Review My Novated Lease Quote

LJohnWick1980 on 04/01/2023 - 12:22

Brain Trusts of the OzBargain. Please help me review this quote.

Vehicle cost $74k
Lease package costs (Lease rental, fuel, service, rego, insurance) $1,780 per month
GST on employee contribution $106 per month
Luxury tax $21 per month
Total package cost $1,907 per month
Less est tax reduction ($347) per month
Estimated impact to take home pay $1,560 per month

Other information
Monthly taxable income $18,333 (individual & not household income)
Pre-tax deduction $739
Post pay deduction $1,168
Term of lease 4 years
Interest rate 9.91%
Residual (GST inc) $28,142
Plan is to buy the car and keep it going for as long as it lasts ~ 12-15 years.

I have run the numbers and it appears I come out ahead with novated leases. Say if I chose to buy the car outright i.e using money in the offset account (interest rate 5.78%).
Using the calculator here https://www.toyotafleetmanagement.com.au/novated-lease/novat…

For my situation, it appears I still ahead with novated lease- ~$15k (i.e driven via tax reduction and GST). Am I overlooking anything? Would appreciate any input.

As a side note for those wanting to understand my decision to purchase such an expensive depreciating asset. I understand this goes against the general philosophy of this forum which is to save $$. We currently own an OzBargain approved car (only car) which is a 16 year old Corolla. Overtime we have built a modest asset base (investment property/modest share portfolio) and whilst we could add to the asset base, we have no further desire to add to wealth creation and are happy to spend outside of this.

Financial

Comments

  • AndyC1 on 04/01/2023 - 12:27
    +1

    What did your accountant say?

    • JohnWick1980 on 04/01/2023 - 12:35

      My accountant gets back in 2 weeks time from leave. In the mean time, i am attempting to understand if there is something obvious I may have missed.

  • spackbace on 04/01/2023 - 12:41
    +3

    Interest rate 9.91%

    Ouch

    • onetwothreefour on 04/01/2023 - 12:49
      +3

      offset account (interest rate 5.78%).

      Double ouch.

      • JohnWick1980 on 04/01/2023 - 13:10

        Since the hike, haven't got it reviewed which i must.

    • JohnWick1980 on 04/01/2023 - 13:09

      The interest rate does look horrendous….

  • ton14 on 04/01/2023 - 12:51
    +1

    hmmm, that calculator you linked to seems to factor in that the alternative option would be using a car loan with a high interest rate.

    How are you comparing the options?

    If we take the amount your take home pay reduces $1,560 * 48 + the residual $28,142 we get a total cost over 4 years of $103,022. Taking the purchase price off this means that you pay $29,022 over 4 years for the rego, interest, fuel etc which per year is $7,255.50. This doesnt strike me as much of a deal tbh.

    How about saving extra in your offset for 2 years and then buy the car with cash once the car market has come back to reality? Does your work offer any other salary packaging options you could take advantage of instead?

    • JohnWick1980 on 04/01/2023 - 13:30

      Hey, thanks for responding.

      Whilst the take home pay reduces (after salary packaging), the tax I am paying is also reducing given some of it comes out of pre-tax dollars. Based on the quote, average tax reduction per month is $347.08 plus GST savings of $71.74 so based on the quote, total savings over the life of the lease is ~$19k.

      If I run the analysis you did at net numbers. Reduction in pay (after salary packaging) $1,560 * 48 + the residual $28,142 - ~$103k. Buy car outright $74k plus interest once i pay from the offset account (~$9k) and running costs (4 years - $22k) (anunual running cost Rego, insurance, fuel etc $5.5k). Total cost ends up being ~$105k so slightly ahead in this calculation. What this is missing is the additional tax i will pay without the salary sacrifice. Say even if it was the same from cost perspective, i am thinking NL would make sense just purely from a cash flow management perspective.

      No other salary package option from work. Saving extra is an option but it may not change the circumstances all that much as there will always be an opportunity cost of buying the car outright - maybe a little less than the current 5.78% which is my home loan rate.

  • Hybroid on 04/01/2023 - 13:05
    +1

    What’s the balloon payment to buy the car after 4 years?

    How does that plus 4 years of payments total add up to compare to the $74k original value?

    • JohnWick1980 on 04/01/2023 - 13:31

      I have tried to explain this in the response above.

  • Muzeeb on 04/01/2023 - 13:13
    +6

    Monthly taxable income $18,333

    Pretty good for whirlpool.

    Rookie numbers for ozbargain.

    • brendanm on 04/01/2023 - 15:12
      +1

      Probably a nurse.

  • kawinuyo on 04/01/2023 - 13:41
    +1

    I can't see your assumed running costs if you purchased outright. I've recently done sums for myself and because we have very low running costs the best scenario for us was only. 1year lease to maximise savings, we are still ahead doing longer years but the initial higher savings gets distributed and overall is less. Rather than look at the interest rate for the car I do it as in outright car purchase + expected running costs + interest savings lost taking money out of offset VS monthly cost of the novated lease x however many months + balloon payment - the tax savings (the amount actually reduced not just how much income tax is reduced) x however many years.

  • MarsTitan on 04/01/2023 - 13:49
    +3

    Get a quote for an EV or PHEV. Will be very weird to get an ICE car on lease with the current govt incentives for EVs.

  • Gumster on 04/01/2023 - 13:59
    +4

    Reddit had a great AMA post about Novated leases just recently

    https://old.reddit.com/r/AusFinance/comments/100j03y/novated…

    One of the things I noted was extending your Lease by 1 month so go to 49months instead of 48 will give you a whole other year
    because it rolls into another year of car ownership you can claim another round of insurance, registration and perhaps a major service pre-tax before your lease ends.

    • JohnWick1980 on 04/01/2023 - 15:08

      Thanks for this. Will have a read through.

    • donamique on 14/03/2023 - 20:23

      Thanks for sharing that. I wonder how the extra 1 month works - e.g. if you buy a new car which comes with 12 months rego already, a 48 months lease will see you renew the rego 4 times so that the 5th year is already covered. For the extra 1 month (i.e. 49th month is the start of the 5th year), there seems to be no way that you can renew the rego for the 6th year at that stage as rego renewal is not allowed until 3 months before expiry? Same thing with CTP, comprehensive car insurance, maintenance etc.?

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