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How Does Novated Leasing Work? · She's On The Money

0:00
Speaker 1: Hello.
0:01
Speaker 2: My name's Santasha Nabananga Bamblet. I'm a proud yr the
0:05
Speaker 2: Order Kerney Whoalbury and a waddery woman. And before we
0:08
Speaker 2: get started on She's on the Money podcast, I would
0:11
Speaker 2: like to acknowledge the traditional custodians of the land of
0:14
Speaker 2: which this podcast is recorded on a wondery country. Acknowledging
0:18
Speaker 2: the elders, the ancestors and the next generation coming through
0:23
Speaker 2: as this podcast is about connecting, empowering, knowledge sharing and
0:27
Speaker 2: the storytelling of you to make a difference for today
0:31
Speaker 2: and lasting impact for tomorrow.
0:33
Speaker 1: Let's get into it.
0:34
Speaker 3: She's on the Money. She's on the Money.
0:57
Speaker 4: Hello, and welcome to She's on the Money podcast for
1:00
Speaker 4: millennials who want financial freedom. My name is Beck Sayed
1:04
Speaker 4: and Victoria Divine is with us to talk about something
1:07
Speaker 4: many of you listening will know about, but I don't
1:11
Speaker 4: know anything about dovated leasing.
1:15
Speaker 1: Hello, my friend today. Yes, indeed, we are going to
1:18
Speaker 1: run through what it is, how it works, the pros
1:20
Speaker 1: and cons, and so much more. I feel like we
1:22
Speaker 1: get so many dms on a regular basis, like Hey,
1:26
Speaker 1: my work it offers novated leasing. Should I do it?
1:29
Speaker 1: And I'm like, well, I can't answer that, but you
1:31
Speaker 1: know what I can do to a podcast? Ah, let's
1:34
Speaker 1: do it. It's the only thing we've got going for
1:36
Speaker 1: us at this point in life.
1:37
Speaker 4: Beck, I'm happy about that. Actually, what is a novated lease?
1:41
Speaker 1: So anvated lease is a way that you can finance
1:43
Speaker 1: a new or used car. You can make your repayments
1:47
Speaker 1: from your pre tax salary, which is why so many
1:50
Speaker 1: people find it so damn attracting. With approval from your
1:54
Speaker 1: employer under what's called a salary sacrifice arrangement, this can
1:59
Speaker 1: effectively reduce your taxable income. It also allows you to
2:03
Speaker 1: bundle your vehicle's expenses into one simple payment.
2:06
Speaker 4: Oh okay, yeah, I'm so you're like, I would love that.
2:10
Speaker 4: So how does anvadd lease work?
2:12
Speaker 1: So what you'll do is you'll find a new or
2:15
Speaker 1: a used car that you want to purchase. You'll decide
2:18
Speaker 1: whether it's good. I can't help you with that as
2:20
Speaker 1: to what a good car is. You enter into what's
2:23
Speaker 1: called a lease agreement with a finance provider or a bank.
2:26
Speaker 1: You then enter into what's called a salary sacrifice arrangement
2:29
Speaker 1: with your employer to cover the car lease with repayments
2:33
Speaker 1: coming from your pre tax salary. You can also sometimes
2:36
Speaker 1: include car running costs in your lease, so things like
2:39
Speaker 1: servicing back and petrol, which is very attractive because you
2:42
Speaker 1: know what's really expensive petrol? Very true. I don't even
2:46
Speaker 1: want to talk about it. How salty I get with
2:49
Speaker 1: how expensive it is to fill up my entire tank,
2:52
Speaker 1: which is a privilege in itself. I know the school
2:55
Speaker 1: Sten so expensive school Sten. Anyway, then your employer makes
2:59
Speaker 1: repayments to your finance provider on your behalf from your
3:03
Speaker 1: pre tax salary. Sure, but if you change jobs, you
3:07
Speaker 1: take the card with you and continue to make repayments directly,
3:10
Speaker 1: or you transfer your agreement to your new employer. So
3:13
Speaker 1: there's a bit of a meaning, boy, And if you
3:15
Speaker 1: transfer it to your new employer, you have to make
3:17
Speaker 1: sure that your new employer approves it. Okay, And there's
3:22
Speaker 1: the probability that they may go, oh, I'm so sorry, Beck,
3:24
Speaker 1: we don't offer that. Sure, which is okay because they
3:26
Speaker 1: don't have to offer that. I wonder about credit checks.
3:29
Speaker 1: I'm sure we'll get to that at some point. What
3:30
Speaker 1: do you mean, of course there's a credit check. You're
3:31
Speaker 1: speaking out of line of credit. Absolutely, there's the employers
3:34
Speaker 1: paying them. Yes, but it's in your name, coming from
3:38
Speaker 1: your income. I about them. Yeah, so your employer also
3:42
Speaker 1: pays money into your account.
3:43
Speaker 2: Yep.
3:44
Speaker 1: From the top. What would happen is you've got your
3:47
Speaker 1: salary that is allocated towards you. Your employer already takes
3:50
Speaker 1: out your tax and pays that on your behalf, so
3:52
Speaker 1: you don't have all of the money coming into your account.
3:55
Speaker 1: And then you pay tax r like a business would.
3:57
Speaker 1: So you pay your tax, they would allocate supranuation to you.
4:00
Speaker 1: They would also allocate the money that goes into your
4:02
Speaker 1: take home salary, which gets transferred to your bank account.
4:05
Speaker 1: And then this would be an additional add on where
4:08
Speaker 1: they actually slice some of your take home salary off
4:11
Speaker 1: and transfer it to pay off your car lease. So
4:14
Speaker 1: it's not as though the lease agreement is with them.
4:17
Speaker 1: What happens is the lease agreement is with you, but
4:19
Speaker 1: the agreement is that your employer uses your pre tax salary,
4:23
Speaker 1: which means it can't come through your bank account. Right, Okay,
4:26
Speaker 1: so clear that up. Yeah, But just for the sake
4:28
Speaker 1: of people listening, can you give us an example.
4:31
Speaker 3: Wow?
