Getting a car can be quite a challenge. It’s a big decision that can be difficult to budget for, especially if you’re focused on building your savings. However, there’s an option that can make it easier for you to get behind the wheel: a novated lease. So what is a novated lease? Basically, it’s an agreement between you, your employer, and a finance company that allows you to lease a car using your salary package. That means you can potentially save money on taxes and reduce your taxable income, all whilst driving the car of your choice.
An Alternative Way To Getting Your Dream Car
Before you begin the novated lease process you should have an idea of the car that you’re interested in. Ideally, you will know the make and model of the vehicle, and what options and accessories you’d like included. It can either be a new or a used car. Once you’ve decided on your car, you then need to think about how long you want to keep the car for, for example, three years. It is also important that you know approximately how many kilometres you think (or know) you will travel each year.
One important thing to remember is that at the end of the lease term, you don’t automatically own the car. The ATO stipulates that there must be a residual value at the end of the lease term. You have options at the end of the lease, whether it be to extend the lease, upgrade your car to a new lease or pay off the residual value and own the car.
A major benefit of a novated lease is that the financier can claim the GST on the purchase cost of the car therefore your lease payments are based on the GST free cost of the car. This results in some significant savings for you.
How Does A Novated Lease Work?
A good way to understand purchasing a car with a novated lease is to compare it to purchasing one using a traditional finance method, such as a personal loan. The difference between the two is that with a novated lease the repayments are from your employer via your salary package. Basically this means that you can use some of your pre-tax salary to pay for lease payments and the car running costs rather than paying all your financing and running costs from your after tax income.
Here’s an example of how the lease works: If the monthly repayments are calculated to be $300/ month for the car + $300/month for the car running costs, your total monthly salary deduction would be $600. Once the deductions occur from your pay, the net impact might be $450. The benefit to you is that you could have $150 more in your pocket even with your lease and car running costs covered.
How Do You Get a Novated Lease?
Now you know how a novated lease works and you have your dream car in mind, the next step is to speak with your Salary Packaging/Novated Leasing provider. Your employer should have a policy and provider in place so they can incentivise employees to work with them. If your employer doesn’t have a provider, you can reach out to a provider who’ll contact your employer to set up a program.
The provider will assist you in choosing the car most suitable to you and, in most cases, they can reach out to their supplier network for the best possible car price.
The Proposal
Once your workplace has a provider sorted, you should be able to get a novated lease proposal that will detail all the lease and car running costs, whether there is a tax benefit and what impact the lease will have on your take home pay. To provide an accurate proposal, you will need to provide your gross annual wage and how many kilometres you drive on average per year.
Once you receive your proposal, you may have a few questions specific to your quote, your situation and needs. Your provider should be able to answer any questions you have regardless of whether you think they are silly or not.
Accepting The Proposal
Once you’re happy with the proposal it’s time to sort the admin. You’ll need to supply a Novated Lease Application form, a signed Privacy Consent form as well as recent payslips and identification. Your provider will then submit an application to a selected financier and once approved they’ll take care of the arrangements with the supplier of the car. You will need to sign some documents and your employer will also need to sign one as well. Your provider will arrange all of these documents.
Buying a Used Vehicle
A car purchased with a novated lease can’t be older than 12 years at the end of the lease agreement. For example, you could lease a 9-year-old car on a 3-year lease. A car from a private seller is also an option however you need to remember that there is no GST that the financier can claim. You may find that a dealer is easier for you as dealing with individuals can be more complex.
The value in a novated lease is often in cars 1- 5 years old. If you had a dealer car with a sale price of $30k and a private seller car at $25k, there’s not much difference in the price once the financier claims the GST on the dealer price. In some cases, the price from the private seller might be a lot lower. Regardless of this, the vast majority of people choose to purchase through dealerships.
Whether you decide to buy privately or through a dealership, your provider should be able to help people who aren’t ‘car people’ find a car. When a car is new you can have help sourcing it and getting the best price possible. If it’s a private seller car, your provider should help you find the right model and avoid dodgy sellers.
Buying a Low Emission Vehicle
Low Emission Vehicles (LEV) are becoming increasingly popular. With some electric, plug-in hybrid electric and hydrogen cell vehicles, there is no fringe benefits tax and all deductions are pre-tax. This makes purchasing an LEV an even better choice. Now is a great time to lease one!
There are a lot of regulations around a novated lease on a LEV but your provider should be able to assist with all these so you don’t set something up incorrectly, which could have an adverse taxation impact on you.
Get Started With A Novated Lease
With a novated lease you can get your dream car and enjoy all the benefits of car ownership. The goal of salary packaging in general and a novated lease specifically is to use your income from your employer in a way that best suits your needs.
To get a novated lease, you need to find a reliable company that specialises in salary packaging and novated leases. Remember to think about the type of car that you’re after in advance of speaking with a provider.
Ready to get started with salary packaging and a novated lease? The Salary Packaging People are experts in both so contact us today to learn more about how we can help you get the car of your dreams. Get in touch with us here or call 03 5229 4200.