extending Novated lease ?

Submitted: Monday, Jan 08, 2007 at 12:43

ThreadID: 40984 Views:6236 Replies:9 FollowUps:4

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tdv

I'm hoping anyone with a novated lease might have some idea on my best option.

I am currently negotiating the purchase of a new Prado D4D and the price is quite high....well once I add all the accessories etc ($65k). I was planning to get rid of the existing Prado and option up a newbie in readiness for my 4 months trip across the NT Kimberley this year.

However it has just occured to me that it might be cheaper to renew the lease on the existing car with a whole heap of upgrades instead (I have limited accessories on this one). Is this feasable/silly. The current TD Prado is faultless really with 85,000 k on it. It could do with new suspension though.

Anyway any lease gurus out there....your advice appreciated.

Cheers Tez.

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Reply By: Member - Andrew W (SA) - Monday, Jan 08, 2007 at 13:04

Monday, Jan 08, 2007 at 13:04

I'm not a lease guru, but it is usually just common sense financing.

If the vehicle is too old then it might not meet the financier's criteria, but that is unlikely to be an issue.

You would have a payout figure for the lease - worth knowing, as you might be better off getting the finance elsewhere, and depending on your financial situation, salary etc., it may be even better to move it off the lease arrangement these days (get real financial advice from someone not biased like your accountant).

You can claim business use of the vehicle using the normal methods still anyways, and things work out similarly.

Let's say the payout figure is $30,000. You work with the existing financier or your prefered one to add (say) $15,000 of accessories to it (you would need the quotes to get the work done). That means you are financing $45,000. This should be able to be done as a novated lease (you might just want to do it over 2 years instead of the usual three - your call) or some form of personal finance or lease.

That way, you know the vehicle you are getting and the new financier pays out the old one, and pays the companies to do the work to up-spec the vehicle.

Remember that you can sometimes drag out the last month on the old contract - they usually even give you 14 days grace or even more if they know you have a plan in train, so you might get a little free finance out of them.

Cheers
Andrew.

AnswerID: 213985

Reply By: hoyks - Monday, Jan 08, 2007 at 13:38

Monday, Jan 08, 2007 at 13:38

You can get stuck with your servicing budget too. I had a lease and when the warranty ran out, when I broke things I had to pay retail for genuine parts (not many aftermarket bits available for mine).
I wasn't too bad as I did my own servicing, but $700 for an electronic bit can put a dent in the maintenance account.

AnswerID: 213992

Reply By: jond - Monday, Jan 08, 2007 at 14:30

Monday, Jan 08, 2007 at 14:30

im a leasing and finance broker. The age of your current vehicle will decide if it can be re leased. Some leasing companies will lease cars up to 3 years old. But not ussualy any older. Call your leasing company to discuss this. Re leasing and adding extras is some thing i have not heard being done before. But doesnt sound impossible. beware though that when you bought that car new you could compare your leasing costs to another lease company if you wanted. So you might find that when you release the same vehicle they will know that you can not really shop around this time and may charge you quite heavily for this. Lastly . leasing a car over the luxury threashold of $57009 (before on road costs) can some times work against you when the leasing costs are calculated. The amount your employer can claim differs for vehicles above and below this luxury amount

jon

AnswerID: 214008

Follow Up By: The Landy - Monday, Jan 08, 2007 at 14:35

Monday, Jan 08, 2007 at 14:35

Hi Jon

Would it also be usual for the leasing company to write down the accessories at 100% over the life of the lease?

FollowupID: 474286

Reply By: jond - Monday, Jan 08, 2007 at 14:44

Monday, Jan 08, 2007 at 14:44

not sure if you mean the original accessories or new accessories you are considering adding. But they maybe able to depreciate the accessories them self over the life of the lease , plus they would be aiming to have as little as possible residual at the end to lower there risk. I could imagine a leasing company would think this vehicle is going to be well used at the end of the lease when they see some one wanting to add add a 3 inch lift kit, , diff lockers, roo bars, snorkel and a set of coopers mud terrain tires.

