A novated lease enables you to purchase a car using pre-tax income, so you can take advantage of a lower taxable income.
An arrangement is made with your employer and the leasing company for payments on your car to be made from your pre-tax income.
This means no hassle for you, as your car payments are made before your money hits your bank account.
However, it’s important to remember that you are ultimately responsible for the lease payments, so you’ll want to make sure everything is setup properly.
The key advantage to a novated lease is that you’ll pay less income tax. You’ll want to check with your accountant if salary sacrificing is going to give you a better outcome than an outright car purchase.
In many cases it’ll mean you pay less tax for the year than if you purchased the car outright, so the key thing to check is that your tax savings will outweigh the interest on the car loan.
Example:
Sarah earns $55, 000 p.a. She’s looking to buy a small car for $18, 990 using salary sacrifice, over a 3 year term. Using the novated lease calculator, she works out that her payments will be between $131 per week ($567 per month).
This means her annual salary sacrifice will be $6,804, reducing her taxable income to $48, 196. Using the ASIC income tax calculator, we find that she’ll be paying just $7,210 tax, and she’ll have a take home pay of $40, 022 each year, or $769.65 per week.
Comparing this to using post-tax income to purchase the car outright, Sarah would pay $9, 422 in tax, taking home $44, 478 after tax annually, or $855.35 per week.
Using the novated lease, she’s putting $2,600.41 that would otherwise be spent in tax towards the purchase and maintenance of her car.
Any full-time employee in Australia can get a novated lease package and salary sacrifice the purchase of a new car, provided their employer can implement novated leasing through their workplace policies.
All your employer will need to do will be to sign the a document at settlement of the loan to say that they will make the loan payments directly to the financier from your pre-tax salary.
The first step to finding your new car is to write a list of what you’ll use the car for. This will help you to choose a model that fits in perfectly with your lifestyle and does everything you need it to do.
Then comes the fun part - researching and test driving! There’s a wealth of online resources you can use to help you find the right car, including car reviews, and prices guides such as Redbook to make sure that you get a good deal on your novated lease car, whether you choose a new or a second hand model.
Something to keep in mind when you shop for your car is the residual value it will hold at the end of the lease term. By making sure you pick a model that holds its value, if you plan to upgrade at the end of the lease, you can sell the car to pay the residual value payment that will be due to finalise the car lease.
Speaking to a novated lease broker, you’ll be able to find out what cars from your shortlist are within budget, and start the process of applying for finance.
You can choose a novated lease that simply covers your car payments, or you can choose to have a fully maintained novated lease.
A fully maintained novated lease will include an allowance for your maintenance costs, new tyres, car registration - all taken out of your pre-tax wage.
When you’re leasing arrangements have been approved, you’ll make the final arrangements with your employer and the leasing company.
Before you know it, you’ll be able to go and get your new car. You’ll enjoy driving without worry, knowing that the car payments are being made from your salary before you even get paid.
If you’re a full time employee and you’d like to find out more about how you can use pre-tax income to purchase your next car, you can start an application online and one of our car loan brokers will be in touch with an accurate quote for novated lease options.
Or if you’re an employer looking to add some benefits for your employees and attract top quality talent, you can definitely get in touch about our salary packaging novated lease options.
You can call 1300 722 210 or fill out a quick quote form and we’ll get back to you with more information on how you can use novated leasing to improve your employee offerings.