A new car and tax savings may seem like an unrealistic combination, but with a novated lease, it’s entirely possible. This popular financing option allows you to drive the car of your choice while bundling all your driving expenses and offering significant tax benefits. Here’s how a novated lease can help you achieve both.
What is a Novated Lease?
A novated lease is a type of car financing where you use salary sacrificing to make payments for your car directly from your pre-tax income. This arrangement not only simplifies your car-related expenses but also reduces your taxable income, potentially saving you thousands in taxes each year.
One of the key benefits of a novated lease is that there’s no need for an upfront deposit, and you can even save on GST. For cars with a drive-away price of up to $69,674, you may avoid GST altogether. For cars priced above this amount, GST is only applied to the portion over $69,674.
A novated lease bundles all your car expenses into one simple payment, covering:
- Fuel
- Registration
- Insurance
- Servicing
- Tyres
All these costs are managed through a single automatic payment deducted directly from your pay, making it easier to keep your car on the road without worrying about individual bills.
Tax Savings with a Novated Lease
What sets a novated lease apart from a regular car loan is the ability to make payments using your pre-tax salary, reducing your taxable income. This means you’ll likely pay less tax overall, which could result in substantial savings. In fact, it’s estimated that there are around 350,000 novated leases in Australia, demonstrating its popularity as a cost-effective car financing option.
For those interested in electric vehicles (EVs), the Government’s Electric Vehicle (EV) Discount initiative offers even greater savings. If you lease an eligible EV, the entire payment can be taken from your salary before tax, allowing you to save even more.
Who Can Benefit from a Novated Lease?
Novated leases were once considered perks exclusive to employees of large organisations, but that’s no longer the case. Today, employees of small-to-medium businesses can also take advantage of novated leases to enjoy the same tax benefits and convenience. This has made novated leases a popular choice for many Australians, regardless of their employer’s size.
What Happens at the End of the Lease?
A typical novated lease lasts between one to five years, and when the lease term ends, you have several options:
Make a final ‘balloon’ payment to purchase the car outright.
Extend the lease for a new term.
Return the car to the leasing company.
One of the biggest appeals of a novated lease is the ability to choose a new car at the end of the lease term. This is particularly attractive as car technology—especially for electric vehicles—continues to evolve rapidly. You’ll always have the option to drive the latest model that best suits your needs.
In addition to the tax savings, a novated lease offers the convenience of bundling all your car-related expenses, such as registration, insurance, servicing, and tyres, into one regular payment. This hassle-free approach simplifies your finances and ensures all your driving costs are covered