Lease or Buy outright

[2013 Lurker Find all posts View Profile Close 2013]

Hi all, I hope this fits in this topic area & that some of you can shine some light and suggest stuff before I see an accountant.

I am hoping to get a Prado soon and was hoping to put in under a business use to get the $5000 tax rebate & claim my ongoing costs etc. I have been doing a number of jobs involving sales & have invoiced some people for cash without GST as I thought it would only be a very small job rate but I now have a couple of new customers that want GST included on their invoice so I am looking to start a business so that I can do all this legally. I was looking to buy outright as I have some money for this and as I am not earning much didn't think a lease type arrangement would be any better.

I read through the thread on FBT but don't quite understand this new change in the FBT and if a large organisation like Qantas is waiting to see the implications, then for a small fry like me, I think I've got less chance at understanding. Salary sacrificing from what I understand wouldn't work for me because I would only be getting around $10000 at worst to around $25000 better case scenario plus around another $30000 from another 'normal 9-5' non travel style part time job. So for a normal year I would be looking at around $$55,000 less as many car expenses as possible. I have an office at home set up so I know there will be a lot of stuff I can claim from that & as soon as I go out the door I figure that will be business based so that should also help minimise my tax implications

Reading over some of these discussions what are some suggestions or points in terms of leasing or buying outright to maximise business deductions and minimise tax in this instance? Using the limited information I have given you, is there a greater benefit to one over the other.

I realise an accountant will be (should be) my best contact but I figure it would be useful to have some info behind me before I go in blind & thus be able to throw up some stuff that the accountant may not have thought off or at least can explain further than what I might get from here.

[Anth120playdo Banned Find all posts View Profile Close Anth120playdo]

Buy outright.
You can do the wheeling & dealing.
Cut out the lease company - they are there to make coin.
Save interest is better than claim a portion.
Get it serviced anywhere save more coin.
If you are using it for work/business you can still claim, in a choice of different ways.
Don't go and set up a company just for that, it will cost you a bit & then a business tax return each year.
Keep it simple!

My 2 cents.

[mjrandom Out of control poster! Find all posts View Profile Close mjrandom]

Really you need to talk to an accountant. Have him set up your business with an ABN if you haven't done so already. He will explain to you what records you need to keep and how to pay tax. If you are using the Prado for mostly work related travel then the FBT isn't a big deal it only applies to personal use. In a nutshell you will need to keep records for 3 continuous months detailing your business and personal use and you can then apply that across the whole year for a period of 5 years as long as you make no fundamental changes to how you use the vehicle. All business expenses are tax deductable. Like I said see your accountant.

[Beach Advanced Member Find all posts View Profile Close Beach]

As you mention, an accountant and other suitably qualified people, such as a tax agent/advisor are the best to investigate your circumstances and find what fits you best.

From a general point of view, as I understand it, leasing gives you a simple monthly payment that is 100% deductible. Downsides can be that its usually a large amount per month meaning you need to have a healthy cash flow. You don't own the vehicle. The residual can be high if you decide you want to keep it. You can't modify or add non standard accessories.

Buying can be more fiddly in terms of record keeping, log books etc, but its often an option for sole traders with small turnover. Additionally the vehicle is yours to do with as you please.

In either scenario the more you drive for business purposes the better the tax breaks.

The nature of your business can also have implications for the ATO, such as satisfying criteria like "primarily for business purposes".

The up shot is - get good advice from people qualified to give it. If you don't understand something, keep asking and investigating until you do. Theres no excuse for not knowing what you're getting into and ignorance can cost you dearly. Most of it isn't hard, its just exceptionally boring.

[rags Advanced Member Find all posts View Profile Close rags]

Another option if you have a mortgage is to set up a 2nd Chattel Mortgage along side the 1st loan for a set period of say 5years.. The interest rate is set at a home loan rate,calulated on the loan term,the interest payments [on 2nd loan] become tax deductible,you can claim the gst up front,and on any running costs gst, You need to establish your usage rate percentage with a 3mth log book, if still available you can claim the $5000 rebate.
We have used this method for our last 2 cars for our [wifes] business,all done through our accoutant.
When i had our previous business [Plumbing] i only payed cash for Utes etc and in retrospect i think that was a mistake as you missed out on claiming some costs,but the benefit is that you don't owe anything so when work was light on you didn't stress about repayments. I have changed my ways from being like Forook from the movie The Castle. "what is it about you wogs and cash"
Don't fall for the trap of borrowing the money on the principal mortgage that may be over a 25year term as although the interest rate maybe ok,the term of the loan interest can make it an expensive loan.
As others say make shore you get good advice.

