Can I get a novated lease on a car I already own?
Can you novate a lease a car you own?
It is possible to novate lease a car that you already own through a salary sacrifice agreement with your employer, so that your car costs are paid from your pre-tax salary.
The primary benefit is that you will pay no GST on running costs, like fuel, maintenance and repairs, and these costs are covered from your pre-tax salary, which could result in you paying less overall tax.
Work out the benefits first
When you take out a novated lease, you will save on GST and reduce your taxable income. However, because you won't pay income tax on the portion of your income going towards your car loan, you will be required to pay Fringe Benefits Tax (FBT) on the amount that you salary sacrifice.
You can minimise your Fringe Benefits Tax using the Employee Contribution Method (ECM). This means that some of your costs will come from your post-tax salary. A good accountant will balance your payments to ensure that you're paying minimal tax and reaping the full benefits of your novated lease.
FBT is due at the end of the Fringe Benefits tax year, which runs to 31 March, something to keep in mind when calculating your finances.
Are there restrictions on novated leasing a car I own?
With a novated lease, you aren't limited to any particular car type, model or make, unless there are restrictions under your employer's terms.
- Less than 7-10 years old
Your car must be reasonably new to be subject to a novated leasing arrangement, so that it still provides valuable security for the loan.
When should I choose a novated lease?
If you have a secure job with an employer, and you're in a fairly high income bracket, you'll experience the maximal benefits from a novated leasing arrangement. If you are likely to leave your job before the lease is up, make sure you compare the costs to a personal car loan too.
Of course, the first question should always be whether you need to purchase a brand new car, and whether you would still purchase the same car if you were taking out a personal car loan.
Fringe Benefits tax rates have increased from just 7% to nearly 20% over the last five years, so it pays to talk to your accountant before starting a novated lease. They may have some other tax-effective ideas on saving you money on your car that mean you won't need to take out a lease on it.
If you have an income of between $80,000-$180,000, the benefits of novated leasing are more significant in reducing your taxable income than for smaller incomes.
What if your car use is 100% personal use?
One misconception people have is that a novated lease is for a company car. However, you can still salary sacrifice a car that's 100% for personal use.
When you use a car only for personal use - this means to get to and from work, family transport and weekend chores - you'll pay flat rate 20% Fringe Benefits Tax.
When you earn more than $80,000 and you are buying a new car, this means that using salary sacrifice for car payments, you pay a lower tax rate on the car payments than the income tax rate of 37%. That's a 17% saving on the tax on your car payments.
Here's an example:
Jane enters a Novated Lease for her Jeep.
Jane takes out a novated lease for her car, which is currently valued at $30,000. Her car expenses are $10,490 annually.
If Jane makes no employee contribution to the novated lease, for the FBT year ending 31 March 2018, Jane will pay FBT of $12,156.88.
Jane earns a salary of $60,000 so let's take a look at how the salary sacrifice arrangement affects her take home pay.
|Salary only||Salary plus car||Salary plus car (with ECM)|
|Reportable Fringe Benefit||nil||$10,784.40||nil|
Note: This example is just to give you an idea of how a novated lease will work. Make sure you obtain specific advice for your financial situation before entering into a novated lease arrangement.