[AMA] I Work for a Novated Lease / salary sacrifice company (10 Years) and a Licenced Financial Adviser. Ask Me Anything

I Work for a Novated Lease / salary sacrifice company (10 Years) and a Licenced Financial Adviser. Ask Me Anything

Yes I have seen all the dodgy stuff that goes around and no I'm not promoting any business. Nothing to gain, just like to educate.

closed Comments

  • +8

    How was your day?

    • +9

      Good. Finished early.

      • +13

        … aren't you going to ask me how my day was?

        • +75

          Nope. It's ask me anything.

          How's the weird arse weather in Melbourne and sun not setting until 10pm lol

  • What is the best car loan rate you have seen for a typical lease? Is it possible at all for novated lease minimising car loan cost by paying upfront fees?

    • +17

      Never trust a companies novated lease interest because it is misleading. Some load commissions and don't disclose it in the rate (could be 0% it they want but doesn't mean it's free). Always ask how much the novated lease monthly lease payment is for vehicle only and how many payments there are and the residual value to compare providers.

    • +1

      Usually if upfront costs bot loaded in the finance you would be worse off. Because instead of paying for them in the lease payments where the partially or all can be sacrificed. You would need to pay in after tax. Let me know if you mean something else?

      • The last time I checked with a novated leasing company they quoted 8% on a car loan when mortgages where going for a little above 4. They also said depends on the banks car loan rate. Are they really going to try and find the lowest car loan in their portfolio or are they just gouging on this.This effectively negates most savings. That is why I was looking for ways to minimise that cost. Car loans are more expensive to service than mortgages I know, but not double.

        • +3

          You have to consider the tax savings on the NL by salary sacrifice instead of focusing on the interest rates. NL interest rates and misleading anyway. Always look at the repayment.

  • +2

    What salary should I hit b4 getting a novated lease?

    I got no debt, no mortgage, no kids

    • +1

      Without knowing your situation… You should atleast be hitting $37k after salary sacrifice. So let's say you are on $40k but the pre tax is $3k. Could be worth doing.

      • +3

        What salary should I have so that I can make having a novated lease worth it?

        • -1

          What salary are you on?

  • +6

    Do you think Novated Lease / salary sacrifice actually benefit people or most of the people are worst off?
    People around me said after going through the calculation process they selected not to pull out with Novated Lease / salary sacrifice, they would buy a new car with finance instead of Novated Lease / salary sacrifice.

  • +2

    Everyone's person circumstance is different. I can say it's not for everyone but if you are on income above $37k after salary sacrificing. Novated lease could be considered. Novated lease would be better than normal car loan mainly because you pay loan repayment in after tax. Novated lease use pre and post tax wages. Sometimes it can beat outright cash vehicle purchases. Also depends on any tax concessions your employer may have. Really need to assess individually. But I would say it benefits most people I've seen but you have to be committed to the lease term. Should you no longer be able to salary sacrifice, that's when you may not be able to get your money's worth

    • +6

      Novated Leases "Sometimes it can beat outright cash vehicle purchases" can you explain in which circumstances?

      • +1

        Repayment + residual with consideration of the Tax savings on the lease component VS original purchase price of the vehicle.

        If want you pay on the lease over the lease term excluding running expenses is cheaper than the original purchase price. Then you have beaten cash.

        • Short lease ie 1 year and car with high residual e.g. Prado GXL with fleet discount . residuals are calculated the same for all cars - is that correct?

          • @DisabledUser171587: Same formula yes for 1 year residual

            If you want me to work it out just pm me your annual income, how many lease payments and how much inc GST and drive away price of vehicle

            But it would be really hard if you work for a regular business

    • +1

      I get that pre-tax lease payments can be a source of tax saving vs a similar car financing situation in 100% post-tax. However after detailed inspection of quotes from our employer nominated leasing company I have also noticed that much of the potential tax savings (up to 75%) are offset by profiteering and fees by the lease company in the form of monthly "admin" and "management" payments, "processing fees", hidden monthly account fees the finance component, early return gaurantee insurance. How do you feel about this?

