Traditionally, few people expect to save money when they get a new car. Beyond the leasing costs, there are running expenses to consider, such as fuel, servicing, insurance, and registration. Unsurprisingly, these costs quickly add up, with both administrative tasks and expenses eating into your budget.
What if we told you there’s a better way? What if you could cover all these expenses in one go and pay less in the long run?
Introducing your new secret weapon: the Novated Lease.
Curious About Novated Leases? Here’s What You Need to Know
A novated lease is a type of “salary sacrifice” arrangement with your employer that allows you to bundle your vehicle expenses and have them deducted directly from your pre-tax income. This means you effectively reduce your taxable salary, cover your car costs in one go, and pay less income tax overall.
For example, if your pre-tax salary is $70,000 per year and your car payments total $10,000 per year, your taxable salary would be reduced to $60,000. Consequently, you would pay less income tax.
Given the current stagnation in wages across the country, it's no surprise that 5% of Australia's new car market was supported through novated leases in 2022, and this figure continues to rise.
Your First Step
The first step? Falling in love at first sight. You’re at a car dealership and you find the car of your dreams—whether it’s new or used. You feel a connection and want to take it for a spin to see if it’s the real thing. Here’s how the process typically unfolds:
- Choose Your Car: Identify the new or used car you want to buy or lease. You can do this in person at a dealership or online through virtual platforms like carbar.
- Consult the Experts: Speak with a bank or other financing institution to understand your savings potential. Additionally, consult a novated leasing expert (like us!) who can provide you with a free, no-commitment quote within the same day.
- Finalise the Agreement: Enter into a three-way agreement involving yourself, your employer, and your financing institution. This agreement will arrange for lease repayments to be covered by your pre-tax salary.
- Enjoy Your Car: Your employer will handle the lease and running costs on your behalf, deducting these payments from your pre-tax salary each month.
Novated Lease Advantages: Beyond Just Cost Savings
Saving time and money are the most obvious benefits of entering a novated lease. You pay less tax, consolidate your car expenses into one convenient arrangement, and get to drive the car you want. But there are also several less obvious advantages to this leasing option:
No GST Payments: You don’t have to pay Goods and Services Tax (GST) separately, as it’s covered by your financing institution. Your financial provider claims an input tax credit for the GST, which is a levy paid by businesses on acquired goods and services.
Personal Use: A novated lease allows you to use your car for both personal and business purposes, with no requirement to restrict it to business use only.
Reduced Default Risk: Lenders often view novated leases as lower risk because lease payments are deducted directly from your salary by your employer, reducing the risk of default.
Employer Benefits: For employers, managing a fleet of cars is simplified since the employee takes the car and lease obligations with them if they leave the company, avoiding the hassle of managing company vehicles.
End of a Novated Lease: What Happens Next?
The flexibility of a novated lease doesn’t stop when the lease term ends. You have several options:
Buy the Car: You can choose to pay off the remaining balance to own the car outright.
Refinance: If you prefer not to purchase the car, you can refinance the residual value to continue using it.
Trade-In: If you’re ready for a new model, you can trade in your current car and enter into a new novated lease arrangement for a different vehicle.
Are you ready to drive the best cars the smart way with carbar, or do you have more questions? Call us at 1-300-620-684 or email us today.
