Should you salary package your next car?

TL;DR

Salary packaging a car allows you to purchase a car using pre-tax dollars, but it has downsides such as depreciation and opportunity cost.

Transcript

good day and welcome to this week's video my name is robert gowdy from consorting private wealth and this week we're going to tackle another client question that i had recently and that's whether they should salary package a car and generally this is something that happens in larger organizations where they've got the opportunity to use pre-tax dol... Read More

Key Insights

• 🎠 Salary packaging a car allows the use of pre-tax dollars, which can be beneficial when funds upfront are limited.
• 😄 Sellers of novated leases or channel mortgages may have a conflict of interest, leading individuals to buy more expensive cars than they can afford.
• 🍉 Salary packaging involves taking on debt for a depreciating asset, which is not ideal for long-term wealth building.
• 😨 The tax savings from salary packaging might be minimal compared to the depreciation of the car.
• 🎴 Diverting cash flow into car loans for tax purposes has an opportunity cost as it could be used for more advantageous investments or asset-building strategies.
• 🏃 Considering alternative options like utilizing superannuation for tax advantages or investing in a home may be more beneficial in the long run.
• 😨 Personal preferences, such as buying a new or used car, depend on individual circumstances and financial goals.

Questions & Answers

Q: What are the benefits of salary packaging a car?

The benefits include buying a car with pre-tax dollars and the ability to purchase a new car when you don't have the funds immediately available.

Q: What are the downsides of salary packaging a car?

The downsides include the conflict of interest from the sellers promoting tax benefits, leading people to buy more expensive cars than they can afford. Additionally, there are interest costs and the depreciation of the car as a depreciating asset.

Q: Are the tax savings from salary packaging significant?

The tax savings from salary packaging a car may be minimal compared to the depreciation of the car. It is not the most effective way to save tax, and there are alternative strategies like utilizing superannuation for tax advantages and asset building.

Q: What is the opportunity cost of salary packaging a car?

The opportunity cost is diverting cash flow into a car loan instead of using it for other investments or tax advantage strategies like building assets in superannuation or purchasing a home.

Summary & Key Takeaways

• Salary packaging a car allows you to buy a car using pre-tax dollars, which can be beneficial if you don't have the funds upfront.

• However, salary packaging involves taking on debt for a depreciating asset, which may not be ideal.

• There is also an opportunity cost of diverting cash flow into a car loan instead of other tax advantage and investment strategies.