      • that the NL company you are using are scum

        you know if the fee isn't in writing you can seek compensation or just ask why… employee has to sign off on what they are getting into and if it is hidden then they didn't sign up on it and you have the right to seek justice

  • +1

    Whats some interesting dodgy stuff you have seen gone around?

    Which financier does your company use?

    • +1

      A lot. Have you got a NL?

      St George, Bank of Qld, Macquarie

      • Nope, but I have worked in for a NL Company for many years too. (Finance & Operations)

        What's the most expensive vehicle on NL you have seen?

        • +1

          Did a BMW for $160k once

        • +2

          A mate organised a NL for a small plane.

          • +4

            @This Guy: Impossible. It has to be classified as a car under ATO criteria

            • +3

              @Poor Ass: "Flying Car"

            • @Poor Ass: He was an old school 3rd generation car sales person. He said it was dodgy but his boss didn't care as he had a large amount of business with his client.

              He could have been full of it. He could of used a different financial tool. Or he could have done it on the dodgy. Knowing him I assume it was the third.

  • Can you avoid baloon payments?

    • +4

      The balloon is the residual value the tax office sets to show what the capital worth is estimated to be at the end if the lease . Can't avoid it but I always say if you are bad with money. Deposit after tax cash with the financier to the amount if the balloon. Then POOF no residual. If there was no ballon everyone will be buying cars tax free.

      • Why is it called a balloon?

        • not sure I guess all words are words and people give it meaning

  • +1

    Are your clients aware these are liabilities that need to be disclosed to a bank if applying for credit?

    • Which liabilities? Like on the finance application for finance approval or disadvantages of a novated lease should something go wrong?

  • +1

    What is the ideal lease length or does it depend?

    What is the average interest rate across competitors?

    What is your role in the company if you are a financial advisor too?

    • +4

      Depends what the individual want to achieve and also the age of the car. Statistically average life of a lease I seen if 3.5years and then go from 1 to 5 years.

      You can't compare interest rates . It's misleading and every provider does there own manipulation. Always compare the monthly lease payment on the vehicle only.

      I can do everything salary sacrifice and novated lease related.. does it matter? Or is there something you are after?

  • +2

    Ask Me Anything

    Excellent…..Thoughts on this thread?

    https://www.ozbargain.com.au/node/447572

    • +1

      Ya they didn't do their due diligence and didn't seek personal financial advice which is expensive. There's nothing they can do because banks don't act on the interest of individuals and if any advice was given would be general. Meaning it does not consider their personal circumstances. 100% they would of signed off the page which says financial advice and legal advice is recommended.

      • Excellent… Yes agree, 15 years asleep at the wheel and now crying the banks are evil.

        • +3

          I think they should give The Barefoot Investor a read

  • Can I claim a salary package benefit from more than one employer?
    I’m wondering if, instead of claiming it just from my full time employer, could I get 2 part time jobs and claim it twice?

    Also, if I use the remaining $ on my salary package meal and entertainment card on Saturday 30th March, will it process in time so that it exhausts my allowance before the end of the FBT year, or will it clear on Monday and be deducted from next years allowance?

    • +1

      I assume you work for a charity or health promotion organisation. Yes you can get the cap limit per employer provided you still pay some kind of income tax after salary sacrificing.

      If you use you M&E on or before 31st March it won't count towards next fbt year tax law wise. But your provider might be sh*t and count it towards April. Worse that can happen is you over use your cap this year and the provider ask you to pay them back

      • Some more on this…

        Regarding claiming from other employers, 2 jobs etc; I work for NSW Health and you could only salary package under one assignment should your other job also fall under NSW Health, so this could affect you depending on your situation.

        The other thing to note here is that you will incur a Grossed Up Taxable Value at both places of employment as Fringe Benefits which could affect your situation should this figure be relevant to your tax returns/income reporting.

        In regards to using the M&E on or before 31st March; at my workplace the amount for the transaction will be counted in the FBT year in which the amount is debited from the card. If you were to go to a restaurant for dinner on March 31st and the actual amount is debited the next day, it would count toward the next FBT year.