4:31
Speaker 1: Yeah, I get it, But give us an example just
4:34
Speaker 1: for someone you're like somebody that's clearly not me doesn't
4:38
Speaker 1: get his all right, So Lert's use the example of
4:42
Speaker 1: a seventy thousand dollars before tax salary, right and your
4:46
Speaker 1: novated lease payments they come to ten thousand dollars. This
4:49
Speaker 1: means that your quote taxable income becomes sixty thousand dollars
4:54
Speaker 1: if you pay all your novated lease payments from your
4:57
Speaker 1: pre tax salary, So what you actually declared to the
5:00
Speaker 1: tax office and pay tax on is sixty thousand dollars
5:02
Speaker 1: instead of the seventy thousand dollars, which is arguably very sexy.
5:05
Speaker 1: This means you'll obviously pay less tax over that year,
5:09
Speaker 1: which is why so many people are attracted to novated leases.
5:12
Speaker 1: Your finance provider or an accountant can obviously help you
5:15
Speaker 1: work out the potential savings and other things you're going
5:19
Speaker 1: to need to consider before entering into a novated lease
5:22
Speaker 1: based on your personal circumstances. So obviously, I keep saying
5:25
Speaker 1: it's really sexy, and I really need to get a
5:27
Speaker 1: better descriptor, but I have none, and I lack a
5:30
Speaker 1: lot of creativity, so we're just going to keep calling
5:32
Speaker 1: it sexy again and again. But that means obviously you're
5:35
Speaker 1: reducing the tax that you pay, but another sexy option
5:40
Speaker 1: is that it could drop you down a tax bracket.
5:43
Speaker 1: So if you're sitting on what's called a CUSP, which
5:46
Speaker 1: is where we know that the average marginal and most
5:49
Speaker 1: common marginal tax bracket in Australia is between forty five
5:53
Speaker 1: thousand and one dollar to one hundred and twenty thousand
5:56
Speaker 1: dollars per annum, which means you pay five thousand and
5:59
Speaker 1: ninety two dollars in tax plus thirty two point five
6:02
Speaker 1: cents in every dollar over forty five thousand dollars earned. Okay,
6:06
Speaker 1: that means that hypothetically, beck if you earned twenty thousand
6:11
Speaker 1: and one dollar, it would mean that you fall into
6:13
Speaker 1: the tax bracket of paying twenty nine thousand dollars in
6:17
Speaker 1: tax plus thirty seven cents in every dollar, which is
6:21
Speaker 1: different to the five thousand plus twenty two point five.
6:23
Speaker 1: That's a lot of a difference. It means that if
6:25
Speaker 1: you then maybe used a structure like this on your
6:28
Speaker 1: twenty thousand and one dollar salary and you had no
6:31
Speaker 1: vateed lease payments of ten thousand dollars, you would actually
6:35
Speaker 1: drop to having a taxable income of one hundred and
6:38
Speaker 1: ten thousand dollars, which actually takes you back to that
6:41
Speaker 1: thirty two point five cent tax bracket, gotcha, which could
6:44
Speaker 1: be very attractive. And obviously it only works in very
6:49
Speaker 1: specific circumstances where you know you are on that cusp,
6:52
Speaker 1: you're just over and the payments that you're making on
6:54
Speaker 1: an ovated lease actually take you down a tax bracket.
6:58
Speaker 1: But sure, it's definitely worth looking into. Yeah, like if
7:01
Speaker 1: it makes sense for you and your personal circumstances. So
7:04
Speaker 1: if it's a lease, is it like a real debt?
7:06
Speaker 1: That is a very good question, and yes it is,
7:09
Speaker 1: And I think that that's where we need to really
7:12
Speaker 1: talk about it. I called it sexy multiple times because
7:16
Speaker 1: that's really attractive. Right, it's pre tax Right, we can
7:19
Speaker 1: buy a bigger, better car, Beck, we can all go
7:22
Speaker 1: get land cruisers. Do we need land cruisers? No, you
7:26
Speaker 1: live in the city, you don't need a land cruiser.
7:29
Speaker 1: You don't even go four wheeling, Like that's not an option.
7:32
Speaker 1: But you mate has one, so you need one. And
7:34
Speaker 1: you know what, I guess my work, they often evaded leasing.
7:37
Speaker 1: It's a slippery slope of making a decision because you're
7:40
Speaker 1: justifying that it's a good financial decision. Yeah, because you're like, well,
7:43
Speaker 1: it's pre tax, that's very attractive, and it means like
7:47
Speaker 1: you get a more expensive car totally and the money
7:50
Speaker 1: would go further. And you're not wrong, But any debt
7:55
Speaker 1: that is not creating wealth for you is a bad debt.
7:58
Speaker 1: So I would look at an ovated lease as a
8:00
Speaker 1: bad debt. Let's see it as a good debt. I
8:03
Speaker 1: see it as something that is not helping you create
8:05
Speaker 1: future wealth. And I mean there is the argument that
8:07
Speaker 1: the car could be worth more when you come to
8:10
Speaker 1: get rid of it or dispose it. I don't give
8:12
Speaker 1: two flying slippers say it said that. I kind of
8:18
Speaker 1: look at it and go no. At the end of
8:20
Speaker 1: the day, a car is a depreciating asset. And I
8:23
Speaker 1: would hate for people to justify buying more or spending more,
8:28
Speaker 1: because ultimately that impacts your take home income, and that
8:30
Speaker 1: ultimately impacts your ability to invest and save and create
8:33
Speaker 1: financial freedom. And as much as you can justify it
8:36
Speaker 1: and be like, oh, we need this, we need that,
8:38
Speaker 1: like you arguably don't, right, okay, Like it is a
8:42
Speaker 1: luxury to afford a brand new car. Even now I'm
8:46
Speaker 1: looking at purchasing a new car. Beck, And you know,
8:50
Speaker 1: Steve and I are in a financial position where we
8:52
Speaker 1: could afford a brand new car. I could go and
8:54
Speaker 1: get a lease on a brand new car tomorrow. I
8:57
Speaker 1: can't think of anything worse. I will not be buying
9:00
Speaker 1: a car on finance. Is it a good financial decision? Sometimes? Yeah,
9:04
Speaker 1: a car lease, especially as a business owner where it
9:07
Speaker 1: can be in the business right, like I could novate
9:10
Speaker 1: lease my own car. I'm terrified of bad debt because
9:13
Speaker 1: I'm not responsible. I can't be held responsible, Beck. So
9:17
Speaker 1: at the end of the day, you've got to know
9:18
Speaker 1: yourself as well as know the structure. And it's like
9:21
Speaker 1: credit cards, right, some people are really good at managing
9:24
Speaker 1: credit cards and they use them for cycling through points
9:28
Speaker 1: and they get all these business class flights. Like we've
9:30
Speaker 1: spoken about Brooke before on the podcast, who is one
9:32
Speaker 1: of our team members. She like stealtz credit cards like
9:37
Speaker 1: she is the queen of making sure that she's getting
9:40
Speaker 1: all of the sign on bonuses and then disposing of
9:43
Speaker 1: the credit card or using them in really constructive ways.
