Novated Leasing

The Benefits of a Novated Lease

With a novated lease, you enjoy significant tax benefits and financial savings. Your vehicle payments come from your pre-tax salary, reducing your taxable income and overall tax burden. You’ll also skip paying GST on the car’s purchase price and running costs, which lowers your monthly expenses.

Novated leases offer flexibility, allowing you to use the car for both personal and business purposes. You can choose between new, used, or even electric vehicles. Fixed monthly payments cover all car-related costs, simplifying your budget, and you can transfer the lease if you switch jobs.

So…What is a Novated Leasing?

A novated lease is a three-way agreement between you, your employer, and a finance company to fund the use of a vehicle. This arrangement allows your car payments to be deducted directly from your salary, making it a convenient and hassle-free option. You can use the vehicle for both work and personal purposes, offering flexibility that suits various lifestyles.

In Australia, over 1,000,000 novated leases are active, with an annual growth rate of around 4%. This popularity highlights the practical benefits of this financing method. One significant advantage is that profits from novated leases are exempt from capital gains tax, providing an additional financial benefit.

Moreover, novated leasing often includes the ability to bundle running costs, such as maintenance and insurance, into your lease payments. This bundling can simplify your financial planning by consolidating all vehicle-related expenses into a single, manageable payment.

Additionally, you may gain access to discounts on vehicle purchases and running costs, further reducing your overall expenses.

Tax Savings

One of the biggest advantages of a novated lease is the significant tax savings you can achieve. By opting for a novated lease, you can have your car payments deducted from your pre-tax salary, which reduces your taxable income and, consequently, the amount of income tax you owe. This salary-sacrificing approach means more of your hard-earned money stays in your pocket.

Additionally, you can save on GST. When you purchase a vehicle through a novated lease, the lease provider can claim the GST on the purchase price, passing the savings on to you. You also benefit from GST savings on running costs, such as maintenance and fuel, bundled into the lease payments.

For those considering electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs), the fringe benefits tax (FBT) exemption can offer an added tax benefit. This exemption can lead to even greater overall tax savings compared to traditional vehicles.

Pre-Tax Salary Repayments

You can significantly reduce your taxable income and save money by opting for pre-tax salary repayments through a novated lease. When your car payments are deducted from your salary before tax, you decrease the amount of income that’s subject to taxation. This results in paying less in income tax, freeing up more of your hard-earned money for other expenses or savings.

Pre-tax salary repayments provide substantial financial benefits. By lowering your taxable income, you immediately reduce your tax burden. This arrangement also simplifies budgeting, as your car expenses are taken care of before you even receive your paycheck. It’s a streamlined way to manage your finances and maximize your savings.

Below is a simple table to demonstrate the potential savings with pre-tax salary repayments:

Item Pre-Tax Repayments
 Monthly Salary  $5,000
 Car Payment  $600
 Taxable Income  $4,400
 Income Tax Rate  30%
 Tax Paid  $1,320

No GST on Purchase

Fundamentally, you only finance the GST-exclusive cost of the car with a novated lease, resulting in significant savings on the purchase price.

When you lease a car through a novated lease, the GST portion of the car price isn’t included in the finance amount. This reduction in the overall cost can make a big difference to your budget.

Because you don’t have to finance the GST component, your finance amounts are lower, leading to reduced repayments. This exemption from paying GST on the car’s purchase price is a notable advantage of novated leasing.

In essence, you’re saving 10% right off the bat, which can be a substantial amount depending on the car you choose.

These savings aren’t just on paper. They translate into real financial benefits, making your monthly payments more manageable. By not having to include the GST in your financing, you’re able to allocate your resources more effectively. This means more of your money can go towards other expenses or savings.

Flexible Vehicle Use

A novated lease gives you the freedom to use the vehicle for both business and personal activities, ensuring maximum flexibility in your daily driving needs. This means you can drive the car to work during the week and take it on road trips over the weekend without any restrictions. The convenience of having a single vehicle for all your needs can’t be overstated.

With a novated lease, you also get the advantage of flexible options, such as:

  • New or used cars: Whether you’re eyeing a brand-new model or a reliable used vehicle, a novated lease accommodates both.
  • Electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs): If you’re thinking green, you can opt for an EV or PHEV, contributing to a more sustainable future.
  • Sale and lease back: Already own a car? You can sell it to the leasing company and lease it back, freeing up cash while continuing to use the vehicle.
  • Transferability: If you change jobs, you can transfer the lease to your new employer, maintaining your vehicle arrangement without hassle.

These options make a novated lease not only flexible but also adaptable to your changing circumstances and preferences.

Fleet Discounts

Novated lease companies often secure fleet discounts on vehicle purchases, allowing you to benefit from substantial cost savings. These discounts are provided by car manufacturers to companies that buy multiple vehicles, including novated lease providers. By leveraging these fleet discounts, you can save a considerable amount of money on the purchase price of your chosen vehicle.