        I hope this helps.

  • +1

    love it how they package the half a dozen insurances into the lease repayments.
    They actually try and refuse to take them out.

    What’s the percentage of people not keeping the insurances?

    They also charge around 10% interest rate

    Most of the tax savings gets eaten up by the above

    • +1

      I declined all the extra insurances in mine.

    • +1

      Where I work we don't put those insurances in unless the client asks for them and we would only recommend (but not force them) if the car was a piece of crap to take out gap insurance in the event of a write off they would be protected.

      Interest rate cannot be compared like a loan for novated leases . It's too complex and those insurances, providers make up to 50% of the premium. Ridiculous.

      Difference between our company and others is that we don't have salesman that focus in sales and commission with no financial qualification. We just have advisers that do the quote based on the persons rough circumstances without being personal financial advice which is expensive

  • +5

    What's cheaper, buying a car with cash outright or getting a novated lease?

    What about a specialty vehicle (let's say EV) that
    1) Does not give you a fleet discount,
    2) Would not attract significant maintenance costs, and
    3) Have no fuel expenses?

    • +1

      Depends on vehicle and running expenses and your income and your employers tax concessions. Lots of factors. Sometimes it can beat cash outright sometimes it cannot but still better than a car loan.

      Ya you can get fleet discount for EV depend who you know. Don't talk to salesman.

      Not many ppl package EV to be honest. Australia still still has a thing against EV and prefer traditional vehicles as a whole.

      Really depends on the quote the NL provider gives you vs your calculations buying the car outright with cash + running expenses

  • +1

    If not too much work can you show a calculation, say for example for a $50k car with 40% balloon over 4 years - with a novated lease and using a car loan at the same rate? Let's say $100k salary. Is the saving that great as to make NL very attractive?

    • +1

      4 year lease RV is 37.50% with the opportunity to re-lease at the end of the lease to bring RV down further

      Novated lease can use salary sacrifice (pre-tax) and usual a portion of after tax (post-tax) to fund the lease and running expenses

      Loan you pay everything in after tax and generally no tax savings if you drive it privately

      Car loan is just a personal loan with a security (vehicle) attached. Don't bother.

      If you got a stable job and commit to completing the lease could be of value to you to get a NL and you can maintain good cash flow even if you had the money to buy the vehicle outright

  • Does novated lease work for self-employed?

    • +8

      Mate all the self employed ppl I know just pay everything out of their business income and tax deduct everything illegally.

      Commercial lease are better for self employed because you will tax deduct that.

      Novated lease which can only be done with a novation agreement and via salary sacrifice only recommended for people that receive a salary from a organisation. Not so much for the typical sole trader that I have seen

      • Thanks for your advice.

  • +2

    Im in a novated lease. I did all the research I could and determined the best way for me to save money using a novated lease was to:

    a) get a novated lease for 1 year.
    b) at the end of that, transfer the car to the wife and get her to have a novated lease through it for one year. (No stamp duty payable for rego transfer to spouse in NSW, and new novated lease company gets the GST back).
    C) continue extending it one year at a time to reduce our liability should we lose our jobs (liability in the sense of paying future interest if the lease is terminated).

    My question is:
    - is that the best I can do? Did I miss something? Is there something I can do better?

    Thanks!

    • +1

      FoxJump, 100% agree. Did the calcs and came to the same conclusion. If you can afford the higher cashflow, the short term 1 year lease is the best after tax arrangement. The higher the tax bracket you are on, the better. The shorter lease term results in more of your NV cash outlay being in the pre-tax portion of the lease.
      Not sure about the transfer of the lease to your partner - haven't tried that - but if you can, great work finding a Lease company that will do it.

      BTW - if you take a 1 year lease and then decide to take an extra year, the after tax benefits are not the same -worse off.

      • So you say a 2 year lease has more pretax expenses than a 1 year followed by a second year extension?

