Fringe Benefit Taxes And Your Novated Lease

If you don’t have an accounting background, understanding all the ins and outs of fringe benefit taxes and how they apply in the case of a novated lease on your car could drive you towards another sort of fringe  the lunatic fringe.

A novated lease is considered a fringe benefit and is subject to fringe benefit taxes, same as any other sort of non-cash perk that comes as part of the job. Under a novated lease system, the company you work for is leased, technically speaking, by the company, although the costs are passed on to you and are taken out of your salary package before the pay cheque hits your bank account. And the use of a car leased primarily by the company for private purposes is considered a fringe benefit. (In case you’re wondering, being allowed to take home the scrap paper from the photocopier so your kids can draw on the back, or getting to take home the sandwiches that weren’t eaten at the staff lunch aren’t fringe benefits, even though you might consider them a bit of a perk.)

The good thing is that your company’s accountant will take care of all the fiddly side of calculating fringe benefit tax and will take it out of your salary, much the same way that he/she handles the normal tax bits. So you don’t really have to worry.

You may or may not have to keep a log book, depending on whether your company prefers to use the Operating Cost Method or the Statutory Formula Method. The Statutory Formula Method doesn’t take any notice of whether you use the car for private or business use, but just uses a percentage multiplied by the cost of the car to work out what your fringe benefit is worth. It’s usually about 20%, although the method of calculating this has been changing over the last few years. At the time of writing, it’s 20% unless you travel more than 40,000 km in a tax year, in which case it’s 17%. From 1 April 2014, it’s all going to be 20%. A lot of employees like this method, as it’s a lot easier from their point of view.

If you have to use the Operating Cost Method, you have to keep a logbook of your driving so the bean-counter in the office knows how many kilometres you drove for business and how many you drove for private use. In this context, remember that the drive to work in the morning and back home again in the evening counts as a private trip. However, if you had to take your car out to ferry a broken computer to the fix-it whizzes, or if you were asked to go and pick up the visiting consultant from the airport, this would count as a business-related trip. The number of kilometres you drive for business and for personal use are used to calculate what your fringe benefit is actually worth.

If you have a lot of driving to do as part of the job, e.g. for sales or as a mobile consultant or something like that, then a novated lease probably isn’t the best option for you. And you will have to keep a logbook all the time.

If you’re on the lookout for a new car and have seen an ad or an example of a machine you like, then you probably want to take out a personal car loan to buy one. However, when you’re in the process of shopping around, you may have noticed that not all cars with the same name are equal, and some are cheaper than others. What’s going on?

What’s going on is that manufacturers often make different variants within a model. This is a way of increasing their sales potential. Usually, there are three main variants. Here, we’re not talking about sedan versus station wagon variants, or short wheelbase versus long wheelbase, although this is another way that manufacturers create more variants and increase their market share. Equally common is the trend of having three variants with different levels of luxury.Usually, the differences are indicated by a set of letters and/or numbers or even a subspecies name attached onto the main name.

You have to be a wee bit informed to know which one is the luxury version and which one is the basic version (if basic is a word that you can actually use about new cars these days). Most of the differences are inside either under the bonnet or in the interior. Occasionally, the luxury variant has some exterior touches that make it look a bit different from the others. If you’re unsure, then have a look at the manufacturer’s website or brochures, or visit a good car review website like Private Fleet, which will let you know.

Now, if you are on the hunt for a new car, the difference between the variants usually means a difference in price. This means that if the weekly repayments for the high-end variant are beyond you, you may be able to afford the weekly repayments for the cheaper version, putting the make and model of car you like within your reach.

So what sorts of things usually make the difference between basic and luxury variants? Here are a handful of differences that you can expect:

  • The interior trim. The basic variants usually have a cloth finish while the luxury ones get leather or a better type of cloth.
  • Bells and whistles: The luxury ones usually have a few more gadgets and conveniences (e.g. electrically adjustable mirrors, cruise control, voice control) that the basic ones don’t. This is the biggie, and this is the main way that the luxury and the basic variants differ.
  • Sound system: While the basic model will have a sound system, it won’t have as many speakers or as powerful speakers as the posher version.
  • Engine: Often, the more powerful engine is only available in the luxury variant. The good news here is that the basic versions are often more frugal.

