We cover everything you need to know about Novated Leasing so you can get the most out of this amazing tax reducing way to buy a car. We have gone easy on the fluff and big on the detail so you can cut to the chase and understand Novated Leasing today.
Novated Leasing is one of the most powerful financial products available to everyday Australians. If someone said to you, you can save money on your car, pay less tax and consolidate all of your running costs into one payment, what would you say?
You would say, where do I sign!?
That is indeed what a Novated Lease can do for you when you are buying a new or used car however because it can be a little confusing sometimes, people can still be hesitant to use this method to get their next car.
We are changing that! You are now in the best place for absolutely everything you need to know about Novated Leasing. If after reading this guide you still have some questions, make sure you just fill out one of our forms and one of our team can help you out.
Don’t forget! Getting a quote is free and our consultants will be able to make a bespoke quote based on your exact situation so you can see how saving dollars with a Novated Lease makes a lot of sense! (Great pun)
A Novated Lease is a product that has been designed to help make buying a car easier and cheaper. It is a unique employee benefit and is available to just about anyone who is a PAYG employee in Australia.
At its core, it is a three way agreement between you (employee), your employer and a finance/leasing company. To put it incredibly simply, you drive the car, you fill it up with petrol and keep it serviced. Your leasing company makes the payments to the bank, for your fuel and to the mechanic from money that is paid by your employer directly from your salary.
It is commonly called “salary sacrificing” because you pay for it with deductions directly from your salary via your employer hence you are sacrificing some of your salary to pay for your car.
As mentioned earlier, a novated lease is a three way agreement between you (employee) your employer and a leasing provider.
You set up the novated lease with the leasing provider, pick a car, set all of your budgets and get approved for finance. Then, your employer pays the novated leasing provider on your behalf based on what you have agreed with your novated provider.
The novated leasing provider then pays your lease and keeps money for you to spend on the budgeted items like servicing and fuel.
It is that simple!
The benefits of a Novated Lease are vast and exist for both employees (who have the lease) and employers (who pay the lease). We will cover off many in much more detail in the rest of this article however, some highlights are:
No. Novated leases aren’t just for big dog executives, anyone that is a PAYG employee can get a novated lease. If you an employee paying tax, then you should consider a novated lease
Just about anything as long as it is a passenger vehicle.
Generally, it just can be older than 12 years at the end of the novated lease term. As an example, if you want to buy a 7 year old car, you could do a 5 year novated lease. If you want to buy a 10 year old car, you could only get a 2 year novated lease.
And what is that you are saying? You can novate a car you already own? Whaaaaa? Yes! You read that right. Even if you already own the car, you can do a sale and lease back agreement meaning you can lease an existing car.
If you are an employee, working in Australia, paying tax you can get a novated lease! Even if you are self-employed but pay yourself as an employee you can get a novated lease you will just need to provide more paperwork.
A novated lease is a financial product so you do have to get approved by the finance company providing the lease aspect but that is just like any other financial product. They are all a bit different on how they do it but it is pretty straightforward.
One of the best parts of a novated lease is the GST benefit when you are buying a new car. GST is a lot of money, 10% of a car is a big number! It is factored in when you get drive away pricing from a dealer but imagine if you didn’t have to pay it.
Well, with a novated lease when you buy a new car you don’t! Plus, you don’t pay GST on your servicing, repairds or fuel.
I can hear what you are thinking, that is too good to be true! But it isn’t. It is just how a novated lease works.
When you drive around in your brand new car on a novated lease, you can confidently know you are 10% better off straight off the showroom floor.
No. We don’t want to overcomplicate this because once upon time things were a bit different but these days there are no, zero, silch, nada, zip minimums when it comes to kms driven.
Drive a lot, great! Drive a little, no problem!
All novated leases will have a residual value at the end of the term. A residual value is a portion of the finance that is not paid down during the term and due at the end of the lease. The ATO has set residual values that most novated leasing companies follow exactly. We have written an extensive article on residual values and balloons on novated leases.
Just to be clear, residuals and balloons are exactly the same thing. Residual value is the correct term and balloon is just jargon so car dealers can understand 😉.
At the end of a novated lease there are quite a few options available at the end of the term which means you have a large amount of flexibility.
You can simply pay out what you owe on your residual amount and then keep it!
You can sell it on the private market and see if you can flip it for a profit. If you get your numbers right you can sometimes turn a tidy little profit.
Plus, if you do sell it for a profit, guess what! The profit is tax free! Any capital gains made on the sale of a car (so long as you aren’t a car dealer) and 100% yours to keep. No tax, no nothing. Just cash money to spend on whatever you want.
A very common solution is to trade in your existing vehicle and get another one on a new novated lease. They need to be treated as separate transactions however your leasing company will be able to help you out plus car dealers deal with novated leases all the time so they know what’s up.
