Personal finance vs novated lease - Case Study
In order to compare personal finance against novated leasing as a means of paying for a car, we’ll assume the following salary and vehicle details.
Salary and vehicle details |
|
|
Salary |
$60,000 + super |
|
Car allowance |
$0 |
|
Vehicle |
Volkswagen Golf Trendline |
|
On road cost |
$30,808 |
|
Annual kilometres |
15,000kms p/a |
|
Usage |
No business use |
|
Term |
3 year lease |
The next step is to determine the running costs of the vehicle. This is part of the first step in our five-step lifecycle model.
Annual running costs |
|
|
Finance payments |
$8,319 |
|
Fuel |
$1,937 |
|
Servicing |
$660 |
|
Tyres |
$323 |
|
Registration & CTP |
$837 |
|
Insurance |
$1,432 |
|
Total gross cost |
$13,508 p/a |
The total cost of running the Golf for a year is $13,508. The costs don’t change, but how you cover them makes a big difference.
Payroll treatment
|
Personal finance |
DriverAutoPackage |
|
Gross salary |
$65,400 |
$65,400 |
|
Salary sacrifice |
$0 |
-$6,996 |
|
Superannuation |
-$5,400 |
-$5,400 |
|
Taxable income |
$60,000 |
$53,004 |
|
Income tax |
-$12,450 |
-$10,246 |
|
Employee contribution |
$0 |
-$5,813 |
|
Take home pay |
$47,550 |
$36,945 |
|
Running costs |
-$13,508 |
$0 |
|
Disposable income |
$34,042 |
$36,945 |
As you can see, by sacrificing part of your salary you reduce your taxable income, and your income tax. By paying for a proportion of the costs after tax, through employee contributions, you don’t even have to pay FBT.
Although your take home pay has reduced, you’ve already paid for your Golf, so you’re actually now better off to the tune of $2,903 a year.
Over the term of the lease, that’s a massive saving of $8,710.
Summary
Salary |
Vehicle |
Savings |
|
$60K |
VW Golf |
$8,710 |
All of the above costs include GST