Novated leasing celebrated its 35th birthday in 2021. However 2022 turned out to be a more significant year when the Electric Car Discount Bill was introduced to make EVs, and PHEVs exempt from FBT. The move is designed to encourage the transition to low and zero emission vehicles in businesses and because of the way novated leasing works, it significantly changed the benefits and savings available when you salary package an electric car.
Salary packaging saves you money.
When you participate in salary packaging, you’re paying for items from your pre-tax salary. This reduces your taxable income and the amount of tax you pay – putting more in your pocket each month!
When you salary package a car it’s also called novated leasing. With a novated lease, most people can save money when buying a new car compared to using cash or a redraw from their home loan. It may sound complicated, though once you do some research you’ll be amazed at how much you can save.
Why is it called a novated lease?
Novated is a fancy term that is popular in legal circles. It refers to the tri-party arrangement between you, your employer and the leasing company. It’s also called salary packaging because you are including the purchase and running costs of a car in your total remuneration package.
What’s included in the monthly rental?
Everything! The figure looks high at first because it includes fuel, maintenance, tyres, depreciation, annual rego, insurance and the finance costs. It’s like a budget so when the rego is due, or a major service, you’ll have the money ready and won’t suffer from financial anxiety.
While the monthly rental is important, the main thing to look at is the amount of money that will hit your bank account each payday. The ‘out of pocket expense’ will be less compared to using cash or another finance method to buy a new car. For some people, they get a new car and pay rise.
Can I source my own car?
Yes. The supply of new cars was tight in 2023 and some models are still hard to get. If you know the car you want and can find one, the novated leasing company will be able to arrange everything else. With long wait times on some models, this may be the fastest way to get a new car in 2024.
Can I lease a second-hand car?
Yes. You’ll need to check with your company and the preferred provider because there may be limits on age or kilometres. You can even use your existing car and get the benefits of salary packaging.
What happens at the end of a novated lease?
There are three options:
- Sell the car privately and pay the residual value. (A great way to get into a new car and maximise the sale value of your old car.)
- Pay out the residual value and keep the car. (If you love it, why not keep it?)
- Pick a new car and get the dealer to take your old car as a trade-in. (This is the easiest option though you’ll still need to pay out the residual value on the lease.)