        I will agree that the second year will be less beneficial after having already milked it so much the first year when compared to the second year of a 2 year lease.

        However consider that you would have paid more principal during the first year so now on the second year extension you're paying less interest.

        According to my maths
        One year lease: x a month
        One year extension after one year lease: y a month.
        Two year lease straight up: z a month.

        Such that (z * 24) < ((x * 12) + (y * 12))

        Because interest savings.

        Also: if you can afford a 1 year lease and then keep on extending 1 year at a time you will pay more per month the first year and less each month every other year. So if you can afford it today and would like an easier payment in the future then yay!

        • Also claiming 2 x insurance , green slips and Regos

    • +1

      Don't forget if your wife works for a different employer the base value of your vehicle gets revalued too. Meaning she'll pay less post-tax. But if you change back to your employer you don't get the revalue unless 4 full FBT years have passed (ATO safeguard). Some financiers we use you don't need to pay the GST on the residual when you re-lease.

      • Weee. Yes I'm counting on this little bonus too :)

        • Does your work offer atleast two providers?

          Because it is illegal if they don't under anti competitive laws. Lots to read on ACCC.

          If your work only offer you one provider, you got no choice and you pay what they tell you to pay

          • @Poor Ass: Interesting.
            I think they only offer one.
            But it's a good one I think. Low rates ~ 5%. Only a $19 monthly fee. And they let me do things the way I like it.

            • @FoxJump: Interest rate is fake I never trust it. I've seen 0% but doesn't mean it's free.

              Your fee not bad but government employees get a better deal like $6 or $7 a fortnight.

              Plus they already made your money when they settled your car. Probably 5-10% commission on the purchase price

          • @Poor Ass: Is it really illegal? My work only offers one. If it's illegal to only offer one provider, then isn't another option to challenge them on that?

            • +1

              @John Kimble: Yes it's illegal and it's called third line forcing unless it's a government entity. They are exempt.

              But most employees don't complain because they don't want to piss off the employer. It's really disadvantaging the employees with one choice

              Main reason employer don't get a second provider is just because they are too lazy to do extra work

              • +1

                @Poor Ass: Hi, just to clarify..is this "illegal" in all states??

                  • @Poor Ass: Sorry for being slightly off-topic, but

                    1: Are GO8 universities considered government entities for these financial matters?

                    2: How about superannuation funds? I have read that it is illegal for the employer to restrict choices on this front, but my employer (a GO8 university) only allows us to use 1.

                    • +1

                      @xrailgun: Hello we have some clients working for GO8

                      The unis are what we call statutory authorities so they can go under the state government or they can choose to be stand alone. I would say most likely they can restrict choices of suppliers either because they could apply for an exemption with ACCC so they could have exclusive dealings or they are a hybrid entity protected under state government relations

                      With the super , the employers choice shouldn't be that bad as they usually use reputable ones. I could only suggest if you are really hands on and know specific investments you open up a second superfund that allows what you want to invest in. You can transfer super funds from one to another. However yes you would need to pay some ongoing fees but the performance should beat that.

                      Are you desatisfied with you super fund?

                      • @Poor Ass: Thanks for the detailed answer! So it seems they are flexible to get the best of both worlds.

                        My super's alright for full time employees, but the fees are outrageous for casual staff. it reached 50% last year. Granted, that's still in the double digits so not a big deal in the grand scheme of things, but it's pissing me off knowing that that are specifically funds out there for lower earners with no fees under a certain bracket, and even if they under performed the market by 40% (impossible), it'd still be better than the current one I'm forced to use…

                        • @xrailgun: If you are still awhile from retirement. I would recommend changing to an index fund based on your risk profile rather the default plan. This would save you the most fees and generally would outperform most fund managers

    • interesting. what is the benefit of transferring the car to spouse and continue the NL under spouse instead of extending the lease yourself?

      • Afaik:

        I re-set the base-cost of the car when it is transferred to the spouse. Thereby reducing the post-tax contributions.
        The spouse also gets to do a 1 year lease with a residual of .6563 ontop of my already lowered residual of 0.6563 for my first year.

