Novated leasing is a popular kind of car leasing option in Australia that offers flexibility and benefits to both employees and employers.
It can be a great option if your employer is willing to let you take a lease on your salary as it allows you to take benefits from your taxes.
This form of financing can suit different car buyers and users no matter how much money you make.
What is a novated lease?
A novated lease is a unique arrangement that benefits the employee and involves the employer, the employee, and a finance or leasing company. The finance or leasing company leases the employee’s preferred vehicle.
The lease payments will be made by the company on the employee’s behalf, and they will be taken out of their pre-tax salary.
This reduces the employee’s taxable income at no extra cost to the employer. The cost of the vehicle’s upkeep, insurance, and fuel is also covered by the employer.
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Check the complete guide of novated leasing on Bleen.com to understand the Pros and Cons for Novated Lease.
Pros of novated leasing
- Tax benefits: Employees save money on taxes by receiving a lower salary with novated leases.
- Flexible: Novated leases let employees choose the car they want with a customized lease period and running expenses to suit their specific requirements.
- Easily manageable: The employer pays the lease amount and operating expenses.
How does novated leasing work?
Under a novated lease, you are not limited to a specific car model, type, or make, unless your employer specifies.
You have the liberty to choose any car you wish to lease, whether it is new, old, or even your current vehicle.
The best thing is that you pay less tax and have a bit more disposable money because your repayments are partially generated from your pre-tax income.
Here is how novated leasing works:
Part of the expense deducted from pre-tax
Novated leasing allows your company to deduct payments for your car and related expenses directly from your paycheck.
You don’t have to pay tax on that percentage of your income throughout the year because some of it is removed before you are taxed on it.
This may lower your taxable income and raise your discretionary income as a result.
Fringe Benefits Tax
Fringe Benefits Tax (FBT) is applied to the benefits you get from your employer that don’t come in the form of a cash salary or compensation.
A novated lease is subject to FBT because it is a benefit that is not included in your cash pay or wages.
Saving on car expenses
With a novated lease, your car’s running cost is spread over the year, which is deducted from your pay evenly during the lease tenure like on:
Buying a car through novated leasing is an appealing choice as it offers flexibility, savings on tax, and can be easily managed.