9:46
Speaker 1: I'm going straight to Lululemon. If you give me a
9:48
Speaker 1: credit card. Cannot be trusted, Beck, and that's where you
9:52
Speaker 1: should look at an ovateed lease and go, well, actually,
9:54
Speaker 1: is this a good financial decision If you need a
9:56
Speaker 1: new family car and it's something where you go, Beck,
9:59
Speaker 1: we've been meaning to get it, Like the only option
10:01
Speaker 1: is going to be you know, a car loan. That's fine,
10:04
Speaker 1: This could be a really really valid option that actually
10:07
Speaker 1: puts you in the best financial position for taking on
10:10
Speaker 1: debt for a car. Sure, and that's great, but it's
10:13
Speaker 1: still debt for a car, and we need to see
10:15
Speaker 1: it as that, not some shiny benefit that your business
10:18
Speaker 1: offers and you can absolutely take advantage of it, Yeah,
10:22
Speaker 1: because I think a lot of businesses use it as
10:24
Speaker 1: a shiny upgrade, like, oh, well, if you're signing on
10:28
Speaker 1: beck one hundred thousand dollars salary package and we do
10:30
Speaker 1: novated leasing, Okay, that is great if it applies to
10:37
Speaker 1: your circumstance, But more often than not, it's just a
10:40
Speaker 1: way to keep you in debt.
10:41
Speaker 4: Right, Okay, we keep saying lease. But if you do
10:45
Speaker 4: an ovated lease, does that mean you own the car?
10:47
Speaker 2: No?
10:48
Speaker 1: Oh okay, well the finance company owns the car. Sure
10:51
Speaker 1: are then leasing the car from them? Sure? Do you
10:53
Speaker 1: actually ever own the car. Beck, Well, technically no, while
10:57
Speaker 1: you're running an ovated lease. In fact, you don't actually
11:00
Speaker 1: want to own the car because all your tax benefits
11:02
Speaker 1: would completely disappear. You okay, the finance company to own
11:07
Speaker 1: your car. Okay, So it sounds good, but it doesn't
11:12
Speaker 1: necessarily mean it is. I see. So this kind of
11:15
Speaker 1: sounds like a hack to get a new car every
11:18
Speaker 1: three years. Yeah, that is what a lot of people think.
11:21
Speaker 1: So a lot of people go, all right, well, I'll
11:22
Speaker 1: get an ovated lease, you never own the car. I'll
11:24
Speaker 1: pay my novated lease payments, and then in three years,
11:27
Speaker 1: once I'm done that lease, what we'll do is we'll
11:29
Speaker 1: go back down to Toyota. We'll get a new car
11:32
Speaker 1: that on a ovated lease and start cycle again. So
11:35
Speaker 1: you never actually ever own a car that you're paying off. Right,
11:38
Speaker 1: it sounds really tax effective, but you're leasing it instead
11:42
Speaker 1: of paying the car off completely. There are certain circumstances
11:46
Speaker 1: where when your norvated lease has expired, you can purchase
11:50
Speaker 1: the car for a discounted rate and it sends up
11:52
Speaker 1: being okay, and it would then move into your personal
11:54
Speaker 1: name and not have the tax advantages that it previously had. However,
12:00
Speaker 1: rocks in their head. Nobody in their right mind needs
12:04
Speaker 1: a new car every three years. Controversial opinion. I hope
12:07
Speaker 1: my friends aren't listening to this episode because I've got
12:09
Speaker 1: a couple of them that literally get a new car
12:12
Speaker 1: every three years, because they're like, oh, it's three years old.
12:13
Speaker 1: I've got to get rid of it. Clah, My car's
12:18
Speaker 1: from two thousand and six. I've been driving it since
12:20
Speaker 1: twenty eleven. You will have to pry it from my
12:22
Speaker 1: cold dead hands. And I've been talking to my husband.
12:25
Speaker 1: The only reason that I would feasibly get rid of
12:28
Speaker 1: it is because it's a two door Coupei. Because like
12:30
Speaker 1: when I bought it, I thought I was so cool back,
12:32
Speaker 1: I thought I was so cool, right, I bought it
12:34
Speaker 1: at university and like hot stuff. Two doll Coupei all
12:39
Speaker 1: on debt. Obviously, of course all on det But I
12:42
Speaker 1: have my two dog, Coupay, and I was very excited
12:44
Speaker 1: about I still love her a lot. But the only
12:48
Speaker 1: reason I'd get rid of that is because a two
12:49
Speaker 1: door Coupei didn't suit our lifestyle anymore, right, gotcha? You know?
12:54
Speaker 1: Putting baby seats in the back of a two door Coupei,
12:57
Speaker 1: that would be Hell, this is not great. I mean,
12:59
Speaker 1: we could make it work technically, but I'm not that stubborn.
13:03
Speaker 1: That's obviously my personal opinion. You might think, oh, well,
13:07
Speaker 1: I actually do for these reasons, for safety reasons, like
13:10
Speaker 1: you could come up with so many good debate. Sure
13:12
Speaker 1: to go, but v yes, I do need a car
13:14
Speaker 1: every three years. I've done all the maths. I've done this,
13:16
Speaker 1: I've done that. At the end of the day, a
13:18
Speaker 1: car is a depreciating asset, and if you have one
13:21
Speaker 1: and you completely pay it off and then you run
13:23
Speaker 1: it into the ground, that will arguably, always, always, always
13:26
Speaker 1: be a better financial decision. Then you're getting a new,
13:30
Speaker 1: shiny car every three years.