If you get my drift

AnswerID: 214015

Reply By: Robjo - Monday, Jan 08, 2007 at 15:15

Monday, Jan 08, 2007 at 15:15

I rolled over the lux for another few years about 12 months ago, a novated finance lease - so i am responsible for ownership at the end. They allow leases for vehicles up to 7 years old. At the time i tried to add accessories, eg canopy, and they wouldn't have it. The answer is as per above, have a chat to the leasing company, it will be their policy etc that determines what you want.

AnswerID: 214025

Reply By: tdv - Monday, Jan 08, 2007 at 16:09

Monday, Jan 08, 2007 at 16:09

Thanks to everyone. A call to my financial advisor soon indicated that it can be done but not without a fair bit of stuffing around which is what most replies indicate one way or the other.

So it is back into negotiations with car dealers. I'm only one day into it and I've had enough! Next stop might be my union car broker. I've never used one but the general concensus is they get a good deal. Otherwise cost cutting time eg....delete winch (save $1700), delete auto (save $3000).

Tez

AnswerID: 214037

Reply By: Member - Hugh (WA) - Monday, Jan 08, 2007 at 18:20

Monday, Jan 08, 2007 at 18:20

Hi tdv,

As you've worked out it can be done. The other thing to consider is that although the lease can be renewed, the FBT amount is based on the original purchase price (not your new lease price). This applies up to and including the 4th year from original purchase, after which the FBT can be calc'd on 40% of original purchase price. If the upgrades are maintenance then I cannot see you having any issue but if they are deemed to enhance the vehicle my understanding is that the base price for FBT purposes is increased.

I imagine this could be a pain to sort through if in a fully maintained lease. Fortunately our acct dept takes care of all this and is very understanding of how things are best described for acct purposes.

Hugh

AnswerID: 214064

Follow Up By: Muddy doe (SA) - Monday, Jan 08, 2007 at 19:23

Monday, Jan 08, 2007 at 19:23

Hugh is spot on regarding the FBT value.

I have a 2004 Prado on a 5yr novated lease thru salary sacrifice. I plan to re-lease it at this stage for a further 3 year term. Toyota Finance (my lease company) have a policy that they will lease any vehicle where the expected end of lease km does not exceed 200,000km. Given that I do 25,000 a year then at the end of 5 years it will be around 125,000 and after 8 years it will be at around 200,000 so that will be the maximum time that TFS will want to be taking it back.

Regarding that FBT value, you can take a once-off depreciation in the 4th year that reduces the amount of FBT (or FBT contribution) payable. BE AWARE though that it applies from the begining of the FBT year (1 April to 31 March) AFTER the 4th year of ownership. In my case I got the vehicle in May 2004 which means that I have to wait until April 2009 (not May 2008) to get the benefit of the depreciation. This means that in my 5 year lease I get the reduced rate for only the last months payment!! A trap there.....

Overall though, the whole novated lease deal is aving me about $100 a week compared to financing the same vehicle with a Personal loan so I am pretty happy.

Cheers

Muddy

FollowupID: 474341

Reply By: Muddy doe (SA) - Monday, Jan 08, 2007 at 19:37

Monday, Jan 08, 2007 at 19:37

Depending on your cash flow the best idea is to do the lease or lease renewal on the basic vehicle (which gives you a good tax saving) then you privately add the accessories and upgrades from your own funds. The lease company does not really care what you do to the vehicle as long it is roadworthy. This also keeps the FBT contribution lower thus maximising your tax savings.

At the end of the lease you pay out the residual on the basic vehicle and then dispose of the vehicle privately at hopefully a good price including the accessories rather than just disposing of a plain vehicle. Depending on the % residual you chose on the lease you should pocket a few grand and then go lease another car and start again.

