Discover the tax benefits of novated leasing. Save on your car lease with pre-tax deductions, GST savings, and running cost coverage. Learn more at Metro Finance.
Novated Leasing Tax Benefits: Everything You Need to Know
When it comes to getting into the car of your dreams, there are lots of different options to choose from. Whether it’s buying the car outright or through or a loan, or leasing it through a salary packing provider, choosing the right option for you will depend on your circumstances.
In this blog, we’ll take-a-look at the tax benefits of leasing a vehicle through novated leasing and explore a range of novated leasing tax benefits available.
What is Novated Leasing?
A novated lease, arranged through a salary packaging provider, allows employees to drive the car they want while maximizing their tax savings.
The salary packager facilitates a seamless three-way agreement between the employee, their employer, and a financier like Metro Finance, with lease payments deducted from the employee’s pre-tax income.
Employees can enjoy the benefits of a new or used vehicle on a novated lease, while reducing their taxable income. Thanks to some vehicle leasing tax benefits it is for this reason that makes salary packaging a smart and cost-effective way to drive for many.
How Novated Leasing Provides Tax Benefits
There are lots of novated lease tax benefits, so let’s talk about some of the most significant:
1.
As we’ve discussed, the biggest novated lease savings come in the form of reducing an employee’s pre-tax income, thereby reducing the amount of tax they have to pay.
For example, an employee who bought a new or used vehicle either outright or via a loan would need to pay all related expenses, including any loan repayments, plus ongoing vehicle running costs from their income after tax; whereas with a novated lease these expenses are deducted from the employee’s salary before it is taxed – thereby reducing the amount of income they are taxed, and netting more money in the employee’s pocket in the form of tax savings.
2.
Another key feature of novated leasing is the exclusion of Goods and Services Tax (GST) on the vehicle’s purchase price, thereby reducing the overall outlay for the vehicle and ultimately the lease payments.
This also applies to the vehicle’s running costs – once again, savings from GST exemptions can reduce monthly lease payment amounts.
3.
Unlike an outright purchase or loan, a novated lease bundles all the vehicle’s running costs, including registration, insurance, maintenance and fuelling, into one monthly pre-tax lease payment, providing consistency to expected cashflow, and taking care of all future vehicle expenses up-front.
Who Can Benefit from a Novated Lease?
While there are lots of different people who utilise novated leasing to maximise their tax benefits, ultimately they all have to be employees with a company that offers novated leasing through a salary packager.
Each employer may have their own requirements for who can access their novated leasing program, such as seniority or tenure, but most novated lease applications will be assessed by a salary package provider based on certain eligibility criteria, including employment status, salary and any other financial liabilities an employee may have that might impact their ability to make ongoing lease payments.
From an employer perspective, novated leasing is a great way to incentivise staff and retain top talent, while also benefiting from a range of tax benefits similar to employees. Metro can support employers in partnering with a salary packaging provider to suit their specific business needs – why not start a conversation now?
Novated Leasing vs Other Leasing Options
Just as there are differences between novated leasing and vehicle finance, there are differences between a novated lease and a traditional lease too.
The big difference between the two is how the lease is structured, and what that means for an employee.
A novated lease is a three-party agreement between an employee, their employer and a salary packager, where an employer makes lease payments on behalf of the employee from their pre-tax income, whereas a traditional lease is a two-party agreement between and employee and a financier, with lease payments made from the employee’s income after tax.
Naturally, in the case of a traditional lease, as payments are made from the employee’s income after tax it doesn’t attract the same tax benefits and savings as a novated lease. The other big difference is that the vehicle’s running costs are usually not included in traditional lease payments – meaning more ongoing costs from the employee’s after-tax income.
FAQs About Novated Leasing Tax Benefits
How much can I save with a novated lease?
That depends on a number of factors including the type of vehicle and the terms of the lease. Talk to your accountant, employer and/or a salary packager to understand the potential tax benefits of leasing a car as they may apply to you.
What happens if I change jobs?
You may need to renegotiate your lease if you change jobs and may need to pay additional fees and charges if you need to cancel your lease early. It’s important to understand the terms of a novated lease and any potential additional costs, before completing an application.
Can I include used cars in a novated lease?
Yes. There may be certain requirements for the vehicle regarding age, condition and kilometres, but most novated leases are available for both new and used vehicles.
Can I lease more than one vehicle?
Yes. Depending on the salary package offered by your employer and salary packaging provider, you may be able to lease additional vehicles for your immediate family. Whether you lease one vehicle or multiple, all lease payments including vehicle running costs are bundled into one monthly payment.
Who owns the vehicle at the end of a novated lease?
Unlike a vehicle loan or outright purchase, the vehicle is bought by the salary packager who retains ownership. At the end of a novated lease term, an employee may have the option to purchase the vehicle from the salary packager, however in most instances the employee simply starts a new lease with a new vehicle of their choosing.
Conclusion
A novated lease is a popular way for employees to get into the car of their choice while enjoying a range of tax benefits and savings via one, consistent all-inclusive monthly payment that takes care of virtually everything.
With any financial product, it’s always a good idea to do your homework and research different options that might be right for you.
To find out more about novated leasing with Metro or to start a conversation with one of our friendly brokers, click here.