Believe us when we say novated leasing is a good thing, but there is a lot of misinformation out there on how they work. Here, we bust some of the most common myths about novated leasing and explore the reasons why they are so beneficial.
1. Leases are expensive
It’s quite the opposite. Novated leasing saves you money in many ways. If you finance a new car through a novated lease arrangement, you won’t pay GST. This can save you thousands of dollars upfront. Better yet, your novated lease can be structured so all your car running costs are bundled into one pay deduction. This includes costs such as fuel, maintenance and even insurance. The deduction amounts are calculated using a combination of your pre-tax and after-tax income, so you are saving on tax and will pay less tax on your take-home income.
2. It’s only available on new cars
You can choose a used car and even if you have a loan arrangement on your current car, you can have a novated lease. By switching, you’ll save more on your repayments and everyday running costs. Your salary packaging provider will work with your employer and financier to structure your lease so it is the most beneficial for your situation. There is a limit on the age of the car you can have on a novated lease which is usually no more than 10 years old at the end of the lease. After that length of time you are most likely to want to change your car anyway.
3. I still have to pay running costs on top
Unfortunately, no-one gets out of paying running costs for a car, but a novated lease can ensure you pay a lot less for them. Because your running costs such as registration, fuel, servicing, maintenance, insurance, roadside assistance and even carwashing can be included in your deduction amount, you’ll save a bundle. Also, by having already had these costs deducted, you won’t put off having your car serviced or replacing the tyres, so your car will be safer for you and your family. You also won’t be paying lots of different parties to maintain and insure your car – this saves you time and hassle as well.
4. I won’t own the car
The car is yours as long as you make the repayments, just as a house deed is yours as long as you keep up mortgage repayments. Some people get confused by the term ‘lease’. The leasing terminology simply refers to the financial arrangement between yourself, your employer and the financier. At the end of your novated lease, you’ll have a range of options to finalise it. You can pay the residual amount and own the car outright, refinance and extend the lease, sell the car, pay the residual amount and start a new lease or trade the car in. Your salary packaging provider can help you decide what’s best for you.
5. I must use the car for business purposes
Not true. While there used to be mandates on car leases that required you to drive a certain number of business-related kilometres, these stipulations are long gone. Your novated lease car may be used as part of a business arrangement set up through your employer, or it could simply be your own personal use car. Either way, novated lease cars have the potential to save you and your employer a whole range of car-related expenses. Also, you get the car you want that suits your needs, not your employer’s.
6. It’s all too complicated
Novated leases can be complex in their calculations and initial setup, but let your salary packaging provider and employer worry about this. Novated leasing is a benefit your employer extends to you as a reward for your hard work. If you decide you want a novated lease on your new wheels or your existing car, the paperwork will be done for you and will just require your agreement. Your repayment amount will also be automated to come directly from your income every pay.
Curious? Let’s chat?
At The Salary Packaging People, we’ve negotiated thousands of novated lease arrangements across a range of cars. Contact us or call 03 5229 4200.