13:31
Speaker 2: Yep.
13:32
Speaker 1: You can't argue that. Cannot argue that your values might
13:35
Speaker 1: be different. And that's totally okay, Like that is so
13:37
Speaker 1: fine if you go. But b I am such a
13:41
Speaker 1: petrol head. I love cars. Cars are my thing. Like
13:44
Speaker 1: every three years, I get a new one. I am
13:47
Speaker 1: so car proud, Like you're the dude or the chick
13:50
Speaker 1: down at the car wash every Saturday morning, Like you
13:52
Speaker 1: go your little chammy out in buff and your car up,
13:54
Speaker 1: like that's your favorite thing in the entire world. You
13:57
Speaker 1: sacrifice other things in your life so that you can
13:59
Speaker 1: have that. I'm not gonna argue with your values. That's
14:02
Speaker 1: what I am going to do is make sure that
14:03
Speaker 1: you're as educated as possible so you know the ramifications
14:07
Speaker 1: of the decision that you're making, and then you can
14:08
Speaker 1: still make it. That's fine as long as you've got
14:11
Speaker 1: the education behind you so that you go. You know what,
14:14
Speaker 1: I don't care like some things in life are wastes
14:16
Speaker 1: of money. Yeah, you know what's a waste of money?
14:19
Speaker 1: My eyelash extensions. Am I still gonna get them? Absolutely?
14:23
Speaker 1: Because I feel real hot when I have them back? Absolutely?
14:27
Speaker 1: Does that mean that everyone always has to make the
14:30
Speaker 1: best possible financial decision. No, no, but you have to
14:34
Speaker 1: make it in line with your values, and you have
14:36
Speaker 1: to be educated to know that the decision you're making
14:39
Speaker 1: might not be the best one, but it's the best
14:41
Speaker 1: one for you.
14:41
Speaker 4: Speaking of education, what are some of the benefits of
14:44
Speaker 4: nevated leasing? With anovated lease, you can use your car
14:46
Speaker 4: for personal use, which is quite helpful. You don't just
14:49
Speaker 4: have to be using their car for like business or
14:51
Speaker 4: work purposes, which I think is a common misconception. Your
14:55
Speaker 4: income the cost of your car and ongoing running costs
14:58
Speaker 4: each year will actually decide how cost of efective a
15:00
Speaker 4: norvated lease might actually be for you. The result will
15:03
Speaker 4: be that your taxable income is reduced. The benefits also
15:07
Speaker 4: depend on the way that your lease is actually structured BECK.
15:10
Speaker 4: Some leases might package car expenses like registration and fuel
15:14
Speaker 4: and tires and insurance together, so your repayments cover all
15:17
Speaker 4: of these as well, whereas some employers may also allow
15:21
Speaker 4: you to pay part of your norvated lease from after
15:23
Speaker 4: tax dollars.
15:24
Speaker 1: Which is called an employee contribution. If you're not on
15:28
Speaker 1: the highest marginal tax rate, this can actually be cost
15:31
Speaker 1: effective because fringe benefits tax, which is based on the
15:34
Speaker 1: highest marginal tax rate BECK, may not have to be
15:38
Speaker 1: paid to your employer from your pre tax salary in
15:40
Speaker 1: addition to your norvated lease for payments, nervated leases can
15:45
Speaker 1: effectively mean motoring costs are goods and services tax free,
15:49
Speaker 1: so GST free for employees. The GST you would ordinarily
15:54
Speaker 1: pay on the purchase price is covered by the finance
15:56
Speaker 1: provider and they can claim an input for tax and GSD,
16:00
Speaker 1: by the way, is ten percent. If running costs are
16:02
Speaker 1: included in your novated lease. These can actually be packaged
16:06
Speaker 1: to employees with their lease payment without GST, as the
16:09
Speaker 1: employer claims the tax component back as an input tax
16:13
Speaker 1: as well. I see. Okay, just means again, you know
16:16
Speaker 1: how we talk about like franking credits and stuff. Things
16:20
Speaker 1: have little tickets on them to be like by the way,
16:22
Speaker 1: this one's tax free, or by the way it comes
16:24
Speaker 1: with this certain benefit and input tax credit is the
16:27
Speaker 1: same as that, but it's for a business. Okay. Yeah,
16:31
Speaker 1: So like GST is kind of like left pocket, right pocket.
16:34
Speaker 1: Like when you're a business owner, you pay GST and
16:37
Speaker 1: then you also get GST, but all the GST that
16:41
Speaker 1: you collect actually gets paid back to the government, So
16:43
Speaker 1: it's like I charge it, but that doesn't come into
16:46
Speaker 1: play with my profit. Whereas for you, beck, as a consumer,
16:49
Speaker 1: when you go to the shops and you buy a
16:51
Speaker 1: new drink bottle, for example, there will be a goods
16:54
Speaker 1: and services component that you pay, but you can't claim
16:57
Speaker 1: that tax time. This changes that circumstance. So someone in
17:00
Speaker 1: the background is making the GST effective for you, which
17:04
Speaker 1: is kind of attractive. Yeah, I love that. Also, last
17:07
Speaker 1: point on this, like in the pros area is compared
17:10
Speaker 1: to other kinds of finance like a direct car loan,
17:13
Speaker 1: an ovated lease gives you a few different options for
17:16
Speaker 1: what you do when the lease term ends. So you
17:18
Speaker 1: can pay off the residual so that you then own
17:20
Speaker 1: the vical like we're talking about before. You could renew
17:23
Speaker 1: the lease for a longer term, either with the same vikel,
17:26
Speaker 1: or you could upgrade, like you were explaining every three
17:29
Speaker 1: is you could upgrade to a new car, or alternatively,
17:32
Speaker 1: you could sell the car and pay the residual off
17:34
Speaker 1: to the financer, and then any profit you make is
17:37
Speaker 1: actually yours to keep. That's free. That's pretty cool. Yeah, Okay,
17:43
Speaker 1: now I know it's not all pros. So we need
17:45
Speaker 1: to bring the mood in here to you need.