If the vehicle has been really used and you think that at the end it is worth LESS than the residual then just take YOUR accessories off it and hand it back. If you got the accessories on the lease then you would probably have to hand them back with the vehicle if you chose not to buy it out the residual at the end.

Cheers
Muddy

AnswerID: 214089

Follow Up By: TUFF IFS LUX - Tuesday, Jan 09, 2007 at 23:17

Tuesday, Jan 09, 2007 at 23:17

Muddy,

can you please clarify your comments on "hand it back" ? As I didnt know this was an option.

I leased a 2003 Hilux V6 for a 5 year lease with toyota finance and at the end of the 5 years it should have about 150,000kays on it (1 year or so left) . Residual is $7,000 and I have in the mean time done suspension, bullbar, snorkel, dual batteries, bigger wheels and tyres, roll bar and spotties etc the works on it and not told them about it as I dont think they need to know and I might decide to keep it as new cars are more expensive and I dont think I'll be doing as many kays in another year or so.

If at the end of the lease for whatever reason that I cannot get the 7 grand to pay them out, what you are saying is that I should pull all accessories off my car and bring it back to stock and then just dump it on their door step - is that right?

FollowupID: 474564

Follow Up By: Muddy doe (SA) - Tuesday, Jan 09, 2007 at 23:57

Tuesday, Jan 09, 2007 at 23:57

G'Day Tuff,

When you lease a vehicle you are effectively renting it for the period of the lease. Ownership of the vehicle remains with the leasing company. You are only paying for the right to use it as if it were your own.

The most usual end for a leasing agreement in the past has been to simply hand the vehicle back at the end of the set term and enter into a new agreement for another new vehicle. Part of what you pay for is the right to not be stuck with the vehicle at the end.

Leasing companies have provisions in the lease agreement for what they call "fair wear and tear". This is dependent on the length of the lease such that a 2 year lease would mean that the vehicle should be in very good nick but a 5 year leased vehicle can have minor paintwork damage and stuff and still be OK.

Provided your vehicle condition fits in the definition of "fair wear and tear" then you have the entitlement to simply hand the vehicle back with the same standard equipment with which it was delivered (spare wheel, jack, tool kit and owners manual).

The Leasing Company then put it to the auction house and hope that they can get enough for it to cover the remaining money they lent to you (the residual). If they don't then they wear it as a business expense against the interest they earned from your lease payments over the years and probably claim a tax break for it as well! If they cover the residual handsomely then they have made a nice profit.

If the lease company assess the vehicle when you hand it back to be in a condition that is outside thier definition of fair wear and tear then they will send it to a repairer to bring it up to scratch and send you the bill. This is usually only the case if there is unrepaired body damage or ripped upholstery or the like. Holes in the dash where you had radios installed are another biggie!

In the last few years Novated Leases have been seen as a pathway to buying and keeping a new vehicle at much less than retail price (due to the savings on Income Tax and GST). So many people will pay out the residual value at the end of the term and either keep the vehicle or dispose of it privately (and make a few bucks).

So, if after 5 years you think you can get 10 grand for the lux and the residual is 7 then you pay up the 7 grand, assume ownership of the vehicle, and then sell it off. You would then make your own assessment of how much the accessories and modifications are worth, either on the vehicle as a package, or removed and sold seperately or transferred to your next vehicle.

Another option is to renew the lease for another couple of years and enjoy some more tax savings. Or pay it out and just run it as a normal privately owned vehicle for a while.

The choice is yours!

Cheers
Muddy

FollowupID: 474573

Reply By: Baldrick - Wednesday, Jan 10, 2007 at 22:08

Wednesday, Jan 10, 2007 at 22:08

One thing to be careful of - there is a clause in my lease agreement in the very small writing that states something like:

"any accessories attached to the vehicle during the period of the lease become the property of the finance company"

Not that they would know if you took things off again but something to bear in mind.

AnswerID: 214551