Smart car finance

Choosing the right financial structure for your next vehicle acquisition can make a huge difference on your bottom line. Many people choose a basic car loan when a more sophisticated strategy could easily save thousands of dollars over a conventional three- to five-year ownership term.

“Basic car loans generally suit people who aren’t in a position to leverage the tax deductibility of the vehicle,” says Kyle Rhys of www.BadCreditCarLoan.com.au. “For some people – and some businesses – a conventional car loan, or even a personal loan, makes sense. However, some assessment of the buyer’s financial and business situation can often lead to more cost-effective and tax-effective forms of car ownership and acquisition.”

Car finance

Car finance

Bill Baker from www.NovatedLeasing.com.au says many salaried employees neglect to consider a novated lease when the time comes to acquire a new car. “There are a great many misconceptions about novated leases,” he says. “Anyone on a salary is eligible, in principle. The car can be for 100 per cent personal use, and there are significant tax benefits, even for ordinary salaried employees.”

A novated lease is a simple, three-way agreement between you, your employer and a finance company. You agree to sacrifice some of your salary to make the payments on the lease, while your employer agrees to deduct those payments from your pre-tax salary. The financier arranges the paperwork for compliance, and provides the underlying finance.

For employees, this means the payments come from pre-tax income, effectively meaning some of the money you’d otherwise pay in tax now helps you pay for the new car. There is a healthy 80 per cent fringe benefits tax concession built into the arrangement, so 80 per cent of the ownership cost is FBT-free even if the vehicle is never used for business purposes, and GST is not paid on the acquisition of the vehicle.

Smart Car finance

Smart Car finance

“In the first year of a novated lease, many buyers save $5000 – or more,” says Baker.

Rhys says businesses often benefit from a chattel mortgage. “There are significant tax deductions available for business vehicles,” he says. “Additionally, the entire GST component of the purchase price can be claimed in full in your first BAS following the purchase.”

Chattel mortgages became very popular for businesses recently, following significant changes to the GST treatment of commercial hire purchase agreements, enacted by the Federal Government on July 1, 2012. These changes generally downgraded the attractiveness of CHP agreements to business buyers and also to employees with a car allowance.

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