + medicare levy) and have cash left over than pay less tax but have less remaining.

        If you really want a car, why don't you go for a more modest option - say $30,000 new/2nd hand car and depreciate that. Leases often don't work out better (unless you can get a Novated lease via your company and pay with pre tax dollars). Better to purchase outright than through loans/leases. Just get something you can afford.

        You should not really be spending more than 50% of your salary on a car

  • chumlee on 14/05/2017 - 06:20
    +1

    Your car allowance just gets added to your income and then minus your work related deductions etc.

    The only issue with buying an expensive car is the depreciation limit is $57,581 so if you spend more than this anything over cannot be claimed. Of course you can still claim running costs etc and interest on loan depending on loan you take out.

    My advice is spend about $55K max but the less you spend the better. You are better off buying a 1 bedroom investment property and negative gearing if you just want the tax benefits.

  • pjcook on 14/05/2017 - 08:46
    -1

    I am confused as to why you are only claiming $4000.00 per year on your car. If you are travelling 30000 Kilometres a year on legitimate business then you can claim 66 cent per kilometre which would allow you a deduction of $19800.00….

    • PaperplaneXXX on 14/05/2017 - 08:58
      +1

      I use a car logbook method. I am not sure how you ca claim 66 cents per km.
      mmmmmm

      • pjcook on 14/05/2017 - 11:36
        -3

        OK so if your logbook of business kilometres is 30,000 K a year then you claim that at 66c per kilometre, this will give you an immediate deduction of 19800.00. Any book keeper, accountant or tax shop would know this. I hope you haven't filled in any returns previously or you have given the tax man a free pass on your taxable income.
        https://www.ato.gov.au/individuals/income-and-deductions/ded…

        • horsome on 15/05/2017 - 14:31
          +2

          I think a lot of bookkeepers, accountants and tax shops would refute this. Even the link you have posted advises that the c/km is restricted to 5,000km.

        • speedyjonzalas on 15/05/2017 - 23:22
          +1

          CA here. The 66c/km is up to a max of 5000km.

    • ceeto on 14/05/2017 - 11:52
      +7

      My understanding is the 66c per kilometre is only for milages up to 5000 Kilometres. Over 5000Km you need to use the logbook method.

      • pjcook on 14/05/2017 - 12:12

        Once you have established the amount of kilometres you do using a log book over a couple of months you can then claim larger amount of kilometres. The ATO will usually only allow 5000 k a year without the log book. The mileage is your main deduction. Actually as I read it, you can only claim your car expenses using Mileage and Log book now that changed it in 2015.

        • WT on 15/05/2017 - 12:19

          uh, you cant deduct service and repairs now? or was that only novated lease?

      • -.- on 15/05/2017 - 11:49

        Yes there's a 5000 business kilometres mileage cap (so a maximum claim of $3,300), but the ATO doesn't force you to use the logbook method even if you do exceed 5000km, although it'll be your loss if you don't.

        Logbooks are kept for a 12 week period, and if circumstances don't change, the business use percentage derived can be used for 5 years. Odometer readings need to be kept, as well as receipts for all itemised expenses. You can end up claiming a whole lot more, particularly once you factor in depreciation of the capital asset - the car (subject to a $57,581 limit for the 16-17FY).

  • dasher86 on 14/05/2017 - 09:48
    +4

    If you're happy with your current car you you're better off paying tax on the allowance. Paying more tax is not a bad thing.

  • farknos on 14/05/2017 - 10:23
    +5

    you need to find a better accountant, "you might do better" is not sound financial advice.
    a decent accountant will be able to explain the pros and cons of any car lease.
    dont confuse a car lease with lexus or any other supplier donating a car to you for 3 years use and you making money at the end of the term, thats not how they make money.
    you need to know what happens if the car blows out the agreed kilometers or if it comes back less than perfect after 3 years, lexus wont be wearing the loss.
    the dream is that the balloon payment should match the trade in value which will allow you to step out of the 3 year old lexus into a new one with a new lease without you putting your hand in your pocket.

    • [Deactivated] on 15/05/2017 - 11:33

      Agree to this 200%.

      The clauses in the Audi "Guaranteed Value" Program or whatever are insane. Every dealer was pushing hard to buy into the program, etc. I'd say it's cheaper to buy Trade-In insurance - AUD 1000 over the cost of the car to ensure you don't get hit with putting your own money into the trade-in value.

      You may want to check out a novated lease as well - but again side by side comparison with a lease, and buying out right. Discuss with accountant.

      Dealer finance is always expensive - no matter what you do - they need to make money. Pretty sure the dealer is giving you a hefty mark up on the car - a brand new 60k car (especially an NT200t) can be haggled down to the 50k range easy. That's a 10k saving there alone - any rates that they will be getting is with preferred partners and such - which make it even more expensive.

      Market research before jumping on any lease is critical and talk shop with a proper accountant prior to committing to anything (WITH FIGURES).

  • ceeto on 14/05/2017 - 12:16
    +4

    I'd follow Farknos advice and find a good qualified person to give you advice.

    As others have said, the lease as you describe it does not really make sense or is missing a piece of information. There is probably a balloon payment that you owe them at the end of the lease - I suspect the $30,000 - and it is not uncommon for them to then provide you with a trade-in value similar to the balloon to encourage you to roll-over to another lease with a new car. No dealer looses money on a lease :)

    Your $41,400 lease payments plus a balloon of $25-30,000 sounds about right to me - a total of $66-71,400 for the car. To own the car at the end, you pay them the $25-30k, or they take the car (provided it is in good condition and 90,000 Kms or less) and roll you into a new car and lease with a new monthly payment, a new balloon payout and a new "trade-in guarantee".

