“The maximum term available for a new car is 84 months. However, for a used vehicle, the term may be reduced…”
In order to divest themselves of the administration and costs involved in supplying employees with a motor vehicle for use in work related activities, many employers provide their employees with a car allowance as a component of their total annual remuneration pack- age. Used correctly, this can be an attractive benefit and will generally provide for the following:
- Sourcing the vehicle of your choice
- Financing the vehicle by way of a Secured Loan Agreement in your personal name
- Lodging an income variation with the ATO through your employer’s payroll officer, that will enable the allowance to be paid to you “free of tax”
- Completing a Log Book for a period of 12 weeks showing your use of the vehicle and the percentage split between business & personal
- Taking the vehicle and the finance commitment with you, if you leave your current employer.
THE BENEFITS TO YOU ARE:
- Able to choose the vehicle you want.
- Retaining ownership of the vehicle, even if you decide to move to another employer.
- The motor vehicle may be used for your private use.
SECURED LOAN AGREEMENTS:
This loan agreement is similar to a personal loan with the financier securing their advanced funds by way of a registered charge over the vehicle. When all payments have been made to the financier and all outstanding amounts cleared in full, the financier releases their charge.
The loan contract may be terminated at any time, simply by paying the financier all amounts outstanding on the contract plus any termination fees.
EXPENDITURE:
As a general rule, the intent is to maximise the expense of all funds received by way of the car allowance against the running costs of the car for business purposes, in accordance with the declaration submitted to the ATO via your employer’s payroll officer.
FINANCE TERM:
The maximum term available for a new car is 84 months. However, for a used vehicle, the term may be reduced to ensure it is no more than 12 years old from Compliance Plate date, at loan term end.
As intended by your employer, all ongoing costs associated with the operation of your vehicle are to be met from the provided car allowance. With this in mind, consideration will need to be given towards the type of vehicle selected and its ongoing operating costs including:
- Finance charges applicable for the vehicle
- Service & maintenance
- Replacement tyres
- Fuel usage
- Comprehensive Insurance
- Future re-sale value
SUMMARY:
Once all these costs have been established, their sum may be used to determine the estimated “Total Cost” per annum for the vehicle. It is this figure that is used as the basis for determining the percentage allocation of your car allowance use for business (or personal) according to your logbook.
By Peter Bailey, Your Finance Guy