        Alternatively if I simply extend to second year, then the overall residual is 0.53 something versus (0.65*0.65 = 0.42 something)

        • I forgot to say that the finacier may charge a renovation fee and NL provide also may charge a fee to do the transfer documents

    • +1

      I am not very good at this. Why does it work out better?

      • +2

        TLDR:
        It works out better because more is paid from pre-tax. So you save money.

        Long version:

        Imagine a car worth $50000 (basecost = 50000; not rrp = 50000)
        In the first year you pay off $17500 of principal.
        If you extend to the second year, you pay off only an additional $4500 only.

        Because e/1yr residual is 65.63%, and e/yr2 residual is 56.25%.
        So, if you do - straight up, a 2 yr novated lease your residual will be 56.25% of the base cost.
        Instead if you 1 year and then extend to the 2nd year, it is still 56.25%.

        HOWEVER. The magic is:
        If you do a 1 yr lease only - as yourself. THEN you transfer to spouse (or maybe change employer also? - not sure); then
        your spouse gets to do another 1 yr lease.

        So all up, after two years (1 yr you, 1 yr spouse) your effective residual becomes 43%.
        AND, also, your spouses' base cost gets reset to a lower value for the duration of their lease.

        Now … you may ask - what's the point of a lower residual.

        Well, because the post tax contribution is 20% of the basecost.
        So, the aim is to push forward (as in, sooner) as many expenses as possible. One such expense is the principal amount which can be paid off sooner if you do 1yr + 1yr (spouse);

        Disclaimer:
        I have not tried this yet. I will be soon as my first year's lease expires in a couple of months after which i'll try out this switcheroo.

        • Would be good to know it if does work out better!

  • Is it possible to have novated lease which would only cover car and exclude all the other stuff such as fuel, service, tyres, insurance etc?

    • I dont see why not. But … Why would you do that?

      In my case I could choose not to budget for anything and reduce my benefit. But It wouldn't

      The aim is to have as many expenses pretax. Your post tax contribution will always be 20% of the cost (purchase price -ish) of the car. Everything else is pretax.

      • I have fuel card hence do not need it to be included and the other stuff will bump up your monthly repayments when you can get tyres, service and insurance cheaper elsewhere and then claim it back during tax return (which is my assumption).

        • +1

          The way they work is whereby there Budget an allowance for you to make an expense claim through them.
          I imagine that depending on the NL company they may allow you to get your services/insurance/tyres, etc where you wish and then make a claim from them to give you the money you just spent back - and then deduct it from the budget. Other NV lease companies may be strict and require you to go to a certain shop.

          For example, the NV company (Orix) I use via my work was quite happy for me to:
          - Arrange my own insurance and claim that back from my insurance budget
          - Fill up with fuel using e-giftcards and claim the fuel receipt amount from my fuel budget (literally the only way I fill up my car)
          - I paid for the servicing (at a dealership though) and then claimed the amount from my budget.

          So … you should be able to find the services you need at the price you can ozbargain your way to, and they will reimburse you for the tax invoice amount.

          NB: I have not yet had to buy new tyres, but I suppose I could try to claim me buying tyres on ebay with 10% off birthday coupons and a fitting fee at the local guy.

          And - you cannot just "claim stuff back at tax time". that's not how it works. You claim stuff back from the lease. They bump up your monthly repayments to allow you to have a budget from which to make those expenses.

    • +1

      You can but you would be disadvantaging yourself if you don't include them because running expenses are 100% tax free after you contribute the required post-tax.

      The only situation that I have come upon exclude running expenses on a NL is if someone else was paying for them. If you are paying for them yourself, you are better to include them. Also note you don't pay GST on the running expenses which would be better cash flow than waiting to tax deduct them on your tax return. Also keep in mind you can only do that if they are work related expenses.

      • What if my work pays for fuel? I have motorpass

        • Sure.
          Then don't budget any fuel. Simple.

          Watch our for the fuel card trick. Sometimes accepting their fuel card comes with a monthly fee.

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