It’s slowly phasing out, but some marques have differences in the safety features as a way of making the basic model cheaper than the luxury version. This isn’t to say that the basic variants are unsafe but they can have fewer airbags and fewer active safety features. Do your homework. If safety is important to you and the luxury variant has the better safety level, you might have to scrimp and pinch a little more to save up the deposit for that one or to manage the weekly payments. And shop around for loans  you might be able to find one that you can manage, so talk to us.

A Cautionary Tale

Some people who are in the process of buying a new car might be a bit sceptical about the whole thing. They might be coming from the angle that you pay less if you can buy a car for cash and if you don’t have a whole lot of money saved up, you have to be content with buying yourself a more humble car rather than some flash new thing. Well, this idea does have some merit to it. It is certainly that the less you borrow, the less interest you’ll have to pay. And it is also true that if you aren’t rolling in bucks, you are wise not to buy the new flashest car in the sales yard.

But you can go too far in this direction. Sometimes, what you’ll pay in interest when repaying a personal car loan turns out to be less than what you can end up paying if you buy a car that’s too cheap and a bit dodgy. Here is a true cautionary tale that happened to someone this writer knows. Names of people and a few identifying details, such as the make of car, have been changed for privacy reasons, but apart from that, this is a fair dinkum story.

Tony had managed to land a regular job in the building industry and was getting a steady income. Nothing stellar but enough to pay the bills and have a bit left over to pop in the bank. At this point, Tony didn’t have a car but used the good old pushbike to get to work. So far, so good. But Tony wanted to get himself a car, as it was getting a bit much to bike to work and then slog away all day doing physical manual labour and then bike back again when he was tired. Winter was approaching, too, and although biking on a sunny day makes you feel virtuous, healthy and financially savvy, biking in the rain is pretty miserable and sets you up for being soaking wet all day unless you have somewhere to change. So it was time to head down to the second-hand car yards.

Now, Tony could have used the money he had saved up as a deposit and then found a loan package that let him pay off a manageable amount per week. But Tony thought he was far too smart for that and decided to use the amount he had in the bank as his maximum price limit. Now, this would have been OK if he had a bit more tucked away in the bank  you can pick up a reasonable and reliable car for a four-digit price if you shop around. However, Tony didn’t have that much tucked away. It was four digits, but it was in the lower end of the four-digit figures.That was the first snag. The second snag was that Tony had a particular fancy for one particular make of car and wanted to get that sort and no other.

Tony found a car of the type he wanted for the price he wanted and felt very smug for a while. But then the problems started. Now, the sort of car that Tony loved wasn’t a sports car or anything of that sort but good examples of that car tend to cost a bit more than Tony wanted to pay. If you pay what Tony paid for his, you can expect problems. And the problems certainly came. What’s more, the cost of labour and parts at the local garage to fix the darn thing were well beyond what Tony could manage comfortably, and the mechanic wasn’t as flexible about weekly repayments as a loan company would have been. So it was DIY time.

At the time of writing, Tony’s car is up on blocks in his garage getting worked on during the weekend. All the spare money is going towards buying spare parts, and probably costs him as much as the loan repayments would have done if he had taken out a loan and got a better car. And Tony’s still biking to work every morning!

The moral? If you’re on a budget, it sometimes can be wiser in the long run to buy a slightly more expensive car and get a loan out for it than to buy a cheap old banger that falls to bits and costs you more in the long run. Either that or put up with the pushbike for longer until you have the funds to pay cash for it.

Coffee Beans and Counting Beans

Business loans are good things for small start-up businesses and larger outfits alike. Usually, it’s the larger people who come to talk to us about setting up novated leases for vehicles or taking out a business loan to purchase some new equipment. And we know how to handle that. We also know how to handle things if we’re approached by one of the little people (and we don’t mean habbits) about business loans to get a vehicle for a small business.

Now, with a number of small businesses, you can use your usual vehicle for most of the work, and you might need to have a chat to a friendly accountant about what you do regarding claiming expenses back against tax, GST and all that sort of thing. But there’s one small job that offers a lot of flexibility and fun that requires a vehicle to get started: mobile coffee baristas.

Mobile coffee baristas are becoming more and more common, and the job usually requires having a special vehicle set up to do this. Not many of us have a spare car of the right sort sitting around ready to convert into a mobile coffee shop, so if you want to work for yourself, are keen about coffee and like getting out and about in your community, you are probably going to need to borrow a bit of cash so you can buy the car and kit it out with all the bits and bobs needed to make great coffee.

