Novated leasing is a three-way agreement between an employee, their employer and a fleet or novated lease provider. The car and all the running costs are bundled into a monthly payment that’s deducted from pre-tax salary.
Adding a novated lease to your package offers many benefits, including great fleet discounts and GST savings, reduced taxable income and a single monthly payment for all car expenses. There are a few key things to consider between novated lease vs salary sacrifice difference before you make a decision.
Taxes
The main reason why salary sacrifice is so popular is because it gives you the freedom to drive a new car for about the same cost as a traditional car loan. The key difference is that the repayments are made using your pre-tax income – which increases your spending power and also helps reduce your taxable income. In addition, novated lease payments can also exclude GST, as your employer is eligible for an input tax credit. It means you’ll pay less in GST on your vehicle running costs and fuel, as well as getting fleet discounts on the car price.
Salary packaging a car via a novated lease can also offer savings on registration, insurance, tyres and other maintenance costs. These additional costs can be bundled into one payment that is deducted from your pre-tax wages, which makes it easy to manage budgets and track expenses.
Although a novated lease does give rise to fringe benefits tax (FBT) obligations, this is usually the responsibility of the employee and not the employer. The arrangement only lasts for as long as the employee is employed, and if you leave your job, the leasing arrangements end, and you regain ownership of the vehicle.
Insurance
If you’re looking to salary sacrifice your car, it’s important to know the difference between novated lease and salary sacrifice. Both have advantages, but novated leasing is an established form of car finance and has the full backing of the Australian Tax Office (ATO). It also offers significant tax and GST savings for employees.
A novated lease is a three-way agreement between you, your employer and the financier. It involves your employer making lease repayments to the finance company from part of your pre-tax wages. This arrangement also gives the employer a fringe benefits tax (FBT) liability.
But if you do your homework, you can find a novated lease provider who does a cracking good job of delivering GST-free cars and competitive interest rates. It’s also important to understand the other financial implications – and seek advice from an experienced financial adviser.
While novated leases are growing in popularity in Australia, they’re still not widely available. It’s worth checking with your employer to see if they offer this option – and if not, then lobby them to do so. It’s a great way to attract and retain staff and add value to your salary package. It’s also hassle-free for your employer, as the novated lease provider handles all the administration.
Maintenance
Novated leasing is one of the few fringe benefits available to salaried employees. It allows employees to avoid the GST, meaning they can get a brand-new car for just over half its purchase price. It represents a significant up-front saving, especially as many ongoing costs of owning and running a car, such as fuel, servicing, and insurance, are also bundled into the novated lease agreement.
In some cases, the novated leasing company’s bulk buying power and access to fleet discounts can significantly reduce these costs. It is a major advantage for employees, who can then enjoy GST savings on the car and its ongoing expenses, plus the convenience of having all their car costs rolled into one monthly payment.
While novated leasing is relatively new to Australia, it is growing in popularity. The key reason for this is that a novated lease is a zero-cost incentive for employers to reward their top-performing staff. It is important because more motivated and incentivised staff will produce better organisational results.
Finance
In figuring out the novated lease vs salary sacrifice difference, the finance part of the payment is deducted from your pre-tax salary, reducing your taxable income. It can save you thousands of dollars in taxes each year. You also get to use a car that is likely more fuel efficient than one you would pay for out of pocket, and it’s often cheaper to maintain because you’re not paying the whole cost upfront.
Novated leases are great for those who want to buy a new car but can’t afford it. They’re also a good option for those looking to minimise their carbon footprint. You can choose from a wide range of eco-friendly models, including hybrid and electric cars, which help reduce your impact on the environment.
Another advantage of a novated lease is that the monthly payments are fixed and include running costs based on annual kilometres, which makes it easier to budget. There are a number of innovative leasing calculators that will give you a rough idea of how much your repayments may be and how much you’ll save over the term of the agreement.
