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Want a nice car but can’t afford it? A novated lease might just be the solution for you.
Next to real estate, cars are the second largest purchase that most of us will make during our lifetime. Given this cost, buying a vehicle is not a decision to be made lightly. Many people must save for years first, while others take out a high-interest car loan. Novated leasing is a third alternative. However, before you choose to go down this route, it’s important that you know the facts.
Under a novated lease, your employer is a party to your purchasing agreement, and allows you to pay for your vehicle as part of your salary package. This benefits both the employee and employer, because it saves both parties money. How it works is that your car payments are paid from your pre-tax earnings. Essentially, this means a novated lease can allow you access to money that might otherwise be tax. Your income tax is then calculated on your now reduced salary, leaving you with more disposable income to enjoy.
One final tax bonus is that you don't have to pay GST on the purchase price of a car when you're not buying it, which lowers the cost by a further 10%.
You can get a novated lease on a used car, as well as a new car, demo car, or even your own car. A novated lease for a used car works exactly the same as it does for a new car. You will need to come to an agreement with your employer, and the novated lease will have a residual payment which is set by the Australian Taxation Office (ATO) at the end of the lease.
Of course, there are some cars that won’t be suitable for novated leasing. A car shouldn’t be leased if it is more than 10 years old at the end of the term. You can only lease it for the difference. For instance, in the case of a 4 year old car, you can only lease it for 6 years. This is a general rule of thumb, and there are some exceptions (usually predicated upon the car value).
You can lease a luxury vehicle, but be prepared to do a lot of paperwork. In this case, you’d need to split your employer type between Government and private employers. A luxury car on a novated lease for a private employer requires heavy administration. The lease becomes a company loan and the employer can only claim deductions on the portion of the interest and depreciation under the luxury car limit. For government employees, this is good news. The government does not need to pay company tax and therefore the novated lease on a luxury vehicle is treated the same as any other non-luxury vehicle on a novated lease.
In short, yes. By essentially reducing your tax, the novated lease model will save you cash. This is the main reason people opt for a novated lease. It’s both cost and tax effective, meaning more money in your pocket. Many consider it to be the last decent tax break for employees.
When it comes to a novated lease, the choice is yours. As mentioned previously, however, there are certain exceptions (e.g. cars over 10 years old).
A novated lease seems too good to be true, right? If they’re such good value, why doesn’t everybody do it?
The reason that most people are hesitant to lease their car in this way is that the agreement binds you to the company that you are working for. So, if you’re not 100% happy and secure in your job, the savings might not be worth the commitment. It depends entirely on each person’s individual circumstances.
At the end of your lease term, you’ll be given an option to pay off the residual and assume total ownership of the car.
If you see yourself working for the same company long term, and you want to save serious coin, a novated lease is a no brainer. Your employer will shoulder part of your car costs as long as you are working for them.
All that you need to do now is choose your perfect set of wheels. And where better to do so than Motor Matcher for great deals?
At Motor Matcher, everything we do is modelled around providing customers with the right tools and empowering them with rich information, helping them make sound decisions when buying and selling cars. We offer a faster, simpler way to compare new and used cars online, creating an ideal and safe marketplace for all car buyers and sellers. Visit us for current deals on leasing or financing and enjoy a better buying experience.