A novated lease is a unique type of car financing that allows you to pay for a vehicle as part of your salary. They’re incredibly popular for a number of reasons, and provide just as many benefits for your employer as they do for you.
We’ll do a quick refresh of the basics below, then dive into some of the reasons this is one of the most popular ways to finance a personal vehicle in Australia.
Novated Leasing Basics
- A novated leasing company provides a vehicle and establishes the lease contract between you and your employer.
- You agree for your employer to make deductions from your pre-tax salary, and get full personal use of the vehicle.
- Your employer pays the leasing company, with lease payments generally covering both the lease amount and the vehicle’s running costs.
- Novated leases are fully maintained or non-maintained. A fully maintained novated lease packages all the running costs of the vehicle into your lease payments, which makes things super easy, and saves you money.
We’ll be looking at a fully maintained novated lease when discussing some of the benefits below, as this is by far the most popular choice when salary packaging a vehicle.
8 Ways You Win With A Novated Lease
- You pay less tax. Because payments are made from your pre-tax salary, your taxable income is reduced, which can lead to savings at tax return time.
- You don’t pay GST on the car price. Because you’re getting the vehicle through a leasing company and not purchasing it outright, you won’t be paying the GST on the initial cost of the vehicle.
- Everything is included in your payments. This includes all your running costs, so things like fuel, insurance, servicing, repairs, and everything else. All your costs are assessed by the leasing company when you establish your leasing agreement, and will be deducted as part of your regular repayments.
- You don’t pay GST on running costs. Just as with the initial purchase price, all of your running costs and repairs are included with a fully maintained novated lease, which means the leasing company will also be covering these instead of you.
- You can take your novated lease with you. Although your new employer will need to offer novated leasing to salary package a vehicle as well, it’s fairly straightforward to keep your novated lease even if you’re switching jobs.
- Your employer will get GST savings. As your employer is making the payments to the leasing company, they’ll be able to claim any GST on the regular payments as a tax credit.
- Your employer pays less tax. Higher salaries mean greater responsibilities and cost balancing for employers. By making payments from an employee’s pre-tax salary to reduce their overall income, employers reduce the amount of tax they’re required to pay overall to keep the business running.
- You and your employer aren’t tied to the vehicle. Novated leasing allows some flexibility in what you do at the end of your lease term. This flexibility lets you refinance a new vehicle on a new lease agreement, or even purchase the car outright by making a lump-sum payment at the end of the term.
Talk to your employer about novated leasing today
So what’s the downside? Well, very little if we’re being honest. If you qualify for a novated lease through your employer, it’s hands-down one of the most mutually beneficial ways to get a personal vehicle without purchasing it outright.
They benefit both you and your employer, so it’s also highly likely your boss will be on board with your decision if you decide you’d like to sign up for a novated lease – and you’re fairly free in the types of vehicle you’re able to choose, provided they’re:
- Less than $100k in value
- Less than 7 years old
- A passenger vehicle with a payload below 1,000 kg
So what’s the next step? Speak to your employer! If they offer novated leasing as part of your salary package, you’ll be able to start looking at vehicles the very next day.