How Novated Car Leasing Can Save You Thousands?
Are you looking for a way to save money on your next car purchase? If you’re an employee earning a salary, novated leasing could be the answer.
This flexible, tax-efficient option allows you to package the cost of your car and its running expenses into a single, easy-to-manage lease.
Best of all, you’ll pay for your car with pre-tax income, which can result in thousands of dollars of savings. Here’s how novated leasing works and how it can benefit you.
What is Novated Car Leasing?
Novated leasing is a three-way financial agreement between you (the employee), your employer, and a finance company. It allows you to lease a vehicle and have the repayments, as well as the running costs (like fuel, insurance, and servicing), deducted from your pre-tax salary.
Because your car expenses are taken out of your salary before tax is applied, your taxable income is reduced, which lowers the amount of tax you pay each year. This makes novated leasing a tax-efficient and cost-effective way to drive the car you want without compromising on your budget.
Tax Benefits for Employees with Novated Car Leasing
One of the biggest advantages of novated leasing is the tax savings. Since the lease payments and running costs are taken from your pre-tax salary, you pay less in income tax. Here’s how it works:
- Normally, when you buy a car with a loan or your savings, you pay for the car and all its running costs with your after-tax income.
- With a novated lease, however, those expenses are deducted before tax, effectively reducing the amount of tax you owe to the Australian Tax Office (ATO).
For example, if you’re in the 37% income tax bracket, this means that every dollar you spend on your novated lease and its running costs could be saving you up to 37 cents in tax. Over the course of a lease, these savings can really add up.
How Much Can You Save with Novated Car Leasing?
Let’s look at a typical scenario to see how much you could save with novated leasing:
Imagine you’re earning $80,000 per year and you want to lease a car that costs $30,000. With a novated lease, you’ll pay for the car using pre-tax income, meaning your taxable salary is reduced. On top of that, you can also bundle running costs like fuel, maintenance, and insurance into the lease, increasing your overall savings.
- Traditional Car Loan: You’d have to pay for the car and running costs using after-tax dollars, reducing the amount of money you have left for other expenses.
- Novated Lease: By paying for the car and running costs with pre-tax dollars, you could save thousands in tax over the life of the lease.
The exact savings will depend on your income, the type of vehicle you choose, and your driving habits, but employees using novated leases regularly report annual tax savings ranging from $2,000 to $5,000 or more.
Bundling Running Costs with Novated Car Leasing for Bigger Savings
One of the lesser-known benefits of novated leasing is that you can include the car’s running costs in the lease. This means you can salary package expenses like:
- Fuel
- Insurance
- Registration and CTP
- Servicing and maintenance
- Tyres
- Roadside assistance
Because these expenses are paid with pre-tax income, you’ll save even more. Bundling these costs into your novated lease not only simplifies your budget but also helps you avoid unexpected expenses. You’ll make consistent, predictable payments each month, which can help with personal cash flow.
Novated Car Leasing for All Income Levels
Novated leasing isn’t just for high-income earners. In fact, employees across a range of salary levels can benefit from the tax savings and convenience that novated leasing offers. Whether you’re earning $50,000 or $150,000 per year, the ability to reduce your taxable income and finance your car with pre-tax dollars can significantly improve your financial situation.
Plus, novated leases offer flexibility in the type of vehicle you choose, the lease term (typically 1 to 5 years), and your running cost budgets. This makes it a highly adaptable option for employees with different needs and lifestyles.
Flexibility at the End of the Lease
When your novated lease ends, you’ll have several flexible options to choose from:
- Upgrade to a New Car: You can sell the vehicle and use the proceeds to pay off the remaining lease balance (known as the residual value), then start a new novated lease with a different car.
- Buy the Car: If you’ve fallen in love with the car, you can pay off the residual value and own it outright.
- Extend the Lease: If you’re not ready to part ways with the car, you can extend the lease term and keep driving it for a few more years.
These flexible options ensure that you have control over your vehicle and your finances when the lease comes to an end.
Novated Car Leasing for Electric Vehicles
With Australia moving towards a greener future, novated leasing offers significant advantages for those interested in electric vehicles (EVs). Recent changes to Australian tax laws have made certain EVs exempt from Fringe Benefits Tax (FBT), meaning even greater savings for employees who opt for environmentally friendly cars. In addition to the pre-tax savings on your lease payments and running costs, you can avoid paying FBT on EVs that fall under the luxury car tax threshold.
This makes novated leasing one of the most affordable ways to drive an electric vehicle in Australia, while also contributing to reducing your carbon footprint.
Conclusion
Novated leasing is a powerful tool that can save you thousands of dollars on your next car purchase. By using pre-tax income to pay for your car and its running costs, you’ll not only reduce your taxable income but also enjoy the convenience of bundling all your vehicle-related expenses into one easy monthly payment.
Whether you’re looking for a petrol, diesel, or electric vehicle, novated leasing offers flexibility, financial savings, and peace of mind. If you’re ready to explore how much you can save, talk to your employer about offering novated leasing.
Contact One Car Group to calculate your potential savings on a novated lease and take the first step towards driving the car you’ve always wanted, while keeping more money in your pocket.
