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Choosing the
right finance

Novated lease vs chattel mortgage

Novated lease vs chattel mortgage

Choose the right finance & save $18,491

A high net-worth individual was about to purchase an Audi RS7 with a chattel mortgage, claiming 75% business use. Not a bad way to finance a car with a lot of business use, but fortunately he contacted his accountant before doing so – and fortunately, the accountant contacted us.

First we examined the income streams

The Managing Partner of the firm suspected there could be a better way, and when we examined the client’s income streams – we noticed he received a salary in his position as a CEO, and payed tax through the PAYG system. The client was aware of novated leasing, however assumed that his high business use made a chattel mortgage the most tax-effective method. This would have been the case if he hadn’t been receiving a salary that could handle the payments.

Next we forecast the tax benefits

We produced a scenario forecasting the financial benefits and tax implications of his intended approach, and then we looked at the result if he salary packaged the car. The difference was an additional $32,417.18 in net-tax savings over a three year period, if he structured the finance as a fully maintained novated lease. Result? Improved net cash position of $18,491.31 over three years.

Within 48 hours we set up an account with the employer, created, submitted and received approval on the finance, arranged settlement and delivered the car.

Finance comparison Chattel mortgage Novated lease

Business use

75%

75%

Entity

Individual

Individual

Term

36 months

36 months

Annual tax savings

$11,152.26

$21,957.26

Total net savings

$18,491.31 over three years

Summary

In addition to saving $18,491.31 in the next three years, the client now enjoys fixed cost motoring for the period, and will achieve a greater after-tax profit on disposal (when you sell a car that’s on a novated lease, you don’t pay any tax on any profit made).

We also look after FBT and EOFY reporting for the car, so the Managing Partner of the firm not only saved his client a significant amount of money, but also reduced his firm’s workload come EOFY and FBT time.

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