Hi there choice members, I have opportunity to lease a car under my employer’s salary package provider Maxxia. My own vehicle is 11 years old and no air con so I know it will need to be replaced soon. Has anyone any experience good or bad about salary packaging a car? I made an enquiry wanting to know how that would look on my pay slip each fortnight but have been contacted multiple times like it’s a pushy car salesman kind of situation. I’m not sure what happens if I have to leave work before the lease term is up e.g. a 4 year lease. I’m the kind of person who likes to pay cash or just a small loan under $10,000 to buy a car.
Welcome back @Sol
I’m not sure many here would be able to give current experience in this area. We are also not legally able to give financial advice as we are just ordinary citizens for the most part and this means not licenced to give financial advice.
I would suggest you use your accountant or financial adviser to brief you on the aspects that may affect you. If you don’t have one it may be worth making an appointment with one to discuss the matter or contacting a consumer financial advice centre.
As @grahroll mentioned we are not financial advisors, but there are myriad web links to companies deep into novated leasing that can answer your questions. One of the many -
If you leave your job during the lease term, you will then be responsible for ongoing lease payments. Whilst you would have the option of selling the car and paying out the lease, this might or might not be practical for your circumstances.
As @grahroll has suggested, you should seek independent advice. In addition to this you could speak to any colleagues about their experience and do internet searches to find the views of others.
The provider will give you some figures showing how much tax you are likely to save. It is important to analyse the running costs listed to make sure that they are reasonably accurate. If the costs are exaggerated, the calculated tax savings will also be overestimated.
I know that others have found that insurance provided as part of the package can be expensive and add-on insurances for things like loss of income and wheel damage may be suggested. It is important that you seek advice about the suitability of these items and whether or not they are value for money.
One issue is that how much one drives is very important. The more you drive the better a novated lease might be once you crunch the numbers. If one only drives say 5,000km p.a. it could easily be counterproductive. It is insidious that it is designed as a tax benefit but also encourages ‘more’ driving, not using public transport
When I considered novated car leasing in the past when my employers offered it, it really only made financial sense to me if,
- I was the sort of person that wanted a new car every 3 or 4 years, and
- I drove at least 30K a year, since the FBT savings were based on yearly distance.
Neither of those fitted me. So consider your own situation, and do the sums.
I had been offered novated leases by past employers. As indicated above, the numbers didn’t stack up in our case (for the exact reasons outlined above).
The other reason in addition to what @Gregr has indicated is if one wishes to drive a high end car (large 4WS, supercar, luxury vehicle. other expensive vehicles etc), a novated lease may allow this to happen when usual methods of self financing isn’t possible. Even so, one has to do the numbers to ascertain whether it is a good option.
If you work for a large organisation, the finance team should be able to give you a breakdown of the vehicle’s real cost to you. You also need to work out your usual car running costs from capital purchases, distance travelled, insurance, fuel, maintenance, depreciation, residual value on selling etc.
Thank you everyone for taking the time to reply, appreciated.
Maxxia gave me a breakdown of the costs based on my rather modest annual kilometre tally and the kind of car I was looking at. The numbers did not stack up, but its worth asking them to do a breakdown so you can find out for yourself (if you can be bothered). Lots of insurance was ‘suggested’ with mine as well (some time ago) so perhaps there were other factors at play.
From past experience the leasing provider has control over who they choose as the insurer and choice of policies. Servicing and other repairs is usually restricted to pre-selected businesses. This can be inconvenient depending on where you work or live.
It’s worth carefully comparing any pay package difference with the costs of a privately owned vehicle. Personal experience suggests that as tax rates and tiers have changed novated leases have become less beneficial. Paying off the mortgage or topping up super through salary sacrifice, and using a lower cost personally purchased or second hand vehicle may provide a better outcome.
Note that leasing companies need to take a profit out of the deal. Locking a business and employees as customers longer term to lease renewals is important to them. Note also that as the lessee you carry the financial risk on the future value of the vehicle. Some employers may favour novated leases as an alternative to providing company work purpose only vehicles, it can be an effective cost saving and risk reduction for the business.
I have been with MAXXIA for 5 years now, and am on to my 2nd vehicle with them. I personally find them really easy to deal with, and it’s a great way to obtain a new vehicle at a decent price. Just be mindful that due to COVID there’s currently a shortage of new vehicles, and used vehicle prices have increased based to meet the demand. You’re probably better off looking at a new vehicle in the current climate, and with salary packaging the main running costs are all factored into the deal, which makes it simple to budget for.