[2013 Lurker Find all posts View Profile Close 2013]

Thanks guys for the information.

How do so many people have their partner's (wife etc) car through their business when it is not being used for business purposes. Is this just creative accounting?

[mjrandom Out of control poster! Find all posts View Profile Close mjrandom]

Pre the forecast changes to the FBT rules by Tin Tin it was legal and permissible to get a novated lease on a vehicle and use it however you like as long as the distance travelled in the year was in accordance with the statutory formula you signed up for. It you did fewer km then you paid a higher rate of FBT. Simple as that. And yes I did it too. Do the km and pay the FBT rate and it was all legal and above board. There was never any mention in the legislation about 'business' km or the need for the vehicle to be used on business, no log books no fiddling, that is just words put out by Tin Tin and his cronies to justify the change.

[2013 Lurker Find all posts View Profile Close 2013]

Pre the forecast changes to the FBT rules by Tin Tin it was legal and permissible to get a novated lease on a vehicle and use it however you like as long as the distance travelled in the year was in accordance with the statutory formula you signed up for.

Thanks for that. So I take it that has all changed with the new FBT legislation? If I want to have my wife use it predominantly for her daily use (kids drop off etc) then would that mean I'd end up paying a higher FBT rate? I'm leaning more to buying outright so is the way around this (to be able to claim all related expenses etc) to use it for the 1st 3 months as my work vehicle & logbook the usage then for me & the misses to swap usage of our vehicles?

I've been as busy as anything & haven't had time to see an expert & obviously I have no idea about this but just getting a feel for what some of you have done or will now do as a result of the changes etc.

[Beach Advanced Member Find all posts View Profile Close Beach]

Thanks for that. So I take it that has all changed with the new FBT legislation? If I want to have my wife use it predominantly for her daily use (kids drop off etc) then would that mean I'd end up paying a higher FBT rate? I'm leaning more to buying outright so is the way around this (to be able to claim all related expenses etc) to use it for the 1st 3 months as my work vehicle & logbook the usage then for me & the misses to swap usage of our vehicles?

I've been as busy as anything & haven't had time to see an expert & obviously I have no idea about this but just getting a feel for what some of you have done or will now do as a result of the changes etc.

The changes aren't in yet and could/probably/definitely maybe change again after the next election. The not knowing creates uncertainty so people won't spend until the rules are known.

Be careful of a leasing arrangement for your wife. A lot of people underestimate how much they drive and fall well short of the thresholds meaning you get slugged. I worked with people that were lending their cars left right and centre to get the mileage up before 30 June.

Make time to get good advice. I can't stress that enough.

[ntp Addicted PP Member Find all posts View Profile Close ntp]

I worked with people that were lending their cars left right and centre to get the mileage up before 30 June

The FBT year actually ends on 31 March.

[mjrandom Out of control poster! Find all posts View Profile Close mjrandom]

Whether the new FBT rules will make it to law or not this term depends when Tin Tin announces the election. Assuming he doesn't do anything then parliament resumes August 22nd (from memory). I would expect that this and the new boat people policy (you don't want to know what I think of this) will be put up as bills. In that case I would think the first will get up with Green support and the second not pass the Senate. So Tin Tin goes to the election to get a mandate to stop the boat people. Thus even if the coalition wins the next election it would require a further bill to be passed to repeal the FBT changes. If the Senate is again hung that wont happen. So it is all up in the air until that little bit is sorted.

If you aren't in a tearing hurry wait for a month or three and all will be revealled.

As for the km thing one of our past employees told me about his brother who had not bothered to look at the km travelled and spent all of March driving to and from work via the Gold Coast in order to get his km up above his statutory requirement. He lived on the North side of Brisbane. Idiot.

[mjrandom Out of control poster! Find all posts View Profile Close mjrandom]

I was thinking more of the wasted life sitting on the road because you couldn't be bothered to sort it out earlier and do a few trips away in comfort.

[jss Moderated member Find all posts View Profile Close jss]

Just make sure you're accountants are on the ball and they will advise you correctly & make sure which ever way you buy suits you. My tax acc is an ex ato investigator and the stuff he can do by knowing every loophole is simply amazing. Personally for vehicles we always go Chattel mortgage as it's what I prefer.

[prado2004 Advanced Member Find all posts View Profile Close prado2004]

not meaning to hijack the thread but I am a finance broker and can assist with chattel mortgage advice, supplementary home loans or leasing, if you want send me a message and I will give you my business contact details. Advice is at no cost to you, the way we work is we find you the best deal and then the bank pays us for giving them business and we are your ongoing personal banker so you can call my mobile direct, no 1300 bank numbers etc.

Cheers