Should You Get A Novated Lease To Buy Your Next Car?

That’s a question a lot of Australian families have when it’s time to replace their car. After all, most of us rely on it as our main form of transportation.

Buying a new car can be one of the most exciting purchases you ever make. Second only to a house, there aren’t many more significant purchases in your life that you do very often. Deciding on what car to buy can be the first hurdle however, once that is done, you still need to work out how to pay for it!

Often, one payment method that gets thrown around that still isn’t well known, is the novated lease! We are going to cover off the key elements and benefits you need to know about a novated lease so when the time comes, you have all the information you need to make the right decision.

1. What Is A Novated Lease?

A novated lease is an easy and tax effective way you can buy a new or used car. It is a three-way agreement between you, your employer and a leasing company. You buy the car, use the car, enjoy the car, your employer pays the leasing company directly from your wages and the leasing company manages everything in between. The savings are derived in a few different ways all of which we will cover below.

2. How Do You Save Money?

There are a few elements to saving with a novated lease, so we have broken them down into their own categories. With any tax saving though, it is always important to speak to your leasing company and accountant to make sure your understanding and situation is correct.

3. GST Savings

There are a few keyways you save money with a novated lease. The first is GST. If you are buying a new car from a dealer, you don’t finance the GST! A huge initial saving considering GST is 10% of the base price of the car and your average car is around $40k. The second element to GST is that you don’t pay GST on the running costs associated with your car. Doesn’t take long to do those numbers in your head and again, the savings stack up quickly.

4. Income Tax Savings

Another great benefit of a Novated Lease is the impact it can have on reducing your taxable income. When you get a novated lease, the quote will detail how much of your lease payment can be paid from your gross income. Meaning, your employer will deduct a portion of the lease payment before it calculates your tax saving you money on your tax bill. They pay the money directly to the finance company which also saves you a lot of life admin.

5. What Is A Residual Value?

A residual value is a portion of the lease that is not paid off over the term of the lease and due at the end. The amount is a % of the purchase price and often leasing companies will follow the guidelines set by the ATO. At the end of the lease, you can pay out the residual and keep the car, refinance it on a new novated lease, refinance with a car loan or trade it in, pay out the residual and buy another car.

6. Common Questions

There are many common questions about a novated lease. A few of the top covered off are.

• You don’t need to earn a big salary to get a novated lease. If you have affordability, you can have as many novated leases as you want.
• You can do as many or as few KM’s as you like. There are no KM based restrictions.
• You can buy new, used, and private sale cars!

You now should be in a much better position to decide how you want to pay for your next car. A novated lease can be a great way to help buying and owning a car while saving some significant money along the way.