Novated leases have undergone significant changes, eliminating the requirement to reach minimum kilometres, allowing for greater flexibility and convenience for leaseholders. So, it doesn't matter how much you drive per year, you can still save money. The only thing that kilometres impact is your running cost, budgets for fuel, and servicing.
What is a novated lease?
A novated lease, or 'salary sacrificing for a car' is an arrangement between you, your employer, and a financier for a period of time, usually between one and five years. If your employer offers this benefit, they will make lease payments on your behalf for a car using your pre-tax salary.
If you decide to opt for a novated lease, some providers will take care of everything for you — from finding and sourcing the car, helping you apply for finance, to buying your car and having it delivered. They will also manage the arrangement with you and your employer, making the process as easy as possible. And when you come to the end of your lease, you have several options available to you through your provider.
How novated leasing works
Agreement
You select a vehicle of your choice and enter a novated lease agreement with the finance company.
Salary sacrifice
Your employer agrees to make regular deductions from the employee's pre-tax salary to cover the lease payments, as well as other vehicle-related expenses such as fuel, insurance, and maintenance.
Responsibility
You are responsible for the vehicle and all associated costs, including registration, insurance, and maintenance. You will have full use of the vehicle for both work and personal purposes.
Tax benefits
One of the main advantages of a novated lease is the tax savings it offers. By salary sacrificing, you reduce your taxable income, which can result in lower income tax payments. This can lead to significant savings over the lease term.
Flexibility
Unlike traditional car loans, a novated lease is not tied to a specific employer. If you change jobs, you have the option to transfer the lease to your new employer, subject to their approval. Alternatively, you can choose to continue the lease payments or pay off the remaining balance and own the vehicle outright.
End of lease options
At the end of the lease term, you have several options. You can choose to upgrade to a new vehicle and enter a new novated lease, extend the lease term, or return the vehicle to the finance company. If you decide to return the vehicle, you may be required to pay any outstanding costs or fees.
Unlocking the benefits of electric vehicles
Novated leases are also available for those wanting to purchase electric or hybrid vehicles and the tax treatment is different. Eligible electric vehicles and plug-in hybrids are now exempt from the 47% fringe benefits tax, but only if provided through a novated lease. The vehicle must be priced below the luxury car tax threshold for fuel-efficient vehicles, which is currently $91,387 for financial year 2024-25.
So, if you're in the market for a new car, consider a novated lease and speak to your employer. It's a convenient and cost-effective way to get the car you want while enjoying the benefits of being able to pay for part or all your vehicle via salary sacrificing. It's important to note that novated leases are typically only available to employees who receive a salary package or have access to salary sacrificing arrangements. Additionally, the vehicle must meet certain eligibility criteria set by the finance company and the Australian Taxation Office.
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