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