Benefits of a Salary Sacrifice Car Loan
You may have heard of a salary sacrificing to get a car loan or novated lease. If you’re a salaried employee who wants to apply for car financing, this option can help you get the car you want while also enjoying tax benefits*.
What is a salary sacrifice car loan?
A salary sacrifice car loan is the same as a novated lease. They’re simply different names for the same thing.
It’s a cost and tax-effective way for a salaried employee to get a brand new car. A salary sacrificing car loan involves a three-way agreement between the following parties:
- The employee who sacrifices part of their pre-tax salary to make the loan repayments
- The employer who deducts the salary sacrifice payments from the employee’s pre-tax salary
- The finance company who oversees the administration of salary sacrificing a car
Whom do salary sacrifice car loans work for?
Novated leasing can be an extremely cost-effective way for salaried employees to also make tax savings.
With a standard car loan, your employer takes out the tax and you make the repayments from your after-tax income. In a novated lease though, your employer makes payments on your behalf, reducing your taxable income and increasing your spending power.
Salary sacrificing car loans are also a good option for employers who can offer them as a high-value incentive to employers with minimal extra administration to carry out.
How to use salary sacrificing to get a car loan
Once you’ve made the decision to go ahead get a car loan using salary sacrificing, you’ll want to:
- Speak to your employer to get everything in order.
- Use our easy-to-use car loan calculators to get a clear idea of exactly how much money you can expect your repayments to be.
- Ask for expert help. This can save you huge amounts of time, money, and stress. At Positive Lending Solutions, we have decades of experience helping people to get all different types of car loans. Our access to a wide range of lenders also means that we’ll be able to quickly direct you to the best rates and deals currently available.
Salary Sacrifice Car Loan Scheme Example
Imagine you have a salary of $120,000, a marginal tax rate of 37%, and a monthly car repayment budget of $1,000 per month.
A standard car loan based on these numbers will have you paying $296 more in tax each year than you would if you opt for a salary sacrifice car loan.
What are the overall advantages of a salary sacrifice car loan?
- Tax Savings. With a novated lease, you will not only be able to mobilise your pre-tax income, as well as this, but you’ll also enjoy the fact that salary sacrifice cars avoid GST. This is because the finance company will purchase the vehicle and lease it to you. By doing so, they get to claim the GST on the car as an input tax credit on their Business Activity Statement – and can pass the savings directly onto you*.
- Vehicle Ownership. Salary sacrifice cars can also move with you if and when you move jobs. The novated lease means that the car is not a company car but it’s yours – so switch jobs and the car and attached lease can switch with you.
- Private Use. Another advantage of novated leasing is that the vehicle does not have to be used for business purposes – in fact, the lease will be entirely valid even if you use the car entirely for private use.
- Minimal Paperwork. For employers, there is the advantage that novated leasing only requires a small amount of paperwork in the initial stages before the process becomes automated as part of payroll. Extra administration is minimal with a salary sacrifice car loan.
Is a salary sacrifice car loan right for you?
Using salary sacrificing to get a car loan can give you tax deductions and many other benefits. If you’re thinking of getting a salary sacrifice car loan and your employer is happy to accommodate, we can help you.
Discover how we can help you get the best deal on your car loan now!
* Positive Lending Solutions does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transactions.