17:47
Speaker 4: To bring the mood down. What are some things we
17:49
Speaker 4: need to consider when it comes to novated lea.
17:52
Speaker 1: So the first thing I'd want you to consider is
17:54
Speaker 1: that if you are going to change employer or change
17:57
Speaker 1: your job or stop working, the responsibility for making the
18:00
Speaker 1: repayments that still remains with you shall remain with the
18:04
Speaker 1: employer you set it up with. You might be able
18:06
Speaker 1: to transfer your lease to a new employer if they
18:09
Speaker 1: actually offer novated leasing, and it is a bit of
18:12
Speaker 1: work to set it up. But you might also want
18:15
Speaker 1: to just take over the repayments completely, which would mean
18:18
Speaker 1: that they are no longer pre tax than our post tax.
18:20
Speaker 1: But you can just keep paying off the lease. It
18:22
Speaker 1: just means it would be more expensive technically, gotcha. When
18:25
Speaker 1: you have a car under a novated lease with your employer,
18:28
Speaker 1: the federal government considers it to be a fringe benefit,
18:32
Speaker 1: so then fringe benefits tax might apply. So while employers
18:36
Speaker 1: are liable to pay fringe benefits tax, in the case
18:39
Speaker 1: of novated leases, this cost is generally then passed on
18:43
Speaker 1: to you to pay from your pre tax salary because
18:47
Speaker 1: the employers are kind of like, well, this is all
18:48
Speaker 1: benefiting you. Why would we pay a different tax on
18:52
Speaker 1: your behalf when it's you incurring it directly because you
18:54
Speaker 1: wanted a car. It's also really important to understand how
18:58
Speaker 1: this and any other financial imployers arising from entering into
19:01
Speaker 1: an ovated lease can impact you. So I guess my
19:04
Speaker 1: last point, Slash, it's not a con but it's a
19:07
Speaker 1: point is if you're going to do it, please just
19:09
Speaker 1: talk to your accountant or a financial advisor or someone
19:12
Speaker 1: in the know so that you can look at all
19:13
Speaker 1: the personal pros and cons and what it actually means
19:16
Speaker 1: for your financial situation, because, as I said, I just
19:19
Speaker 1: think people get a bit like really excited about it
19:22
Speaker 1: because it's such an attractive option and like obviously, innovated
19:25
Speaker 1: leasing companies have spent a lot of money on their
19:27
Speaker 1: marketing to be like, Beck, this is such a tax
19:29
Speaker 1: effective thing for you. You're basically making money and then
19:33
Speaker 1: does look pretty sweet. Yeah, but then you go down
19:35
Speaker 1: to Toyota or whatever. We're not sponsored by Toyoda. I
19:38
Speaker 1: walk past a Toyota dealership most days, so it's just
19:41
Speaker 1: like the one in my fresh haird right. Anyway, you
19:44
Speaker 1: go down to Toyota and like maybe you had planned
19:47
Speaker 1: to get like you know, the base model of like
19:50
Speaker 1: a camera or something that makes sense for your financial situation.
19:54
Speaker 1: Then you're kind of like, oh, what's the matter, Like,
19:56
Speaker 1: let's get the luxe version I deserve it. Yeah, it's
19:59
Speaker 1: all online. Thenovated lease anyway, sure doesn't matter, does it
20:02
Speaker 1: back or come out in the wash? No, We're making
20:06
Speaker 1: financial decisions that ultimately impact your ability to create financial freedom,
20:10
Speaker 1: and that's important to understand. It's a really good place
20:12
Speaker 1: to go on a quick break, A little quick break
20:15
Speaker 1: after the break.
20:15
Speaker 4: I have some questions about how the discounts work and
20:18
Speaker 4: many other things.
20:19
Speaker 1: Sexy, let's go. I'm quite all right, v we are back.
20:28
Speaker 1: This is I'm the only one excited to be back
20:30
Speaker 1: in this room.
20:32
Speaker 4: So I'm actually excited about this part. I have to
20:34
Speaker 4: be honest because we're talking about discounts. Yeah, I knew
20:37
Speaker 4: that to get you, so I put it right at
20:38
Speaker 4: the top hooks.
20:39
Speaker 1: I didn't sinker. Don't you do anything for you? Honestly?
20:43
Speaker 1: What discounts can you get? All right? So, as I
20:46
Speaker 1: said before, you're not going to pay GST on the
20:49
Speaker 1: purchase price of the vehicle, which is approximately ten thousand dollars,
20:52
Speaker 1: So this can save You've done the mass up to
20:55
Speaker 1: one hundred and ninety one dollars in the financial year
20:57
Speaker 1: of twenty twenty three twenty twenty four. Obviously, different financial
21:00
Speaker 1: years are going to be different, so diy your own
21:03
Speaker 1: mats if the year is different to when you are
21:05
Speaker 1: listening to this. Any car running costs that are included
21:09
Speaker 1: will also be GST free, so you're not paying GST
21:11
Speaker 1: on petrol, you're not paying it on servicing. It's like
21:14
Speaker 1: a little ten percent discount right there. You'll be saving
21:18
Speaker 1: on income tax by making novated lease payments from your
21:21
Speaker 1: pre tax salary, so like salary sacrificing your car. And
21:25
Speaker 1: if you're nervating an electric vehicle or plug in hybrid,
21:28
Speaker 1: see this is where people are going to start justifying
21:30
Speaker 1: Tesla's beck. Obviously, up to the luxury car threshold, you
21:36
Speaker 1: won't be subject to fringe benefits tax or FBT on
21:39
Speaker 1: your lease. So that's what we said before. You could
21:41
Speaker 1: if you buy a hybrid vehicle or electric vehicle. Sure,
21:45
Speaker 1: well there you go.
21:45
Speaker 4: Okay, So how do you salary package fuel and services.
21:50
Speaker 1: So this is called a fully novated lease. So there's
21:54
Speaker 1: like anovated lease, and then there's like the fully novated lease.
