Need a car?
For many of us, having access to our own vehicle is more than a nice-to-have, it’s an essential part of our lives and the jobs we do. However, there is more than just one way to get into a vehicle of your choice – aside from purchasing outright, getting a loan or entering a guaranteed future value (GFV) programme offered by a manufacturer, a novated lease may be just the ticket to getting you into the car you want, and benefiting from potential tax savings in the process.
So, what is a novated lease?
Think of it as bundling a vehicle into your pre-tax income with your employer. Your employer makes car repayments to a finance provider like Metro Finance for you from your pre-tax income, potentially reducing your own tax liability and saving you money. This is commonly known as salary sacrificing.
Both car loans and novated leases offer the potential to get into a new or used vehicle; however, unlike a typical car loan, your employer pays the finance provider directly, rather than you. You also can’t include running costs in a standard car loan, which you can with a novated lease.
Sounds great, how do I get one?
First things first, you need to talk to your employer about novated leasing and what options they may have available for employees – in most instances, new employees will need to complete their probation period before being able to access novated leasing if its offered. Check if there are any restrictions on the type of vehicle you can lease (either in terms of vehicle segment, or whether it’s a used or new vehicle) or its value; it’s also a good idea to talk to your accountant about how the potential lease may affect your future tax payments.
From there, if your employer offers novated leasing as an employee benefit, you would typically apply for approval via your employer, who would coordinate the lease on your behalf. Your employer will provide the finance provider with all the relevant info about you (such as income, any expenses and living circumstances), and you’ll probably need to complete a credit check – so best be aware of what your credit rating is before completing this step.
Once approved, your lease agreement between you, your employer and the finance provider is set-up, and is done before you buy a car (or have one purchased for you by the finance provider). The agreement will include things like lease duration, how many kilometres you intend to drive each year and, of course, the type of car you’re keen on buying.
What are the benefits of novated leasing?
In short: saving you money. Because your novated lease would be paid from your salary before tax, it could potentially reduce the amount of tax you have to pay. Another financial benefit is you don’t pay GST on the car you purchase, or its running costs – once again, potentially putting more money in your pocket.
The other big benefit is the flexibility of not owning the car outright (which you can still do by paying any agreed amount owing at the end of the lease term), and knowing how much it will cost you month-to-month with set payments.
All right then, what’s the downside?
Let’s be clear: a novated lease may not be the right option for some. Because you don’t own the vehicle in a novated lease, you may need to pay what’s left of the vehicle’s value if you decide to keep it at the end of the lease term; and there may be administration fees, interest and potentially fringe benefits tax (FBT) to pay.
The other drawback for some may be that a novated lease is tied to your employer, so if you lose your job or change employers, you may need to pay out the lease. However, in some instances you may be able to roll the lease over to your new employer and keep pre-tax payments going in your new role.
Anything else I should know?
It’s important to consider all your options when deciding on whether a novated lease is right for you. Talk to your employer and your accountant first to understand the pros and cons that relate specifically to your financial position before making any decisions.