This seems like a good idea, but when I first looked at salary packaging, the first 7 accounting/financial advice companies I approached told me they couldn’t help me as they didn’t know anything about salary packaging. So I gave up on had to go and learn about it for myself. Unfortunately it is very complex and it seems salary packaging management companies intentionally mislead and obfuscate to make it hard to make an informed decision. Their comparisons look at the lease inside and outside salary packaging and so are not in line with realistic options for consumers.
Also the legal requirement is to not give financial product advice, but giving factual information or discussing how financial products work is fine (see https://asic.gov.au/regulatory-resources/financial-services/giving-financial-product-advice/ for details).
While salary packaging management companies do try to sell you products/services that make them extra money, I’m not aware that they can force you to use their products. I’ve never used their insurance or servicing in any of my salary packaged leases.
Of course there is no reason not to salary package a second-hand vehicle and save on costs. But the benefits of salary packaging are not that great, at most you could expect to save something like 5-15% of the purchase price. There are some tax savings, but the extra expenses of the lease and management offset them to some extent.
In many examples I’ve seen have extras and expensive leases and make it not worth doing at all.
hi Sol… another thing to CONSIDER is whether your Employer will pay your SGC- Super entitlement on the “Salary sacrificed amount”… - you need to ask your employer… And, yes, it is BEST if you get Independant advice to see IF the calculations provide a better outcome for you…
Over time it has been reported a number of employers considered salary sacrifice as part of their own super guarantee commitment and it was legal.
The good news is since 1 Jan 2020 that loophole has been closed. See the ‘Note’ in the following.
The loophole was only closed for salary sacrificed super amounts. It was still left wide open for other salary packaging, including cars.
yes, Glenn - I agree with you
here is the link to the ato page-
and the text is - From 1 January 2020, salary sacrificed super contributions will not:
reduce the ordinary time earnings your employer is required to calculate your super entitlement on
That reaffirms how much our government cares for ‘us’ … thanks for that clarification.
Having done a novated lease recently myself, I’m certainly not going to give advice to others if they should do it or not as I’m not aware of their financial position.
But the FBT rules have changed and I was told the leasing companies now only ask for a estimate of distance driven for budgeting purposes (how many km you drive a year has a direct effect on fuel, maintenance and so on) and the estimated cost of fuel and maintenance is included in the fortnightly/monthly payment. I also found out that buying a electric vehicle is somewhat self-defeating as you can’t include the cost of charging in the lease, but you can include petrol or diesel purchases!
I asked three companies for a quote (my employer has a small - 7 or 8 from memory - number of companies it will deal with) of which one didn’t bother responding, one initially included a number of what I consider to be ‘useless’ insurances then requoted on request and one advised the insurances were available and I could add them if I wanted to.
The upshot is the third firm got the business (their interest rate was significantly better and they didn’t try to upsell) and the car is on order. With a bit of luck, I’ll have it by Christmas!
I have leased 4 cars through my employers selected LeasePlan and about to go onto 2 leases at once, mine and my wifes cars. As said the fringe benefits tax was governed by your KM’s but this hasn’t been the case for years. You can lease second hand cars with age and KM’s restriction[very fair].
If you change employers you can pay out the lease and own the car or hand it back for a fee. I think the main savings are in the bulk buying power of the lease company I get between 13c and 15c a litre off fuel, tyres are discounted abit. I think if you are low km’s it might not pay, My wife does about 14000km’s per year and it still pays.I average 28000 km’s per year. You need to note KM’s when you fill up and record at payment. I find peace of mind as Lease Company keeps tabs on the Dealer making sure they don’t over charge. I used the first quote breakdown to work out what it would cost me privately to run my car, leasing was cheaper. Payments from me are part before tax, rest after tax . You need to think of your own needs to justify, cheers Cappy
Hi Sol, as @grahroll mentioned, you should seek advise from an accountant. Your accountant would be able to use your quotes and run some scenarios to determine whether or not you are better off leasing. In my situation, my accountant determined that I was better off paying for fuel with after tax dollars rather than using the fuel cards. The price of fuel then was not as high as it is now.