21:56
Speaker 1: So sometimes you might just have the car like it's
21:59
Speaker 1: up to you to get your insurance and pay for
22:00
Speaker 1: petrol and like your actual debit card. But the fully
22:04
Speaker 1: novated lease means that under that part, apart from paying
22:07
Speaker 1: for the car repayments, the employer would normally pay for
22:10
Speaker 1: the car's running costs like fuel and maintenance and registration
22:13
Speaker 1: and car insurance. And it's like then all combined into
22:16
Speaker 1: your lease repayments, so it's a set figure every single month.
22:20
Speaker 1: And then for fuel, you get given what's called a
22:22
Speaker 1: fuel card. So you might have heard of those before.
22:25
Speaker 1: And it will depend on where you live as to
22:28
Speaker 1: what service stations you can go to fill up, because
22:30
Speaker 1: you'll need to pay for fuel from your fuel card
22:33
Speaker 1: because it has the allocated pre tax dollars on it.
22:36
Speaker 1: Oh okay, that's pretty fun. I wonder if you can
22:38
Speaker 1: slip in a like cheeky little curly wurly while you're
22:41
Speaker 1: at the chickau a little sausage roll, Oh, sausage roll card.
22:45
Speaker 1: I'm just wanting to get the like ninety cent curly Welly.
22:47
Speaker 1: Do you think curly wellies are still ninety cents? I
22:49
Speaker 1: think so?
22:49
Speaker 5: Yeah.
22:50
Speaker 1: I reckon, I reckon it would be fair for them
22:51
Speaker 1: to still be ninety cents. If they're not, let's talk.
22:55
Speaker 1: If they're not, I will still buy them anyway. And
22:58
Speaker 1: I just want to know, does this tie you to
23:00
Speaker 1: your employer?
23:01
Speaker 2: Ah?
23:01
Speaker 1: Yes and no. Anvated lease is obviously only used by employees,
23:05
Speaker 1: which means the lease agreement is actually tied to the employee,
23:09
Speaker 1: not the employer. It's more about whether your new company
23:13
Speaker 1: is going to offer novated leasing, which means they would
23:16
Speaker 1: offer to pay your novated lease from your pre tax income,
23:21
Speaker 1: which is obviously another admin hassle. It's something that not
23:24
Speaker 1: every single employer offers. And if you leave your job
23:27
Speaker 1: with a novated lease, the car will be what's called
23:30
Speaker 1: denovated and you're going to make payments as you would
23:34
Speaker 1: with a standard lease, from your own funds, so like
23:37
Speaker 1: from your post tax income directly from your salary until
23:41
Speaker 1: you're employed again and pay a salary if your employer
23:44
Speaker 1: consents to, you know, putting your car or novated lease.
23:48
Speaker 1: And if you find a job with an employer who
23:49
Speaker 1: agrees to pay for a novated lease, you're going to
23:52
Speaker 1: be able to what's called renovate your lease and then
23:55
Speaker 1: continue to make payments as you did with your last job.
23:57
Speaker 1: So no, it doesn't tie you to your job. It's
24:00
Speaker 1: the tax free component might not be that attractive to
24:02
Speaker 1: you if you have to pay it for any period
24:04
Speaker 1: of time.
24:05
Speaker 2: Yeah.
24:05
Speaker 1: Wow, so many play on words in this. Yes, sorry,
24:08
Speaker 1: I'm trying my custardy.
24:09
Speaker 4: If clean and clear is possible, a great job. I
24:13
Speaker 4: do want to know, though, V what happens when you
24:15
Speaker 4: get to the end of the lease, or if you
24:16
Speaker 4: want to cancel it in the middle. So when the
24:19
Speaker 4: end of an ovated lease happens, typically you have three
24:22
Speaker 4: different options. So you could pay the residual and then
24:26
Speaker 4: you own the car outright. Your tax benefits cease then
24:29
Speaker 4: because it's then owned in your personal name. It is
24:31
Speaker 4: your personal asset to run. Nobody else is going to
24:33
Speaker 4: be giving you some tax benefits for that. The second
24:36
Speaker 4: option BECK is refinancing the residual value to continue using
24:40
Speaker 4: the car. You know, let's pretend you're three year lease
24:42
Speaker 4: ended and you're like, okay, cool, but I really want
24:45
Speaker 4: to keep the car, don't really want to pay it
24:47
Speaker 4: out because I either don't have the funds or actually
24:49
Speaker 4: still want the tax benefits of it. Can I keep
24:51
Speaker 4: paying it off in the same way that I am.
24:53
Speaker 4: Let's you know, do a longer lease period, renew it
24:57
Speaker 4: same car, let's go and it continues off. Or you
25:01
Speaker 4: could trade that cut in and upgrade to a new
25:03
Speaker 4: vehicle and enter into a fresh please agreement. And that's
25:07
Speaker 4: where I think it's a slippery slope because I look
25:10
Speaker 4: at it and I go I know that it was
25:11
Speaker 4: like beneficial for the first couple of years because like
25:14
Speaker 4: you're paying off this car rah rah. But if you
25:17
Speaker 4: then renew it every single three year period, or you know,
25:20
Speaker 4: you might have a five or a seven year period,
25:22
Speaker 4: it really depends on like what agreement you've entered into.
25:25
Speaker 4: It's kind of like, you know, when we talked about
25:27
Speaker 4: a thirty year term on a mortgage and I'm like,
25:31
Speaker 4: all right, well, let's say you've got a five hundred
25:33
Speaker 4: thousand dollar house and at the end of your thirty years,
25:37
Speaker 4: Beck owns one hundred percent of that property because you're
25:41
Speaker 4: paying your principal and interest off, right, So it gets
25:44
Speaker 4: to five years and you go and sit down with Kate,
25:47
Speaker 4: your Zella money broker, and Kate says, all right, well,
25:50
Speaker 4: let's refinance. Thankfully, Kate's really smart because she's a Zello
25:54
Speaker 4: money broker, and like, we literally care so much about
25:57
Speaker 4: your financial futures that we would never let you reset
26:00
Speaker 4: that term. Sure, we would always go Okay, instead of
26:02
Speaker 4: re entering into a thirty year term, we're going to
26:04
Speaker 4: enter you into a twenty five year term for this.