Fleet discounts can vary greatly depending on the make and model of the car. They can range from a few hundred dollars to several thousand dollars, making a notable difference in the overall cost. Here’s a breakdown of potential savings based on different vehicle types:

Vehicle Type Possible Discount Range
 Compact Car  $500 – $1,500
 Mid-Size Sedan  $1,000 – $3,000
 SUV  $2,000 – $5,000
 Luxury Vehicle  $3,000 – $7,000

Flexible Lease Terms

Flexible lease terms in a novated lease allow you to customize the lease duration to suit your individual needs, ranging from 1 to 5 years. This flexibility means you can select a lease term that best aligns with your financial goals and lifestyle. Whether you prefer a short-term lease to easily switch to a new vehicle or a longer term for stability, a novated lease can accommodate your preferences.

One of the key advantages of flexible lease terms is that they’re not dependent on the number of kilometres you drive. This offers you the freedom to choose a lease term that fits your driving habits, whether you have a long daily commute or only drive occasionally. Additionally, the ability to pick from various lease durations makes it easier to manage your budget and plan for the future.

Here are some benefits of flexible lease terms:

  • Customization: Tailor the lease duration to your specific needs.
  • Convenience: Easily switch to a new vehicle or ownership option at the end of the lease.
  • Adaptability: Choose lease terms that match your financial situation and budget constraints.
  • Freedom: Lease terms aren’t affected by how much you drive.

New or Used Cars

You can choose between new or used cars when opting for a novated lease, giving you flexibility in vehicle selection. This choice allows you to tailor the leasing arrangement to your financial and personal needs. New cars come with modern features and warranties, while used cars offer cost savings and potentially lower lease payments.

When considering a used car, evaluate its condition and value to make sure it suits your needs. Used cars often have lower purchase prices, which can reduce your lease payments. Additionally, opting for a used vehicle can minimize depreciation costs, providing a more economical option. Despite being pre-owned, used cars under a novated lease still offer tax benefits and potential savings on running costs.

Here’s a comparison to help you decide:

Criteria New Car Used Car
 Purchase Price  Higher  Lower
 Depreciation  Higher  Lower
 Warranty  Typically included  May not be included
 Features  Latest technology  May lack newer features
 Running Costs  Potential savings  Potential savings

Financial Certainty

The beauty of a novated lease lies in its simplicity. You’ll know exactly how much you’re spending on your vehicle each month, making budgeting effortless. Here’s how it benefits you:

  • No surprise costs: All expenses, including fuel, maintenance, insurance, and registration, are included in your monthly payment.
  • Ease of budgeting: With a single, consolidated payment, managing your finances becomes straightforward.
  • Improved financial planning: Knowing your car costs in advance allows for better forecasting and planning of other expenses.
  • Peace of mind: The predictability of a fixed payment provides a sense of financial stability.

Easy Transition Between Jobs

In addition to financial certainty, a novated lease guarantees that changing jobs doesn’t disrupt your vehicle arrangements. One of the key benefits is the ease with which you can transfer your lease to a new employer. This transferability feature guarantees that your lease remains intact even if you decide to switch jobs. You won’t have to worry about renegotiating terms or facing penalties because the lease seamlessly moves with you.

If you’re between jobs, you also have the option to de-novate and continue making the payments on your own. This flexibility means you won’t be without a car, even if you’re in a period of change. Once you secure new employment, you can easily re-novate the lease with your new employer, ensuring a smooth continuation of your vehicle arrangements.

Additionally, novated leases give you the freedom to renew the lease for the same vehicle or trade it in for a new one. This flexibility allows you to adapt your vehicle choices to your evolving needs and preferences. All these features make managing and maintaining your vehicle simple and convenient, no matter where your career takes you.

Bundled Running Costs

Bundling running costs into your novated lease payments offers significant financial benefits and simplifies budget management. By including expenses like fuel, maintenance, insurance, and registration in your lease payments, you’re able to streamline your finances and potentially save a considerable amount over the lease term.

Here are some key advantages of bundling running costs:

  • GST Savings: Since these expenses are paid through your pre-tax salary, you can save on GST, reducing your overall costs.
  • Bulk Discounts: Access to bulk discounts on both the vehicle purchase and running costs can lead to substantial savings.
  • Fuel Savings: By incorporating fuel costs into your lease, you can save over $470 per year on fuel alone.
  • Maintenance and More: Over a 5-year term, potential savings on bundled running costs can amount to approximately $2,300.

Frequently Asked Questions

Is There Any Benefit to Novated Lease?

Imagine the world at your fingertips—yes, there are benefits to a novated lease! You’ll enjoy tax savings, bundled running costs, and the convenience of salary deductions. Plus, you can choose any vehicle you desire.

What Happens to a Novated Lease if You Leave Your Job?

If you leave your job, the novated lease stays with you. You can continue payments or transfer the lease to a new employer. It’s important to understand your options and seek advice from your lease provider.

What Are the Limitations of Novated Leasing?

You can’t get a novated lease if you’re self-employed, and leaving your job early can be costly. Some employers don’t offer it, and there are often limited providers and potential additional fees that complicate matters.

Is It Better to Salary Sacrifice or Buy a Car?

When it comes to salary sacrificing or buying a car, weigh your options carefully. A novated lease can save you money, but buying a car gives you full ownership. It’s a coin toss—consider your priorities.