Novated leases

Forums › Off topic › Novated leases

jjnz1

1371 posts

Uber Geek
+1 received by user: 195

Lifetime subscriber

#150831 4-Aug-2014 21:37

Anyone here know anything about novated leases in NZ?

The companies below claim to do it. Is the tax advantage real in NZ? (Assuming your options are either a company car or a car allowance)

http://www.orix.co.nz/vehicle_lease_nlcalc.shtml

http://www.driveline.co.nz/about/novated-lease/

http://www.bmw.co.nz/com/en/insights/bmwfinancialservices/Leasing/NovatedLease.html

Batman

Mad Scientist
30013 posts

Uber Geek
+1 received by user: 6217

Trusted

Lifetime subscriber

#1102167 4-Aug-2014 22:11

usually the lease package is inflexible and you are forced to pay 30% over 3 years at a high interest rate and you end up worse off but you get to offset tax on running costs which could bring it towards cost neutral.

ie you are worse off compared to paying cash, but if you plan to pay off one car over your lifetime, this option gives you reduced running costs

sen8or

1897 posts

Uber Geek
+1 received by user: 1402

#1102302 5-Aug-2014 07:44

Not necessarily true. Under a "lease agreement" you have no right to ownership, the lease company takes back the asset and assumes the residual vale risk at the end of the term (provided you are within the terms of the agreement, KMs, tidy condition etc). By buying the car outright, you assume that risk.

It's then a gamble as to what the car is actually worth in 36 or 45 months time. Under a HP or outright purchase, you get to keep the sale proceeds, under a lease, you don't, BUT, you won't have paid the full value of the asset in your lease payments.

If you have to finance a car purchase (and for the market this product is aimed at, most will) then there will be negligible difference in interest rates.

IIRC, a lease cost can not be more than 75% of the value of the asset. That may have changed as I left leasing/financing 8 years ago, so things could have changed.

Typically lease companies work on a future value (residual) of approx 30-40% in 36 months. The lease can also include full servicing including tyres, so there are no other costs to the leassee.

There was a segment on some news / info show one day that did a direct comparison between leasing and owning, there was fk all difference in the costs after 3 years

sen8or

1897 posts

Uber Geek
+1 received by user: 1402

#1102322 5-Aug-2014 08:39

Upon further reflection, I think its less than 90% of the value of the asset for the sum of the payments and 75% of the useful life of the asset to qualify as a lease.

There is no (or at least wasnt when I left the industy in 06) any tax advantage for a consumer to have a lease product. NZ doesn't (or didnt) have any consumer tax law that allows them to claim lease payments / costs to offset their personal income. The salary allowances for a car payment are taxable, and in most likelyhood will bump your salary into the higher tax bracket. The advantages of novated leases are all with the employer (no FBT). I think these are popular in Aussie as they do have an ability to claim lease payments against their personal income, thereby reducing their tax liability.

NB you should confirm this with a tax specialist before relying on the above (or check with the IRD, "we're here to help")

ajobbins

5053 posts

Uber Geek
+1 received by user: 1279

Trusted

#1102447 5-Aug-2014 11:15

I can't speak so much for New Zealand, but here in Australia novated leaves are very common and used as a tax reduction strategy.

The government made FBT concessions for novated leases in order to stimulate the economy, help the local car manufacturing market (not that that turned out well) and reduce the average age of cars on Australian roads (Aussie cars are, on average, a lot never that kiwi cars).

The top marginal tax rate in Australia is now 47c in the dollar, whereas there is a concessional FBT rate of 20c in the dollar for novated leases. Many people use them as part of a salary packaging arrangement in order to buy a new car but pay less tax.

I haven't used a novated lease myself, but do know a bit about them. I believe Australia differs from NZ in regards to sen8or's comments above than when the lease ends, you effectively have to either buy the car our at it's residual value (as calculated at the start of the lease) or sell it. If you sell it for more, you keep the difference, if you sell it for less you owe the leasing company the difference.

Twitter: ajobbins

jjnz1

1371 posts

Uber Geek
+1 received by user: 195

Lifetime subscriber

#1102509 5-Aug-2014 11:54

I am confused over how novated leases work in NZ, as the Orix (and BMW) tools/website shows I can save $5kNZD through using novated leasing comparing to normal leasing. This seemed to be achieved via pre-tax OPEX costs, and no GST added (as the Company pays this).

I know there used to be no concessions for pre-tax allowances in NZ, but I wonder if this has changed under the National government. Orix and BWM clearly state it is possible. I need to check with them and my accountant.

Batman

Mad Scientist
30013 posts

Uber Geek
+1 received by user: 6217

Trusted

Lifetime subscriber

#1102532 5-Aug-2014 12:11

Save 5k?

You can save 50k by buying a 2 or 3 year old car with less than run in miles :)

HP

Shop now for HP laptops and other devices (affiliate link).

sen8or

1897 posts

Uber Geek
+1 received by user: 1402

#1102543 5-Aug-2014 12:25

Ok

so reading the BMW / Orix site, they type of lease they are talking about is what is (or used to be called) a "finance lease" or "lease to own" in which case the asset can pass to the leasee at the end of the term and the leasee assumes the residual value risk of the transaction same as pointed out by ajobbins. My earlier comments were in regards to an Operating Lease, quite a different product.

Quite how the tax advantages of it work for the employee and employer I'm not entirely sure, as I say above, as far as I know, there is no ability for an individual to offset any lease or other vehicle costs against their personal income in NZ (this is where our tax law does differ from Aussie). If an employer was to cash up a salary amount for a car, as indicated on the "driveline" website, this is typically $15-25k gross, it would have to be an attractive proposition from their perspective for this to be worthwhile (and think about it, if its beneficial from an employers perspective, is it necessarily beneficial from an employess?).

Its interesting on BMWs site that they ultimately view "ownership" of the lease with the employee, the employer merely pays the bills. So if the employee leaves, the employer is simply able to stop the payments and the employee is left carrying the debt (presumabely also has the car). Something to consider before entering into the agreement as an employee.

jjnz1

1371 posts

Uber Geek
+1 received by user: 195

Lifetime subscriber

#1102611 5-Aug-2014 13:31

sen8or: Ok

so reading the BMW / Orix site, they type of lease they are talking about is what is (or used to be called) a "finance lease" or "lease to own" in which case the asset can pass to the leasee at the end of the term and the leasee assumes the residual value risk of the transaction same as pointed out by ajobbins. My earlier comments were in regards to an Operating Lease, quite a different product.

Hmm have you read this also? Very interesting read.

http://www.orix.co.nz/vehicle_lease_nl.shtml