Enjoying an early brekky these two articles crossed my eye. They are consistent with the Friday Reflection posted during the week, and how explain how salary packaging a car saves tax.

Two cars are discussed as well: there is no limit on the number of company cars able to be packaged.

Both articles explain how the tax savings apply even for low and or average income earners.

Good articles on salary packaging

Age article 7 February 2016 by John Collette “Leases drive home considerable savings”

How salary packaging can save tax for your employees, an article by Paul Hockridge dated 16th December 2015

Both articles get the finance wrong for self-employed persons

Both articles presuppose personal credit contracts such as leases, CHP or chattel mortgages.

Chattel mortgages are better for GST purposes: you get the GST credit up front (ie not spread over the life of the contract).

But personal credit contracts are expensive money. And they are tax inefficient in that each monthly payment includes a capital amount, ie the original deductible loan. The repayment of a deductible loan is tax inefficient if you or your client have a home loan. Obviously it makes more sense to pay off the home loan first.

So we reckon for self-employed persons it’s better to not use a personal credit contract, with its mandatory tax inefficient loan repayment program and its expensive interest rate. It’s better to use a cheap line of credit, at home loan rates, secured against the home. And not pay any principal back until the home loan is paid off. This minimises your long term after cost of borrowing.

For genuine employees, ie not self-employed persons, it’s not practical to do this and you will probably have to go with a chattel mortgage (since it’s the most GST efficient option).

What should you do?

In your own practice, you should set things up so all car costs are tax deductible. This includes a spouse’s car and any kids’ cars.

For example, my 20 year old daughter’s super safe and reliable second hand Volvo is provided to her as a fringe benefit: she is deemed to be an employee under the FBT definition of an employee. It’s the cheapest after tax way of owning a car and also means I have the peace of mind of knowing if she is an accident she is in the safest car possible.

The idea can also be used to help other family member. One of my McMasters’s colleagues help support her mum. The support includes a company car (a second hand Ford that cost $15,000) provided as a fringe benefit by McMasters’. The cost comes out of my colleague’s profit share. Very tax efficient. The best way to own a car and a great way to help a pensioner parent.

Ring me if you are not sure what to do here. I am happy to help.

What should you do for your clients?

Cars are the second biggest outlay for most people (the biggest is their home) and, as you can read here: The Assumption of the Cars, for many (most?) it’s a very big deal.

It’s your responsibility to help your clients make sure they get the best possible deal on their cars, and a big part of this is making sure they minimise the after tax cost of their cars.

This is what financial planning is all about. Helping people plan their finances and get the best possible financial results.

I suggest you send a copy of these articles, and even this e-mail, to each of your clients and your prospective clients and invite them to contact you to discuss how they should own their cars.

Invite your clients to pass your e-mail on to their friends and family; anyone they think may be interested in how to own more car for less after tax dollars (BTW that’s probably most people).

Your clients who are employees

Your clients who are employees should ask their employers if they can salary package their car costs.

Your clients who are employers

Your clients who are employers should ask their employees if they want to salary package their car costs.

It’s not just conventional new “executive” style cars. The concept applies to all cars. For example, an apprentice’s second hand ute, or a receptionists $10,000 second hand Honda Jazz. This means the concept applies to all employees (or nearly all employees).

And all your clients.

What will happen then?

Some of your clients will act on the e-mail without telling you.

Some of your clients will act on the e-mail and tell you.

Some of your clients will contact you for further information/details/explanations/assistance, or make an appointment to see you.

Most of your clients will not respond. That’s OK. It’s still a good strategy because you have shown you care about your clients and are thinking of them.

All of your clients will appreciate that you are thinking of them. They may even respond regarding some other matter of concern to them.

It’s quick, cheap, easy and effective. Do it now!