Basically, novated leases allow employees to finance a new or used vehicle using payments deducted from their pre-tax and post-tax salary. This is commonly referred to as ‘salary sacrificing’. It’s a clever way to reduce your taxable income while simultaneously paying off a new car.
Australians are no strangers to car financing. The latest statistics reveal around 90 percent of all vehicle sales involve financing. While basic dealership finance is common, novated leases are gaining popularity with Australian buyers.
Want to know more about novated leases in Australia? Read on for our guide to novated leases and find out how the concept could work for you.
How does a novated lease work?
Entering into a novated lease contract is relatively simple for employees earning PAYG income. Here’s the simple three-step process that can get you behind the wheel asap.
- Enter into a novated lease agreement with a bank or finance provider.
- Arrange salary sacrificing with your employer.
- Repayments are made by your employer on your behalf, using funds from your pre-tax and post-tax salary.
What are the benefits of a novated lease?
Here are some of the benefits of opting for a novated lease in Australia:
1. Enjoy having a personal vehicle
While most employer-funded cars are only available for use at work, novated leases in Australia allow you to purchase a car for personal use.
2. Reduce your taxable income
One of the major benefits of a novated lease is how it reduces your taxable income. For instance, if someone earning $95,000 per year makes annual novated lease payments of $10,000, their taxable income drops to $85,000. This puts them in a lower tax threshold, which saves them money.
3. Harness other savings
As well as car repayments, novated leases in Australia can be packaged with other car expenses, such as fuel, registration, servicing and insurance.
4. Pay off your car faster
Many employers also allow you to pay off your novated lease using cash from your after-tax salary. This is known as an employee contribution and can be a great way to pay off your car loan faster.
5. Freedom to switch jobs
Unlike company cars, vehicles purchased with novated leases aren’t necessarily linked to your job. In most cases, if you switch employers you can simply transfer your lease with minimal hassle. If this isn’t possible, you can still continue to pay the lease using after-tax income.
Are novated leases worth it?
Ultimately, the value of a novated lease depends on your own unique financial situation. It’s best to discuss a novated lease with your accountant. They can factor in variables, such as your income, tax bracket and interest repayments.
You also need to understand fringe benefit taxes applied by the Federal Government. Cars purchased under novated leases generally fall into the fringe benefit category. This means you may need to pay some extra costs. Again, the financial implications of novated leases are best discussed with your accountant or a professional car broker before deciding.
How a car broker can help you with a novated lease
Novated leases are relatively straightforward. However, like all finance options, they come with their own unique set of red tape. If you want to get your novated lease up and running as soon as possible, don’t hesitate to contact The Vehicle Broker.
We offer a premium brokerage service, including professional negotiation, detailed research and vehicle sourcing. Our industry-leading finance service covers all bases, with access to a full panel of lenders and highly competitive deals.