Leasing - Ford Forums - Mustang Forum, Ford Trucks, Ford Focus and Ford Cars

02-10-2002, 22:43

I was thinking about leasing a car so has anyone here leased a car?
What are the pros and cons?

Nipper · 02-10-2002, 23:25

GTHO4.!!!

I have a Fully maintained novated finance lease on my XR6VCT..

These leases are great if you are on a Salary package and your employer can deduct your lease payment from your Gross Salary before you receive it. This way if like me, you are on the top tax threshold you can save a shitload of tax. (The best thing is they don't need to be business km's).

I have included all running costs in my lease (Insurance, Servicing, Tyres, Motor Club, Fuel up to 25,000kms per year).
Less tax you pay 51% of the actual cost. It works for me..

Mate, I spend my day doing leases and finance for businesses and I would not recommend anyone take out a NORMAL Finance Lease or Commercial Hire Purchase if they cannot claim at least 70% of total km's on business use.. It just works out too expensive.

I hope I have helped in some small way...

02-11-2002, 00:44

I'm self employed which lease would be better for me?

Aussie Pete · 02-11-2002, 01:46

Leases. Aaahhh. If only it was simple.

Look, the bottom line is that if you are self employed you should be talking to your accountant to do the sums for you. It can come down to many factors that varies between many different people and their circumstances. Trust me, your accountant must look at it closely because FBT and all the other little hidden issues such as GST input credits and blah blah blah.....

To give you an idea of the benefit of leasing for a PAYE employee, depending on kms driven and salary level, the difference between FBT and PAYE tax will mean the net disposable income will be many thousands of dollars better than owning your current car outright.

Examples:
Salary is $80k
Base value of car is $42,000
Kms travelled is 25,001 p.a.
Recipient contribution is $42,000 x 0.11 = $4,620 (FBT rate)
Private use allowed 365 days/yr

Without packaging/lease
Earn $80,000
less income tax $26,180
less motor vehicle expenses $14,930 (typical)
Disposable income $38,890

With packaging
Earn $80,000
less Salary sacrifice $9,372
Taxable income $70,628
less income tax $21,624
less recipient contribution $4,620
Disposable income $44,374

So, you are better off by $5,484 in real post-tax money for the year! Thats almost $100 per week.

Hope this helps a little bit.......

Nipper · 02-11-2002, 01:48

Quote:

Originally posted by GTHO4
I'm self employed which lease would be better for me?

OK. Being self employed makes leasing a lot more affordable.

A lease is actually a rental agreement of sorts and the rental payments become tax deductable.

The reason I previously mentioned having a higher % of the vehicle use for business is that you have a larger claim against taxation.

i.e. A lease rental of $ 1,000.00 per month with the vehicle being used for 100% business use you would have a tax deduction of $1,000. Based on a tax rate of 49cents in the dollar thats a saving of $490.00 per month. The larger your deduction the greater the taxation saving.

Just remember, it costs you $1 to save up to .49cents.

Leasing is used mainly when you wish to keep the asset updated. This is why most Motor vehicle leases are based on 3 year term with around a 30 - 40% residual payment at the end.

The residual is the asset purchase cost less, depeciation over the alloted period. In other words you car would be worth 30 - 40% of its purchase price in 3 years time.

You would then trade it in, use the tradein figure to payout the residual on the lease and go again with another lease on a new vehicle.

Everyone's business and cashflow is different so the best person to ask which lease is best for you is your Accountant. Because Leasing is a taxation driven type of finance they should be able to recommend the best one for you.

If you have a high percentage of private use of the vehicle leasing becomes unattractive as the taxation benefit is minimal. (You can only claim the portion of the vehicle used in the business). Also lease rentals are subject to GST and without an ABN and being registered for GST you cannot claim it back.

Aussie Pete · 02-11-2002, 02:17

There is also issues like opportunity costs for your CASH, whether buying and using depreciation is better for you (often the case for some commercial vehicles), and whether you really want to constantly update your asset rather than own it.

Nipper talks about 49 cents in the dollar saving, however as shown in my example you will have to offset this by paying out the FBT contribution rate based on the number of kilometers driven in a year. I used 25000+ km which is a rate of 0.11 or 11%, however if you do 24999 km the rate is 20%. For 0-15000km the rate is as high as 26%. It can get better though - if you drive a lot you can get a rate of just 7% if you go over 40,000km.

Confusing eh?

Nipper · 02-11-2002, 03:01

Quote:

Originally posted by Aussie Pete

Nipper talks about 49 cents in the dollar saving, however as shown in my example you will have to offset this by paying out the FBT contribution rate based on the number of kilometers driven in a year. I used 25000+ km which is a rate of 0.11 or 11%, however if you do 24999 km the rate is 20%. For 0-15000km the rate is as high as 26%. It can get better though - if you drive a lot you can get a rate of just 7% if you go over 40,000km.

Confusing eh?

Pete, If he is self employed and it is used for business use under a Finance Lease then FBT is not payable.. FBT only becomes an issue when its a benefit to an employee...

Brendan · 02-11-2002, 03:43

You also need to be sure when you take out the lease that you will either stay with your employer who offers salary packageing or will move to another that will do it.

Otherwise you end up paying the whole lease payment with no tax advantage - like me..... yay

02-11-2002, 04:14

OK what if I want to purchase a car where I use 50% for business and the other 50% for private?

I know I should ask the accountant but the more I know the less he has to explain to me = saving $$.

Grunter · 02-11-2002, 15:50

Good discussion btw.