You’re going to need a fairly sizeable vehicle to start up a mobile coffee service. For a start off, you need something that has a fifth door so you can open up the back and make the coffee, but a little hatchback just isn’t going to do the trick. You need something with a bit more space than that. Nor will a ute do the trick, as it’s best to have all your stuff under cover  you’re going to need paper cups, remember. The best thing to look out for is a large MPV, an SUV or a 4×4. You might want to consider getting signage on the side of the car, so don’t forget to include the cost of this when you think about the amount you want to borrow.

You also need the coffee making equipment. Naturally, this means a caf quality espresso machine and probably a small bar fridge as well to keep all the milk in (and maybe the flavourings so you can offer flavoured coffee options). These will need to run on something, so look out for a vehicle that has power outlets sprinkled around the place.Petrol/diesel generators are pretty noisy and are likely to put your customers off, and although we get a lot of sunshine in our part of the world, you probably aren’t going to be able to power your equipment off the size of solar panel that can fit in or on a large car  assuming that you can fit one at all.

After these basics, it’s up to you. You probably need a good supply of paper cups and tops to go on them, ordinary milk, trim milk, soy milk, sugar, chocolate, marshmallows, tea and possibly some herbal tea into the bargain. You might also want to sell biscuits. Don’t forget a chalkboard or whiteboard to advertise your prices!

Where do you go with your mobile coffee machine? Just about anywhere that people gather: sports matches, markets, skate parks, malls Where two or three people are gathered together, somebody probably wants a coffee!

Why You Might Need A Bike Loan

Hands up all those who think that this article is going to be about motorbikes and being approved for a loan so you can buy yourself a new motorcycle  or so you can get the school leaver in your family a form of transport that’s relatively cheap to run so he or she can get to that first job next year. Well, we can certainly help you with this process and some of our posts earlier this year have covered issued to do with motorbikes and how to choose them.

But that’s not the only sort of bike you might need a loan for. These days, if you want a really good one, you might even need to take out a loan to buy a pushbike. Yes, a pushbike. While you can still find bikes of the sort that most readers knew when they were kids (and at the same sort of prices that won’t break the bank or require a loan), a really good bike can cost more than a second-hand car.

Bikes have come a long, long way in the last twenty-odd years, and they’ve been developing much faster than cars have. Twenty years ago, a really good bike had 12 gears and a car had five. Now, a really good new car has eight gears but a top-range bike can have 24 or more. Bikes have got lighter, too, with the best ones being made of pure carbon fibre. Add in suspension and you have something lighter, faster and capable of tackling rougher terrain than the old BMXes we used to muck about with. No wonder these bikes cost well into the thousands  and why you may need to take out a loan to buy one for yourself this Christmas.

Why are bikes getting so good? These top-notch bikes aren’t just the domain of professional mountain bikers, stunt cyclists and Olympic racers. These bikes are being used for commuting; hence the demand for better, more efficient machines. There’s also a bit of a prestige thing going on  if you do decide to ditch the car and cycle to work for whatever reason, and you’re the manager, it looks a bit better if you have a very, very good bike parked in the workplace parking space rather than the rusty old clunker you’ve had since high school. Lighter bikes are also more compatible with other forms of public transport, as it’s easier to get a carbon fibre bike onto a bus or train than a big steel or even aluminium one.

The one big advantage that a bike has over a car is that it will eventually pay itself off in savings  you don’t need petrol to fuel a bike (and you’ll probably save on gym memberships). This means that if you do take out a loan to buy a good bike, you will be able to put the money you would have spent on petrol into the weekly repayments. This brings out another advantage of taking out a loan to buy a good bike rather than saving up and getting one in six months time: having to make those weekly or fortnightly repayments helps you stay motivated to keep using the bike for your commute so you don’t have to pay for petrol as well as the weekly repayments.

When you buy your bike, don’t forget the other bits you’re going to need. You will need a good helmet and possibly some high-viz gear for daytime.You’ll definitely need lights for night-time and you will also need a very heavy-duty security lock. There are tons of other accessories to consider to make your bike commute better, from gloves to rainshield for backpacks, so you might like to allow for purchasing these if you are considering a loan for a bike.

OK, we probably aren’t going to see people doing a salary package involving a top-of-the-line pushbike in the near future. But if you’re considering your transport options for the year ahead and a cycle commute (with or without public transport for part of it) is feasible for you, then why not think about getting one of the great new bikes that are out there these days and taking out a loan for one of these instead of buying a second-hand car? But car, bike or motorbike (or boat, or ride-on lawn mower, etc.), remember to talk to us about the sort of loan you need so you can find the best deal possible.