Novated Lease for Business Owners – Tax Savings Guide

As a small business owner or self-employed professional, managing expenses is key to maintaining profitability. When it comes to vehicle financing, many business owners assume their only options are traditional car loans or chattel mortgages. But did you know that novated leasing can offer significant tax advantages and cost savings, even if you’re self-employed or running a small business?

In this guide, we’ll break down everything you need to know about novated leasing for small business owners, including how it works, the benefits it offers, and how to get started.

What is Novated Leasing?

Novated leasing is a type of vehicle financing arrangement that allows you to package your car lease payments and running costs (fuel, insurance, maintenance) through your pre-tax salary. Typically used by salaried employees, novated leasing is also a powerful option for small business owners and the self-employed who pay themselves a wage.

In a novated lease, there are three parties involved:

1. The Employee (You): The person driving and leasing the car.
2. The Employer (Your Business): Facilitates the salary deductions for the lease payments and running costs.
3. The Finance Provider: Manages the lease and payments for the vehicle and its associated expenses.

For small business owners, this arrangement allows you to enjoy the benefits of salary packaging while still claiming tax deductions for any business-related use of the vehicle.

Why Should Small Business Owners Consider Novated Leasing?

Novated leasing isn’t just for employees—it’s an excellent choice for small business owners and self-employed professionals. Here’s why:

1. Tax Advantages

By paying for your vehicle and its running costs with pre-tax income, you reduce your taxable salary, which can result in substantial tax savings. This is especially beneficial if your personal income tax rate is higher than your company’s tax rate.

2. Lower GST Costs

When you lease a car through a novated lease, the finance provider typically claims the GST on the purchase price of the vehicle, meaning you avoid paying GST upfront. Additionally, running costs like fuel, servicing, and insurance are paid GST-free, further reducing your expenses.

3. Bundled Running Costs

Novated leasing allows you to bundle all vehicle-related expenses—such as fuel, maintenance, insurance, and registration—into a single monthly payment, making budgeting easier.

4. Flexibility

You can choose any vehicle (new or used) that suits your business and personal needs, and customise your lease term (1–5 years). At the end of the lease, you have the option to buy the car, trade it in for a new one, or return it.

5. No Impact on Cash Flow

Unlike purchasing a car outright, novated leasing spreads the cost over the lease term, preserving your business cash flow for other expenses.

6. Personal and Business Use

Novated leasing is perfect for vehicles used for both personal and business purposes. You can claim deductions for the business use percentage, while still enjoying the personal benefits of salary packaging.

How Does Novated Leasing Work for Small Business Owners?

As a small business owner, here’s how novated leasing typically works:

Step 1: Pay Yourself a Salary

To access the benefits of novated leasing, you need to pay yourself a salary or wage. This allows your business to act as the “employer” in the lease arrangement.

Step 2: Choose a Car

Select a vehicle that fits your needs and budget. This can be a new or used car, and you can also consider electric vehicles (EVs), which offer additional tax benefits.

Step 3: Set Up the Lease

Work with a novated leasing provider, like One Car Group, to establish the lease. The provider will calculate your pre-tax deductions based on the car’s lease payments and estimated running costs.

Step 4: Bundle Running Costs

Include expenses like fuel, maintenance, tyres, insurance, and registration in the lease. These costs will be deducted from your pre-tax salary.

Step 5: Claim Business Use Deductions

If the car is used for business purposes, you can claim the business use percentage of the expenses as a deduction on your business tax return. For example, if you use the car 60% for business and 40% for personal use, you can deduct 60% of the running costs.

Step 6: Enjoy Savings and Flexibility

Make monthly payments through your payroll, save on taxes, and enjoy the convenience of bundled car costs.

Tax Benefits of Novated Leasing for Small Business Owners

The tax advantages of novated leasing make it particularly appealing for small business owners. Here’s a closer look at the savings you can expect:

1. Reduced Taxable Income

Salary packaging reduces your taxable salary, lowering the amount of income tax you pay.

2. Business Use Deductions

You can claim the business use percentage of the car’s running costs as a tax deduction, giving you additional savings.

3. GST-Free Payments

You avoid paying GST on the car purchase price and running costs, as these are handled by the finance provider.

4. FBT Exemptions for EVs

If you lease an electric vehicle (EV) under the luxury car tax threshold, it may be exempt from Fringe Benefits Tax (FBT), further increasing your savings.

What Happens at the End of the Lease?

At the end of your lease term, you have three flexible options:

1. Purchase the Car: Pay the residual value and own the car outright.
2. Upgrade to a New Vehicle: Trade in the car and start a new novated lease.
3. Return the Car: Hand back the car and walk away from the lease.

These options give you the freedom to decide what works best for your business and personal needs.

Novated Leasing vs. Other Financing Options

How does novated leasing compare to other common financing methods?

For small business owners who use their car for both personal and business purposes, novated leasing offers the most flexibility and tax efficiency.

Why Choose One Car Group for Novated Leasing?

One Car Group specialises in helping small business owners and self-employed professionals maximise the benefits of novated leasing. Here’s why they’re the go-to provider:

• Tailored Solutions: Customised lease options to suit your specific business needs.
• Comprehensive Service: From vehicle selection to managing running costs, they handle it all.
• Expert Guidance: Assistance with tax planning and maximising deductions for business use.

Conclusion

Novated leasing is an excellent option for small business owners and self-employed professionals looking to save money, streamline vehicle expenses, and enjoy the flexibility of both personal and business use. By leveraging tax advantages, bundling running costs, and preserving cash flow, you can focus on growing your business while driving the car you need.

Ready to explore novated leasing for your business? Contact One Car Group today for a free consultation and see how much you can save.