    For myself I have never managed to make a lease more effective than buying the car myself if I had the funds not to need the loan (though there are some good loans available at the moment). Whilst you talk about higher taxes etc, your Lancer costing you $4,000 a year leaves you $19,500 to be taxed and actually leaves you with over $10,000 in your hand after tax to spend on what you want - or take the lease car and sacrifice that $10K+ to a little luxury as you travel.

    Your car allowance is also regarded as being taxed by the ATO, and the results of your using the logbook method gives you a tax deduction again your income (you could look at it as against your car allowance).

    Free advice is always worth what you pay for it, and I would strongly suggest you find someone qualified (and not associated with the car dealer) to explain it all to you. Your employer may have someone who can help (mine did when I was working in a similar field - usually in HR, legal or payroll).

    Good luck

    • PaperplaneXXX on 17/05/2017 - 22:20

      thanks mate, all good, sought a proper advice.
      I agree bot a good idea to spend all car allowance on a car.
      especially in a current economy

  • johndoe789 on 15/05/2017 - 14:27
    +2

    Also to remember: Do you see yourself in this role for the length of the lease? Or if you buy outright, the length of ownership that would be financially better off?

  • [Deactivated] on 15/05/2017 - 15:30
    +2

    http://www.paycalculator.com.au

    There is no threshold like you think of it. That is in USA stop confusing things.

  • Danthemanz on 15/05/2017 - 19:12
    +1

    We have been going over all of this recently with my employer.
    It does seem your car allowance is a little high, it will be tough writing it ALL off on tax, even at 30,000KM.
    You need to get the car you want within reason, keep a log book based on the 13 week rule and write off everything you can as per the tax code.
    I would think you would need to still pay a little tax on the money, seems they are giving you more income as an allowance.
    Depending on the size of the company they may not be able to pull it off forever.

    Dont just spend loads on a car cause you can write it off, after a certain amount you are still better off just paying tax and pocketing the money.

    On a personal note, i own a $43000 car and up until recently, i was getting an $12,000 car allowance. Our accountant has made us change it for the worse as we simply cant get away with it anymore as we have grown too big (30+ tech staff pulling in some decent money). Im now paying tax weekly on most of my allowance and its up to me to get it back from tax at the end of the tax year, shouldnt be too much of a problem but its the first year with this car so we will see.

    • PaperplaneXXX on 16/05/2017 - 08:47

      thanks mate, I am doing the same, paying high tax on it during the year then get refund at the end.
      I am not sure why company budgeting those things like that. mmmm
      I will try to do my best

      Lexus now is not an option, very thirsty and expensive.
      I am looking at Mercedes now, second hand but almost new.

      • Danthemanz on 16/05/2017 - 09:32
        +1

        Sounds pretty good. Make sure you have a warranty and you should be ok.
        Personally, i have a Skoda RS sportsback with 5 year warranty and i LOVE it.

        • PaperplaneXXX on 17/05/2017 - 22:17

          thanks man. all good best luck,

  • farknos on 17/05/2017 - 09:23
    +2

    you think a lexus is thirsty,
    you dont want to pay to much tax,
    your thinking about a merc,
    you may want to look into some of the basic costs for servicing a merc over 90km/3 years and the likely resale value after 3 years/90km
    i think you may be a little disappointed with the overall cost of the merc as well.
    very few people lease lexus/merc expecting cheap running cost for 90km and decent resale after 90km
    you drive a 2010 lancer,
    why dont you have a look into a lease of something new thats not European that will not cost you the earth to run and not rape you on resale.
    i am guessing there is a good financial reason why you are driving a lancer.
    like i suggested before , if you go a see a decent accountant he will show you how you can finance a car within your budget so you pay very little tax on car allowance and very little out of you pocket and not end up with a debt at the end of the 3 year term.

    • PaperplaneXXX on 17/05/2017 - 22:16

      Thanks mate, there are reasons why I still drive Lancer.
      Bought Lancer in 2014, second hand, ex governmental car.
      At that time I didn't have the job - never worked in Australia before. Finished masters, got PR independently.
      Lancer was a perfect car for that time.
      Then in 2 month found a job - engineering.
      Was too busy too lazy to change the car.

      But now I realise I live in the car basically. Drive a lot. It's my office kinda.
      I agree with you that Mercedes is not Ideal in terms of running costs.
      But this one is serviced every 25 000, not like every 10000 Lancer.
      Capped service price at 700 for upcoming service.
      Fuel consumption on a highway 4.6 litre diesel car.
      Very efficient.

      Moreover, not gonna buy a house in the nearest future - just don't know yet what I really want in life? Not gonna commit to 500 000 or something paying insurance 24000 a year. Sorry I am not designed for that purpose - to feed the banks.
      Get Aussie passport soon, wor, find another job or maybe travel round the world for a year? Sounds more adventurous for me.
      Always wanted a decent car.
      Wanna try how it feels.
      Australian Tax laws suggest driving a decent car if you use it for work a lot. Write off lots of depreciation etc.
      So…we will see.
      But I get your point.
      Thanks a lot for that ,

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