The post the salary packagers do not wanted you to see…

Go to any salary packager’s website and they will have a calculator. After you complete or the details the calculator will tell you how much you will save in tax by salary packaging a car. THIS NUMBER IS ABSOLUTELY RUBBISH. I don’t mean the calculation is wrong in any way at all. What I mean is that the calculator compares apples and oranges to get the tax saving.

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What these calculators do is compare the after tax outcome of leasing the car in your own name with leasing the car under a salary packaging arrangement. The tax saving is right based on this comparison. BUT NOBOBY LEASES A CAR IN THEIR OWN NAME SO THE COMPARISON IS WORTHLESS. Outside of salary packaging, almost everyone who wants a car buys it with either cash they have saved or by using the equity in their home. The interest rate on cash you already have is 0%, but lets call it 3% as you could have invested it in a very secure investment. Your home loan interest rates is about 5-6% and does not look like moving much for some time.

The implicit interest rates in leases for cars are from 8-11%.

So if you were to do a real comparison it would be comparing salary packaging a leased car with using the equity in your home. There may be a tax saving between leasing you car in your own name and salary packaging it BUT that tax saving will be reduced by the extra funding costs of the interest rate in the lease when compared to the interest rate on your home loan.

Don’t compare leasing under salary packaging with leasing in own name. Compare leasing under salary packaging with borrowing from your bank using the equity on your home loan. And I dare you to ask the packaging companies to do this calculation for you… And watch them sweat…

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
This entry was posted in FBT, Planning Stuff, Tax Policy and tagged , , . Bookmark the permalink.

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