If you’re in the market for a new car, you may be considering finance options like taking out a personal loan or drawing down on your mortgage. But have you considered a Novated Lease?
A Novated Lease is a form of salary packaging that helps you finance a new or used car while offering a range of potential benefits and tax savings.
Benefits of a Novated Lease
You should be able to access fleet discounts when buying a car.
You will save GST on the purchase price and finance the car net of GST.
You will save GST on all running costs of the car.
Under a novation arrangement the finance company can claim a GST credit for the GST they pay on the purchase of the vehicle.
The employer can claim a GST credit for the GST included in the lease charges.
There are no GST consequences for the employee because the employee has not purchased or leased the vehicle.
How Does A Novated Lease Work?
A Novated Lease is a unique employee benefit arrangement that involves you, your employer and a financier, and can last between one and five years.
You’re not limited to any particular car type, model or make, unless stipulated by your employer.
Your repayments are partly sourced from your before tax income, which means you pay less tax.
One of the most popular aspects of a novated lease is the budgeting convenience of having all your car’s running costs spread out over the course of a year. If you’re paid fortnightly, this means 26 payroll deductions covering your car payments alongside such costs as registration, servicing, maintenance, insurance and fuel.
Under a Novated Lease arrangement the employer takes over all or part of the lessee’s (employees) rights and obligations under the lease. This transfer of rights and obligations is agreed to in a deed of novation between the employer, the finance company and the employee.
Novated Lease Example
Ed recently purchased a Mazda CX9 for $57,365.55. He managed to obtain a fleet discount of $5,654.13 on the vehicle and by novating the vehicle, GST was also saved. This brought the cost of Ed’s car down to $46,794.15.
Ed’s employer takes money directly from his pay to make the repayments for his vehicle and the vehicles running costs. Some of this money is taken before tax, meaning Ed doesn’t have to pay tax on that portion of his income. This will reduce his taxable income, and in turn, increase his disposable income.
Ed has a marginal tax rate of 32.5% which means that he saves 32.5% on the costs that were pre-tax.
By novating the vehicle Ed will save $3,337 per year in PAYG tax and a whopping $16,685 saved over the term of the lease.