A friend of mine, who’s also a loyal fan of this site, asked me this morning how much my car was. It wasn’t an easy question! There were different prices all over the place, so I had to summarise the complications for her. Here’s what I wrote:
It took me a long time to understand the complications of Australian tax law and how they applied to me, and then use them to my advantage, let me tell you! Here’s a summary of the complicated situation in a way that simplifies it…
- Car is worth ~$53,000 on the road
- I work as a contractor with a salary management company, who becomes my ’employer’
- Salary management company is eligible for the purchase of fleet cars, which gave me a fleet discount on a brand new car of about 10%
- As a contractor I can lease the car
- Leasing the car avoids paying GST (which is payable on the value of the car after the term of the lease) so that drops the car value by about 10%
- Value of the car drops to ~$42,000 on the road
- I get a lease on this which comes to about $1475 a month over 5 years ($88,500)
- I salary package it with my pre-tax income, which drops my taxable income and results in a tax savings
- The effective payments out of my after-tax income is about $880 a month, which means that over 5 years I’m actually paying only for the value of the car ($52,800)!
- There’s a residual of $12,000 at the end of the lease. I can sell the car for about $25,000 (based on current depreciation of that kind of car over the past 5 years) and walk away with ~$13,000 profit, resulting in a $53,000 car only costing me about $40,000.
I’m sure you can see how the ‘price’ of it becomes quite complicated for my situation! But I’m very glad that I had a lot of time to research and gather information about how to do it the best way.
I really like the salary packaging / tax laws in Australia these days!
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