Novated leases are easily one of the most cost-effective ways to buy a car in Australia. By striking up a deal between you, your employer, and your financier, you can easily save thousands of dollars over the course of your lease. With the help of your employer, the right salary package–and some careful budgeting–your new car will be less of a financial burden and more of a smart financial choice. With a novated lease you can choose your car, work within your budget, and get more out of your salary.
Once you’ve chosen your car, done your research and made a deal with your financier and your employer, you save money on your car, your maintenance, and increase your take-home salary. You save because you don’t pay GST on your car, you don’t pay GST on your monthly payments, and you don’t pay tax on your car maintenance and running costs.
These savings add up, but they can also be increased or decreased depending on how your employer packages your salary.
Unfortunately, if your employer doesn’t offer salary packaging, you won’t be able to apply for a novated lease. If your employer does provide salary packaging, however, there are different types of salary packaging which your employer may offer.
Your savings will vary somewhat depending on whether you negotiate a Fringe Benefits Tax (FBT) or an Employee Contribution Method (ECM).
Using the FBT salary packaging method, your car payments are deducted before your tax deduction, ensuring you pay less on tax and increasing your take-home salary. This method also offers a flat rate regardless of your annual mileage. Your FBT might be payable using the employee contribution method.
With an ECM, you can manage your FBT liability. This method enables you to make a portion of your lease payments from your post-tax earnings rather than having the full lease payment deducted from your pre-tax salary. This method eliminates–or at least reduces–any payable FBT so that you can save even more money on your novated lease.
Depending on the period you choose to pay your lease over, you will have paid two-thirds of your lease at the end of your two-to-five-year period. The balance of the lease is payable through a residual payment, also known as a balloon payment. You can trade your car in, and any profit made on the sale is yours to cover this cost. The only precaution you need to take is ensuring your vehicle retains enough of its value to cover this residual payment–or even exceed it.
With a novated lease, the Australian government allows you to buy a car with massive tax breaks so that you can save money and get around in a maintained and reliable car. To calculate your savings, get an instant quote. For more information or to get your novated lease, chat to our Fingo team today.