Finance Terms to Remember

In this day and age of the internet and moving market prices on everything from milk to homes it is sometimes wise to sit back and revisit the basics. This is true in the motor vehicle financing area as well. When we decide that we need a new vehicle we also have to decide how to pay for it. This can be confusing if you dont know what each of the basic financing terms mean to you and your situation.

A CAR LEASE (or FINANCE LEASE) is a commercial finance product which enables you to have use of a vehicle and all the tax and personal advantages of ownership, while the financier actually retains the ownership of the vehicle.

The entire price of the vehicle is leased in this situation. Generally there is a residual value payable at the end of the term which has the effect of reducing the monthly payments when compared to a secure loan. This residual should be similar to the value of the car at that time. Be aware of falling for too high a residual. This may have the effect of lowering the monthly payments, but there is nothing worse than having a payout of say $20,000 when the value of the car is $12,000 because you will have to come up with the $8000 difference! Far better to have a lower residual and higher payments and if you cannot afford it, buy a cheaper car!

In terms of tax deductions, your claim is generally for the monthly payments

A COMMERCIAL HIRE PURCHASE (CHP) is a commercial finance product where you hire the vehicle from the financier for a fixed monthly repayment over a set period of time. At the end of the term when the total price of the vehicle (which includes all interest and/or residual (called a balloon payment in this type of finance)) is paid you take ownership of the vehicle.

A deposit can be used in a CHP to reduce the payments or final payouts.

In terms of tax deductions, your claim is generally for the interest paid and the depreciation per annum.

A CHATTEL MORTGAGE is a commercial finance product where the customer takes ownership of the vehicle (chattel) at the time of the purchase after the Financier advances funds to you for the purchase.

The financier takes a mortgage over the vehicle as security for the loan, by registering a Fixed and Floating Charge with the ASIC. When the contract is complete the charge is removed and you have clear title to the vehicle.

People/companies who are registered for GST can claim the GST in their BAS and there is no GST applied to each monthly payment.

A NOVATED LEASE is a method of salary packaging a car, which an employee leases a car which the employer agrees to pay the monthly payments in pre-tax dollars while they are employed with the company.

This leasing option allows for finance mobility for the owner and control over the maintenance and fuel purchasing.

A PERSONAL LOAN is simply that personal finance product where the financier lends the customer unsecured funds to purchase a car for a set period of time with either fixed or variable rates.

This product is best for those looking to finance a vehicle out of the normal lending criteria’s (used vehicles, small value vehicles and private use vehicles).

Toyota 2.9% Finance Offer

Toyota has released a new finance scheme to move some over stocked vehicles into the market, named- Toyota Advantage. The plan is to offer just 2.9% interest to approved buyers over a four year period using of course, Toyota Finance. It is only available on the Entry level Yaris YR, Prius, Corolla Ascent and Camry Hybrid models bought before January 31, 2011.

This is excellent news for those in need of a finance bargain. You can still negotiate a deal on the vehicle and receive the Finance package if you are approved. The reason is that Toyota is giving you the customer the bonus they would have normally given the dealer for selling the vehicle and is definitely an added incentive to tempt customers into their hybrid offerings for the first time.

David Buttner, Senior Executive Director of Sales and Marketing, Toyota Australia has recently be quoted saying, We are determined to continue offering customers excellent value with these cars, whether by adding features, repositioning prices or through other competitive offers such as finance.

You may choose from a straight 4 year term or add a balloon payment to it which would lower the monthly repayments even further.

This is a great deal with no loopholes but it is only available for the vehicles mentioned. All that said, it may not suit your individual needs and it may be more cost effective to get the car you actually want rather than those on offer. So if you are a private buyer or have and ABN and your own business ask Fincar to compare the deal with other vehicles you have in mind.

ATO Looking at FBT on Salary Packaging

Our office received a call from the Australian Financial Review for comment on the ATO looking into non compliance of FBT reporting.

Our office is seeing no decline in employees looking to take advantage of Salary Packaging a motor vehicle under a Fully Maintained Novated Lease agreement.

The reality is that the average PAYG Tax Payer is more informed today than they were, even 5 years ago. They understand that if they earn less than $180,000 per year, that, in many cases, they can make a genuine tax saving, if they set up their Novated Lease Agrement using the “Employee Contibution Method”. This method removes the need to pay FBT, by paying some of the costs from “Post Tax Income”. Not only do they save money, but it also romoves the onus on the employer to return FBT.

The ATO in our opinion is only looking at the reduction in FBT returns, as they believe that they are not receiving the correct revenue.

The most likely answer however is that there is a lack of education of employers. The employer, as he has not FBT liability, is not submitting an FBT return. The reality is, he should be.

As Roger Timms from Taxpayers Australia said, “it would be a quantum leap to conclude that a decline in returns was solely due to non-compliance”.

Phillip Gruppelaar

An Independent MP’s Salary Packaging and Novated Lease Opinion

Interesting comments from Rob Oakeshott on Salary Packaging and Fully Maintained Novated Leasing prior to his decision to support Labour.

His comment that “It is wrong to encourage people to drive high numbers of kilometres, by giving them F.B.T Tax savings”, is quiet misguided.

Mr Oakeshott has always supported a “greener” Australia, but surely he needs to think things through before making such comments.

Of the many things he hasn’t considered, just look at these two. People who travel in excess on 40,000 kms per year in their motor vehicles don’t do it voluntarily.

Typically these drivers are called “Middle” Australia. The people who, through share economics, are forced, to live distances between work and home in excess of 50 kms each way. The travel time in peak hours is never less than 1 hour.

Due to ongoing inaction from various State and Federal Government’s, public transport in these areas are grossly inadequate to handle their plight.

Consider this! Drive from home to an area around the station – 10 minutes, park and walk to station – 10 minutes, allow sufficient time to ensure train is caught – 5 minutes, Train ride – 1 hour, wait for connection – 5 minutes, bus or train to closest point to work – 10 minutes, walk to work – 10 minutes. Total time 1 hour 50 minutes at best.

Mr Oakeshott’s answer don’t take 2 hours a day for work travel takes 4 hours.

Then the party he has chosen to support (Labour) want to impose a policy to improve the CO2 emmissions from motor vehicles.

Motor Vehicle Manufacturers around the world fully recognise the need for a “greener” world and are making genuine endevours to improve CO2 emmissions.

By removing incentives to buy new motor vehicles , Mr Oakeshott is working against his own policies of a greener Australia.

Maybe Mr Oakeshott should attempt to commute from the NSW Central Coast to Sydney for a few weeks, if he didn’t change his views I would be particually suprised.

Phillip Gruppelaar

General Manager

Welcome to our blog!

Here it is – the very first post on our new blog! The FinCar team is committed to adding more value to this webite through the blog and will endeavour to keep it right up to date with all the latest news, views and articles of interest that are somewhat related to car finance in Australia. We’ll try to skip the boring bits and only deliver the information that’s relevant and of interest to Aussie motorists

It will also give you the chance to give your feedback through the comments system on each of the blog posts and this is important as it helps us to work out what you really want to see.