STOP throwing your money away on Car Ownership

Owning a car with no ability to claim a tax deduction is in essence owing a liability 🙁

Australians have a passion for cars.  We have a high number of them on the road and a preference for travelling via car as oppose to other forms of transport (e.g buses and trains).

Our passion for car ownership is where we fall down.  Cars are rapidly depreciating assets and unless we rent them out to generate an income they can only be looked at as a liability.

As an example, a Mazda 3 Neo Hatch with a drive away price of $23,490, driven 300 kilometres a week, financed over 3 years has the following costs per YEAR:

  • $8,900 for financing on a secured car loan
  • $1,450 in fuel
  • $850 for registration & CTP
  • $1,100 for comprehensive insurance
  • $930 for servicing, repairs, tyres and roadside assistance
  • PLUS add the cost of your road tolls

So around $13,000 of annual costs per YEAR for three years plus your road tolls (hopefully no parking fines or other infringements).

At the end of three years if you decide to trade in the Mazda 3 then you could expect to get back around $13K for a trade-in or if you keep the car then you are up for higher running costs in the form of brake replacements, higher servicing costs and other things that may go wrong.

Leasing – the Americans Love it

Avoiding the pitfalls of car ownership in America is achieved via leasing a car.  Leasing has been “a thing” in the land of the free since the 1950’s but very few in Australia understand that we have our own version in Australia.

Leasing a car in the US of A is big business.  Around 4.3 MILLION cars (28.7% of new car sales) were leased by Americans in 2016 up from just over 1 million in 2009.  One of the key drivers of leasing is that customers don’t want to be left with an outdated car after 3 years, just like they enjoy upgrading their iPhones and Samsung phones.  Also with a lease the finance company is the owner.  The younger car drivers of America would rather put the depreciation of the car on the finance company rather than carry the cost and risk.

The Aussie version of leasing – Novated Leases!

We have to be similar but different to our friends in North America 🙂

Back in the 1990’s the Novated Lease was born.  It is a way of getting a tax deduction on the finance and running costs (e.g. fuel) for your car.  Terms can be 1 to 5 years with the most popular term being 3 years.

The tax deductions (GST and income tax) and lower finance repayments achieved via structuring mean the cost of “owning” a car are vastly reduced.

Example – using the same Mazda 3 Neo Hatch

The cost of running a Mazda 3 Neo Hatch (same as the one in the example we provided earlier) would be $8,500 with a novated lease compared to $13,000 using a secured car loan.  You save around $4,500 per year.

We have more detailed workings in our article “Are Novated Leases Worth It?”

At the End of A Novated Lease

Using the same example of the Mazda 3 the trade-in value is around $13,000 and the amount owing to the finance company is around $11,000, so when you trade in the car and upgrade you can earn a $2,000 tax free profit.

Overall you save $4,500 per year for 3 years and bank a $2,000 profit on trade-in.

Net result is you have $15,500 more CASH in your bank account using a Novated Lease 🙂

OK to be fair if you use a secured car loan, you own that rapidly depreciating Mazda 3 which you can try and sell on Carsales.com.au along with 200,000 cars that are listed for sale.  Have you ever experienced the frustration of trying to sell your used car?

So STOP throwing money away on car ownership and look to get into a car which saves you a ton of CASH.