26:07
Speaker 4: We're obviously going to reset, you know, your interest rate,
26:09
Speaker 4: you know, bring it down a little bit, but we
26:11
Speaker 4: really don't want you to have to redo that five.
26:13
Speaker 1: Years that you've already been paying your property off. So
26:16
Speaker 1: we're going to just set this term over twenty five years,
26:18
Speaker 1: so that in that same thirty year period, you're going
26:20
Speaker 1: to end up with one hundred percent of this property. Okay.
26:23
Speaker 1: Whereas with car loans, if you get three years in
26:26
Speaker 1: and then you say, hey, Beck, one new one going
26:29
Speaker 1: to go upgrade, you go back to the very start
26:31
Speaker 1: and you start paying off another car. Sure, you're never
26:34
Speaker 1: going to own one hundred percent of that asset. Yet
26:37
Speaker 1: you're paying thousands of dollars towards this asset for the
26:40
Speaker 1: privilege of driving it, but never fully owning it. I
26:43
Speaker 1: don't know, a waste. Hey, that's where we're trying to go.
26:47
Speaker 1: I see, I see, I see. I'm not saying it
26:50
Speaker 1: is a waste. It can be very constructive. As we've said,
26:52
Speaker 1: there's so many benefits to it. But I think we
26:55
Speaker 1: need to balance those benefits and go, well, actually, what's
26:59
Speaker 1: the ultimate out? Sure, because like if I set you
27:01
Speaker 1: down and go, Beck, well you know you need a car,
27:03
Speaker 1: and you go yeah, absolutely, like V it's not an option.
27:06
Speaker 1: I have to get from A to B. I need
27:08
Speaker 1: a car. I've looked at every other options and horse
27:11
Speaker 1: is not going to work. I can't ride a kangaroo
27:14
Speaker 1: to work every day. Like, it's just not gonna work, okay, right,
27:17
Speaker 1: non negotiable. Beck acquires car? Yes, but Beck, what's the
27:22
Speaker 1: long term goal with that car? Like, you're gonna have
27:25
Speaker 1: to get from A to B. Yes, I guess for
27:27
Speaker 1: the next thirty or forty years, because it's gonna keep working. Right,
27:29
Speaker 1: So car might be completely necessary. You drive to Sydney
27:33
Speaker 1: Fair a bit, so, like that's important that you have
27:35
Speaker 1: access to a car. So it's not that you're gonna
27:37
Speaker 1: have the car for the three years, right, You're hopefully
27:40
Speaker 1: going to be a car owner for the rest of
27:42
Speaker 1: your life or as long as your license allows you,
27:47
Speaker 1: you know what I mean? Like, why are we only
27:50
Speaker 1: looking at the first three years when you know tax
27:54
Speaker 1: efficiency means that yes, it is the most beneficial tax
27:57
Speaker 1: option in the short term, but in the long term,
28:00
Speaker 1: is it not better to buy one car, pay it
28:02
Speaker 1: off completely and have these costs coming out of your
28:04
Speaker 1: post tax income and not be paying a consistent lease
28:07
Speaker 1: for a brand new vehicle. Yeah. So I think it's
28:10
Speaker 1: just really important to understand why we might make these decisions. Okay,
28:14
Speaker 1: in the short term and in the long term, like
28:16
Speaker 1: you might go, you know what, I've looked at this,
28:18
Speaker 1: and anvated lease really works for me because I actually
28:21
Speaker 1: don't own a car at all at the moment. These
28:23
Speaker 1: tax benefits are going to really work for me. I'm
28:25
Speaker 1: going to get this novated lease. I'm going to you know,
28:28
Speaker 1: paid off for three years. In three years, they're going
28:31
Speaker 1: to offer me the opportunity to pay the residual value
28:33
Speaker 1: on the car, because like, oh, can we renegotiate that,
28:36
Speaker 1: just stretch it out a bit further. I'll pay more off,
28:37
Speaker 1: but I want the tax benefits. So you stretch it
28:39
Speaker 1: out for another three years. You show a car for
28:41
Speaker 1: six years, car's basically completely paid off. Now you decide
28:45
Speaker 1: to put that in your personal name and go, you
28:46
Speaker 1: know what, we had a really good run. I was
28:48
Speaker 1: paying for fuel and stuff out of my pre tax income.
28:51
Speaker 1: Now it's out of my post tax income. But I
28:54
Speaker 1: don't have a car repayment anymore, so actually have a
28:56
Speaker 1: lot more money to play with. Gotcha. Okay, But what
29:00
Speaker 1: happens if you want to cancel in the middle of
29:01
Speaker 1: a lease? All right, So if you want to cancel
29:04
Speaker 1: in the middle of the lease, you essentially have to
29:05
Speaker 1: pay out your lease early. Just like in any lease contract,
29:09
Speaker 1: you'll have like a get out of jail early clause. Right,
29:12
Speaker 1: So when you take on an ovated lease, you agree
29:15
Speaker 1: to lease the vehicle for a set period of time,
29:17
Speaker 1: and then if you break the lease early, you're going
29:19
Speaker 1: to have to pay the remainder left on the lease
29:21
Speaker 1: along with the residual value of the vehicle including gst Okay,
29:27
Speaker 1: So if you want to get out of it early,
29:29
Speaker 1: it might not be the best financial decision because it
29:32
Speaker 1: might actually cost you a bit more. Sure, but you've
29:35
Speaker 1: just got to be careful read all your terms and
29:36
Speaker 1: conditions and make sure that you understand all the t's
29:39
Speaker 1: and season fees involved. Huh, I'm just really good at
29:42
Speaker 1: reading ads. You've done that.
29:44
Speaker 2: I've tried.