Still love it but your novated lease term is up? As long as the car isn’t too old at the end of your first novated lease, you can just roll it into a new one! Lots of people don’t know about this one but if you still love it and don’t want to get another car, just re-novate and keep getting the benefits flowing.
Lots of novated leasing providers will offer a “hand back” or “buy back” product. It is generally an insurance product of sorts and it means at the end of the term you can just hand the car back and walk away. Generally they are optional and if you don’t want to hand it back and would prefer to exercise one of the other options above you can.
Just make sure if you do want this, talk to your novated leasing provider before you get your lease.
Simply park, leave the keys in it if you like and fly away! The easiest way to end your novated lease. We are joking however don’t forget to do something! All of the options are very easy, you just don’t want to be rushing at the end of the term to try and decide what you want to do. Speak to your leasing provider towards the end of your lease to discuss options and you will have plenty of time to make the decision that suits you.
Firstly, if you get a novated lease it is a condition of the lease that you maintain comprehensive car insurance. A lease is a financial product and they just want to make sure their money is protected while you have the lease.
Depending on your novated leasing provider there are a few ways that it can work; however, you budget in your expenses like insurance when you first do your lease so that the amount that is taken from your wages each paycheck, can cover your insurance.
You will often read things like “Fully Maintained Novated Lease”. All this means is that everything to run your vehicle is factored in. All of your running costs and fuel will be factored into your budget and your novated leasing company will manage those expenses for you.
A fuel card is a card linked directly to your account and means when you spend money on fuel, it will be attributed to your novated lease and its budgets. Again, every novated leasing provider works a bit differently, some will have arrangements to go to specific service stations, some won’t. Just make sure you ask before you commit to a provider so you know you are happy with how they do things.
Your budgets for running costs can be factored in to cover things like:
When you first set up your lease, your leasing provider will help you set these to make sure they are as accurate as possible. They are projected over the course of the year and taken out incrementally to cover the costs over the course of your novated lease.
To be incredibly clear, novated leases are not designed to be broken. You can 100% exit your lease early however, you will need to payout the financial element of the lease and depending on the lender, this will mean the principal owing plus some and/or all of the outstanding interest component. It isn’t the end of the world but it just isn’t the best option when it comes to increasing your savings.
Congratulations! You have a new exciting job and it is time to ditch your old gig and move onto your new employer. Then you think, what about my novated lease!
Never fear, in most cases you can just transfer your lease to your new employer. Remembering how a novated lease works, one of the key parties is your employer as they need to pay the leasing company from your wages. So all that you need to do is speak to your new employer (HR is generally a good start for larger businesses) and they will be able to help you out.
Some will allow you to continue using your existing provider, some will want you to transfer the lease to the novated company they use.
If you are concerned, it is good practice just to ask in advance. Novated leasing is very common and HR or whoever does payroll will know exactly what they normally do.
Novated leasing is designed for passenger vehicles given it is an employee benefit. This does mean you can still get a ute you just need to make sure the payload is less than 1 tonne. The payload is how much a vehicle can legally carry as a load.
The government legislation actually says, “a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers” but don’t over think this one. Just ask your novated provider about the vehicles you are thinking about and they will be able to tell you straight away.
In the blue corner, we have the novated lease, GST free, all servicing included, fuel made easy and packing a right gst free hook that no opponent can hide from.
In the red corner we have the simplistic car loan, easy and straightforward with very few benefits outside of allowing you to buy a vehicle.
While getting a new car isn’t a boxing match, it can sure feel like one sometimes with so many different options coming at you from every direction.
When you consider a Novated Lease VS a car loan there is alot to consider however from a pure dollar for dollar, the novated will nearly always come out in front. Their inherent value with extensive tax savings means you really can’t compare the two from a pure financial perspective. We have created the table below to try and give you some insight into the varying features and benefits of both.
FBT or fringe benefits tax is applied to anything you received from your employer that isn’t in the form of cash or wages. Thus, it applies to a Novated Lease.
We have covered this one off in detail in our article FBT and Novated Leases but it isn’t anything you should worry about. Your novated leasing company should be an expert and be able to provide your employer with a breakdown of how to pay so they pay the right amount pre and post tax.
If you lose your job while you have your novated lease it will be “de-novated”. What that means is, the running costs and budget element will be removed and you will be required to pay out the lease or keep paying the monthly lease payments until you get a new job and you can “re-novate” it.
Some frequently asked questions from our customers.
A Novated Lease is a three way agreement between you, your employer and a financer/leasing company that enables you to pay for your car and all of your running expenses directly out of your salary. There are thus vast tax benefits associated with a Novated Lease.
No! One of the best benefits of a novated lease is that you don’t pay GST on the purchase of your vehicle or any running costs. An instant saving of 10%.
Just about anything! New, used, a vehicle you already own can even be put on a novated lease. There are some restrictions around age and payload so just ask your provider before you buy.
Yes! As long as your earnings support the additional payments you can have multiple novated leases in your name.
Request a free quote and see what a novated lease will save you on your next car!