The inside scoop on novated leasing
A novated lease is a term you may have heard some of your financially savvy friends talk about but actually what is it and how does it work? In technical terms, a novated lease is a three-way agreement between yourself, your employer and your car financier. But to understand why it’s something you should seriously consider, there are two components to novated leasing you need to understand.
Firstly, a novated lease lets you pay for your car using your pre-tax dollars or your income ‘before tax’. This lowers your total taxable income, which lessens amount of income tax you need to pay. This is a win for any taxpayer and is an arrangement commonly known in Australia as ‘salary sacrificing’ or ‘salary packaging’.
The second thing you need to know about novated leasing is that it doesn’t just cover the cost of the car. It also covers the cost of all your car related expenses and bundles them into one tidy package. We all know that the cost of owning a car goes beyond the purchase price or the cost of the repayments. There’s also insurance, servicing, and fuel costs to consider. A novated lease allows you pay for all these things using your pre-tax dollars, which saves you even more on tax.
Here are some of the other benefits of a novated lease:
Besides the income tax savings mentioned above, there are other big savings to enjoy. With a novated lease, you don’t pay GST on the car purchase price or on most of the running costs! On average, this saves $5,188 per year compared to traditional car financing. Plus, we provide discounts on vehicle-related expenses through exclusive deals negotiated with preferred suppliers.
By bundling all your car expenses onto one easy payment, you know exactly how much running your car will cost you. You’ll never be surprised by a bill for insurance, fuel, registration, servicing, or tyres. Payments for all these expenses will be automatically deducted from your salary, so it’s set and forget.
Freedom of choice
You can choose the type of car you want, and you have the freedom to use it any way you like. You can purchase a new or used vehicle and you can lease more than one car in a family, although some age restrictions apply on used cars. At the end of the lease, you can choose to refinance, purchase the vehicle, or upgrade! The choice is yours.
With a novated leasing vehicle, the car is yours and not a company car, so if you decide to change jobs the lease may be able to move with you. If your new employer also offers novated lease deductions through their payroll, the lease can be easily transferred over. Alternatively, you can pay out the remaining cost of the lease.
Now that we’ve explained what a novated lease is and the benefits, it’s easy to see why you should consider signing one. If you’re an employer and you’re interested offering novated leasing to your staff, or if you’d like to learn more about the benefits of salary sacrifice and salary packaging, get in touch with us today.
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