If you’re an employee considering how to finance a new vehicle, a novated lease could be a flexible and tax-effective solution worth exploring. At Residential Lending Group, our team specialises in helping clients navigate vehicle finance options, including novated leases, to find the best fit for their individual circumstances.
What is a Novated Lease?
A novated lease is a three-way agreement between you (the employee), your employer, and a finance company. It allows you to lease a vehicle, with your employer making lease payments directly from your pre-tax salary. This salary packaging arrangement can reduce your taxable income and potentially provide tax savings.
How Does a Novated Lease Work?
- Lease Agreement: You choose the vehicle and enter into a lease agreement with the finance company.
- Novation Agreement: Your employer agrees to take on the lease obligations and deduct payments from your salary.
- Salary Packaging: Lease payments (which may include running costs like fuel, maintenance, insurance, and registration) are deducted from your pre-tax salary, reducing your taxable income.
At the end of the lease term, you typically have options to purchase the vehicle, refinance, or return it.
Benefits of a Novated Lease
- Tax Efficiency: Payments made from your pre-tax salary can reduce your taxable income.
- Convenience: Running costs are bundled into the lease payments, simplifying budgeting.
- Flexibility: Options to upgrade or change vehicles at lease end.
- No GST on Purchase Price: You may be able to claim GST benefits through the lease structure.
What Should You Consider?
- Employment Status: Novated leases require employer participation and salary packaging arrangements.
- Lease Costs: Understand all costs involved, including any fees and residual values.
- Lifestyle Fit: Ensure the lease terms and vehicle choice suit your personal and financial situation.
- Tax Implications: Speak with a tax professional if unsure about how salary packaging affects your tax.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Lending criteria, terms, and conditions apply. Eligibility and loan terms vary between lenders. You should seek personalised advice from a qualified mortgage broker or financial adviser before making any borrowing decisions.