29:45
Speaker 1: I've tried my best, So say anything else I should consider. Look,
29:48
Speaker 1: there's a whole heap. I'm just going to list off
29:51
Speaker 1: a few. Obviously, understand your income. You need to make
29:54
Speaker 1: sure that the income tax savings will actually be enough
29:57
Speaker 1: to offset the cost of the lease. So, for example,
29:59
Speaker 1: it might not actually makes sense for people on lower
30:02
Speaker 1: incomes to do this because it's like, well, the benefits
30:05
Speaker 1: are negligible, what kind of vehicle are you actually going
30:08
Speaker 1: to lease? So, as we said before, novaded leases are
30:11
Speaker 1: particularly attractive for people who want to buy like electric
30:13
Speaker 1: Vickles are hybrids, because you get out of the FBT,
30:16
Speaker 1: which is kind of attractive because they now have that
30:19
Speaker 1: exemption as long as the value of the car is
30:21
Speaker 1: below what's called the luxury car tax threshold for fuel
30:25
Speaker 1: efficient vehicles, which this year in the twenty twenty three
30:28
Speaker 1: twenty twenty four tax year is eighty nine, three hundred
30:31
Speaker 1: and thirty two dollars, which is so much money for
30:33
Speaker 1: a car.
30:34
Speaker 4: Beck, Yeah, And obviously this considerably boosts novaded least tax savings. Yeah, okay, okay,
30:41
Speaker 4: I got you when it comes to how many kilometers
30:44
Speaker 4: you're going to be driving on this. So generally, people
30:46
Speaker 4: who use their car a lot are going to get
30:48
Speaker 4: a whole heap more benefits through saving on fuel and
30:50
Speaker 4: other running costs, including part of the lease.
30:53
Speaker 1: So I've worked with clients where it actually genuinely makes
30:57
Speaker 1: financial sense for them to consistently have an ovated lease.
31:00
Speaker 1: Good example, they're a BDM for financial advisors. Their job
31:04
Speaker 1: is to drive around all the financial advisors in the
31:07
Speaker 1: state that they manage. So they go from their house
31:09
Speaker 1: every single day. They might come into the city and
31:11
Speaker 1: go to the office. They might then go out to
31:14
Speaker 1: you know, none a Wadding and then they might be
31:16
Speaker 1: in Dandingong, and then they might be over in elston Wick,
31:18
Speaker 1: and like they drive around the city a lot. In
31:21
Speaker 1: these circumstances, anvated lease might make sense because you're putting
31:24
Speaker 1: your car through a lot. There's obviously a lot of
31:27
Speaker 1: wear and tear happening on their car. There's obviously a
31:30
Speaker 1: lot of fuel costs in that circumstance, and that could
31:33
Speaker 1: actually make sense as a part of that salary conversation
31:37
Speaker 1: when you go, hold on like this is actually more
31:40
Speaker 1: of a work vehicle than it is actually just like
31:42
Speaker 1: a I really wanted to drive a Tesla, got a situation,
31:45
Speaker 1: you know, gotcha? So the purchase price of the vehicle
31:48
Speaker 1: we also want to look at, So like too low,
31:50
Speaker 1: the GST savings might not be enough to offset the
31:53
Speaker 1: lease costs. But then too high and the savings as
31:56
Speaker 1: a percentage of the vehicle's value will become very low.
31:59
Speaker 1: And mistake to avoid there is buying a more expensive
32:02
Speaker 1: bigle than you need in an attempt to maximize tax savings.
32:06
Speaker 1: Gotcha cut that out. Don't do don't do that, don't
32:09
Speaker 1: do that. We need to understand lease costs, so innovated
32:12
Speaker 1: lease will work best if you can get a deal
32:14
Speaker 1: with a competitive interest rate and low lease fees. So,
32:18
Speaker 1: as I said before, we need to understand our t's
32:20
Speaker 1: and season fees. Don't agree to anything without that. And
32:24
Speaker 1: obviously we need to understand things like administration fees that
32:28
Speaker 1: are going to be charged by the lease company, not
32:31
Speaker 1: just your competitive interest right. Understand what the least term is.
32:35
Speaker 1: So similar to other kinds of finance, you could reduce
32:38
Speaker 1: your interest or other costs by choosing a shorter term.
32:41
Speaker 1: So you might be offered a seven year lease, go
32:43
Speaker 1: what would it look like over three? What would it
32:45
Speaker 1: look like over five? Can you will afford that? Does
32:47
Speaker 1: that make sense for you? And a smarter proach I've
32:50
Speaker 1: scene for some people is to choose the shortest term
32:52
Speaker 1: possible while maximizing the percentage of the vehicle you pay
32:56
Speaker 1: off by the end of the term, and then do
32:58
Speaker 1: it across as many financial years as possible, so you're
33:01
Speaker 1: maximizing tax savings. That is so clever. I've talked about
33:04
Speaker 1: nervatedly sing a million times before with like friends and
33:07
Speaker 1: family and trying to understand it. And I think the
33:09
Speaker 1: one thing that I really want you to understand is
33:11
Speaker 1: that nervatedly thing makes sense. Yeah, Like, I've just explained
33:14
Speaker 1: it all. They are obvious pros and obvious cons. Sure,
33:17
Speaker 1: but the thing I don't want you to get stuck
33:19
Speaker 1: on is justifying a more expensive purchase because it's better
33:24
Speaker 1: for tax. Right, So we're not going to.
33:27
Speaker 5: Do that, are we back?
33:28
Speaker 4: No, We're not going to do that. This is definitely
33:30
Speaker 4: a lot of information. If I were a listener, I
33:33
Speaker 4: would listen twice.
33:34
Speaker 1: In a row. Just so not you dirty, dirty liar,
33:38
Speaker 1: I am not. You are, little fibber.
33:41
Speaker 4: Just in case you need to, we are here for you.
33:44
Speaker 4: This is a lot of information taken. Go absorb it
33:47
Speaker 4: and have.
33:47
Speaker 1: The best week of weekday? Bye? Guys, did buy shared
33:58
Speaker 1: on cheese?
33:58
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34:01
Speaker 5: individual circumstances. She's on the Money exists purely for educational
34:06
Speaker 5: purposes and should not be relied upon to make an
34:08
Speaker 5: investment or financial decision. If you do choose to buy
34:11
Speaker 5: a financial product, read the PDS, TMD and obtain appropriate financial.
34:16
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34:18
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