Comparing Novated Leasing Quotes
Confused by the Tax Savings, GST, Residual Values…
Novated lease quotes can look very confusing and comparing one against the other can be difficult. In the past 12 years of running Salary Packaging companies, I have seen a lot of quotes that even I struggle to understand. The good news is that all Novated leasing quotes must follow the same ATO guidelines and calculations. This means that you will be able to marry apples with apples.
The trick is being able to wade through the information and cutting out what is simply padding and what is relevant. Firstly Salary Packaging a vehicle must be done through what is called a novated lease. This finance product allows your employer to pay for a vehicle on your behalf with money you have sacrificed before paying any tax. The novated lease in most cases is fully maintained this simply means that payments from your salary include all vehicle running costs such as finance, fuel, tyres, services, insurance and registration renewals. This allows you to sacrifice more before tax saving you more tax.
Marrying Apples with Apples
Once all of the figures are laid out the end result will be what we call “the cost of the vehicle to your net take-home pay”. What this means is if you currently take home $1000 per fortnight after tax and Medicare and the cost of the vehicle to your net take-home pay is $200 per fortnight your new take-home pay will be $800. However, all of the running costs on the vehicle will be paid for. Every Salary Packaging company should provide this figure in large print as it represents the true cost of the vehicle. Most running costs such as fuel, tyres and servicing are budgets or estimates as everyone drives their vehicle differently. You have a degree of control over these. The registration is set and the insurance is determined by your insurer or the Salary Packaging company’s insurer. The main cost and in most cases where the largest differences come from is the finance or lease cost.
The lease is determined by the amount financed the interest rate, the term and the residual value. Amount Financed = Vehicle cost + insurances + Finance Commission – GST Interest Rate = The best deal your salary Packaging company can get in the market. The Term = The number of months you have requested. In most cases, the lease will be 2 months in arrears. This means no payment is required for the first two months to allow your employer to establish your salary package and deduct enough money from your salary to pay the first lease payment. Always make sure this is the same for each quote and this can affect your payments significantly and may cause you to have to pay a payment upfront. The Residual Value = A set % of the vehicle cost in line with the term you have chosen. These guidelines from the ATO are set in stone and all Salary Packaging companies must comply with. Small variances can be made if you travel excessive km. Always make sure the Salary Packaging company shows the residual value including GST.
Tricks of the trade
1. Residual Value shown without GST to make the quote look cheaper.
2. Leasing Term in advance or just one month in arrears. Makes the quote cheaper as the total finance payments are spread over a longer term.
3. Removing GST from all running costs to make the leases and running costs look cheaper. Always check the cost to take home pay.
Always ask lots of questions.
This is the true cost. If in doubt ask lots of questions, seek professional advice or sit down with one of our staff and we will take the time to explain any quote in plain English. Don’t ever sign up for a Novated Lease without understanding the information.
If you want to compare your quote click on our calculator.