Novated lease
Leasing isn't as attractive as it used to be, with falling income-tax rates and rising tax thresholds reducing the savings to be had when your employer puts a car through your salary package.
The most popular way of packaging a car is through a novated lease, which is a three-way contract involving the employer, employee and lease company.
The managing director of Custom Fleet, Jim Cock, says that as part of a salary package, the employee leases a car and transfers (novates) the rights and obligations to their employer, who makes the lease payments.
The employer then deducts the lease payments (and perhaps running costs) from the employee's pre-tax salary, thus lowering their taxable income.
However, the flip side is the employee becomes subject to fringe benefits tax for the car arrangement. The trick is to make sure the FBT doesn't outweigh the income-tax savings. This will depend on your marginal tax rate and how many kilometres you drive - the FBT rate falls as the kilometres you drive rise.
Cock says these days the true benefit of novated leasing is that FBT isn't assessable on the portion of the lease payment that's set aside to meet running costs.
So, in effect, you're paying for maintenance and petrol from pre-tax salary. You have to arrange a lease using this "employee contribution" method for a lease to be worthwhile if you're below the top tax threshold of $180,000.
Even then, there's probably not much in it for you if you earn less than $100,000 and drive fewer than 15,000 kilometres.
The other important factor in leasing is residual value - the value the leasing company estimates the car will be worth at the end of the term.
If the car turns out to be worth less than this, you have to meet the gap.
And if you decide to buy the car outright at the end of the lease, you'll pay GST on this residual.
For that reason it pays to structure the lease to have as low a residual as possible, especially in a vehicle market where values are falling quicker than ever, Fornasaro says.
He suggests negotiating a residual that's 20 per cent of the price after four years, rather than 50 per cent. You might achieve this by making a lump-sum payment up-front.
"Make sure there's some equity in the car so you don't have to write them a cheque for $10,000 or $15,000 at the end - which is happening a lot," he says.
This is a complicated area, so get independent, personalised advice from an accountant or planner.
The cost-benefit analysis will be different if you have a small business.
Good for High-income earners who drive a lot.
Pros Tax savings; access to a better-quality car.
Cons Falling car values can leave you out of pocket at the end of the lease.
Tip Check the price of a three-year-old model of the car you want — you'll get an idea of how far it might fall in value.
Lease to please
Resale value is an important consideration when leasing a car, says the managing director of Glass's Guide in
You want to be "square" at the end of a lease, not "upside down", where the car is worth less than the residual agreed at the start of the term.
But people tend to overestimate resale value, perhaps deliberately because they want to make their monthly payments more affordable, he says.
Amoddio says the average car loses about 50 per cent of its value over three years, possibly more if it has done a lot of kilometres.
Colour is another big factor in resale value. You may love the colour orange but silver, white and black are easier to sell.
"Instead of buying [leasing] the base model and adding options, buy the model up," Amoddio says.
The options that add more value are those you can see, such as the spoiler and alloy wheels, rather than the invisible airbag.
Have the car serviced regularly and keep the maintenance records.
