Novated leasing comes with an array of financial attractions potentially making car ownership a lot cheaper. However, you need to ensure this strategy works for you financially.

How novated leases work
Salary sacrifice
This is when your employer deducts your lease payment from your pre tax salary. This immediately lowers your taxable income, potentially reducing your tax bracket. Even personal use vehicles may qualify for this type of finance.

There are different types of novated leases

Fully maintained leases
bundle the car’s purchase price, insurance, registration, fuel/charging etc, into one easy pre-tax payment.

Non-maintained leases
only cover the car itself, leaving you to manage running costs.

Employer partnership
Novated leases require your employer’s cooperation for the payment deductions. Some employers have restricted lists of leasing and not all employers offer salary sacrificing.

Benefits of novated leasing with any new car
1. The pre tax advantage
Instead of paying for your car with after-tax dollars, a novated lease allows you to use pre-tax income.

This reduces your taxable income, potentially putting you in a lower tax bracket. Reviewing the details of your novated lease, including any post-tax deductions, can help you get the most out of this arrangement.

Example
Say you earn $80,000 annually.
A $500 monthly lease payment reduces your taxable income to $74,000. This means you are not paying tax on the difference ($6,000), and in this scenario saving you $3,550 in the 23-24 FY.

Depending on your tax bracket, this could save you hundreds, even thousands, per year in taxes.

GST savings
You don’t pay GST on the car’s purchase price or ongoing running costs in a fully maintained lease.
Again – this could be another few thousand of savings.

These savings add up!

2. Predictable payments
Unlike a traditional loan where you also pay for insurance, registration, fuel/charging, etc separately, a fully maintained lease bundles everything into a single pre-tax payment. That means no surprises coming your way!

You won’t be hit with big bills for servicing, sudden tyre replacements or annual registration fees. These costs are spread out over your lease term.

For those on a tight budget, knowing your car expenses are fixed each month offers significant financial peace of mind.

3. The power of collective buying
Leasing companies often purchase large fleets of vehicles. They can negotiate these bulk discounts with car dealers and potentially pass on some of those savings to you.

Even if a discount is not advertised, enquire with your leasing company whether they have negotiated a better price on your desired car. It Never Hurts to Ask.

We arrange quotes on your behalf from multiple leasing providers to see who offers the best combination of price and terms for the car you want.

The specific savings and discounts on a novated lease depend on factors such as your income, tax bracket, the car’s price and the leasing company’s arrangements.

The EV advantage
In addition to the general benefits, novated leasing for EVs offers an extra perk – Fringe Benefits Tax (FBT) exemption!

Yes – Many EVs are currently exempt from FBT, a tax on employer provided perks.

EVs costing below the luxury car tax threshold of $89,332 for the 2023/24 financial year are eligible.

This exemption significantly increases the savings when leasing an EV.

So:

  • pre tax savings
  • no GST
  • no FBT (for EVs)

sound too good to be true!

Here are some important considerations for all new car purchases.

Is it truly cheaper?
Your considerations:

  • Buying outright is usually the most cost effective long term IF you have the savings.
  • Not all businesses offer novated leasing to their staff.
  • Your employer may limit you to specific leasing companies of their choice, reducing the range of comparisons.
  • Lease terms are less flexible than a loan regarding early repayment or additional payments.
  • If you leave your job, you’ll still be responsible for the lease until you find a new employer willing to participate or you will have to pay out the remaining balance.

Is a novated lease right for you?
Consider these factors keeping in mind the additional EV incentives:

Your tax bracket – Higher tax brackets mean greater savings from salary sacrificing.
Your driving habits – If you drive high mileage, a fully maintained lease provides peace of mind.
Interest in EVs – The FBT exemption significantly boosts the appeal of EVs on a novated lease.
Employer policies – Understanding your company’s policies on novated leasing is crucial.

Read the fine print
Understand your options at the end of the lease term. Check your state where EV incentives may be excluded.

Before you sign
Thoroughly compare the costs and weigh up the pros and cons.

Download our topic sheet on the pros and cons here.

As your finance broker our role is to obtain finance that is suitable for your circumstances.

This may include quotes for novated leases or traditional car finance.

Novated leasing can be a financially savvy way to get behind the wheel of any new car with even greater savings potential for electric vehicles.

Together we can help you weigh the benefits alongside the restrictions and your specific circumstances to make an informed decision.

We look forward to seeing you in that new car!