There’s pressure on the household budgets thanks to rising interest rates and price increases on everyday items. If you’re looking for a way to find some extra money each month, maybe consider getting a new car with a novated lease.
Yes, buying a new car can help you save money! How? By using a salary sacrifice arrangement to pay for your car before you pay tax.
The Australian Tax Office website describes it like this;
“Salary sacrificing is also known as salary packaging or total remuneration packaging. You and your employer agree for you to receive less income before tax and in return your employer pays for certain benefits of similar value for you. This means you pay less tax on your income. A salary sacrifice arrangement reduces your taxable income, meaning you may pay less tax on your income.”
There’s also an example showing how the amount of cash you take home each year increases by salary sacrificing a car. It spells out that someone earning $65,000 per year can take home an extra $149 per month when they purchase a $35,000 car.
What is novated leasing?
Salary packaging a car is also called novated leasing. It’s when you finance the purchase of a car through an approved provider and there’s an agreement between you and your employer to make the repayments.
Novated leasing is popular as an employee benefit with health, education and other government agencies. Large organisations also offer novated leasing as a benefit to attract and retain staff. Any sized organisation can offer it to their staff and providers like Novated Lease Australia can help smaller companies set it up quickly and easily.
First steps
The first step is decide on the type of car you would like to buy (small hatch, SUV, EV). Once you have an idea of the car that will suit your lifestyle, contact a company that offers novated leasing and ask them for a quote.
You’ll need to be realistic on the purchase price because the higher the cost, the higher the monthly rental and you don’t want to spend more than you can afford.
A quote will show you how your take home pay will change when you salary sacrifice a car. The numbers are different for everyone depending on the annual salary and length of the lease.
If you spread the costs over five years the monthly rental should be cheaper than paying the same amount over a three year lease. Most people keep their cars for seven years and manufacturer’s warranties are getting longer so a five year lease works for most people.
Save on running costs
The monthly rental will include all the finance and running costs. It’s like a budget so when you need to pay the annual registration, or buy four tyres, the money is available.
You’ll also save money on fuel, servicing, finance costs and insurance. When they are included in the lease, the financier claims the GST input tax credit which is like you getting a 10 percent discount. For example, if the pump price of petrol is $1.80 per litre, you’ll only pay $1.64 before tax, and even less after tax.
So not only do you more get money in your pocket each month from salary packaging, you’ll spend less each year on running your car.
Sell your old car
You probably have a car in your driveway already. This can be sold to give you a lump sum cash payment to use for other household expenses. Depending on the age and kilometres, you may be able to finance this car as your novated lease and still get a cash payment.
There’s an old saying that says, “If it sounds too good to be true, it probably is.” This doesn’t apply to novated leasing. You can take home more money each week if you buy a new car, save money on the annual operating expenses, and get a lump sum cash payment by selling your old car.
If you’re interested in learning more about novated leasing and how it could work for you, reach out to the team at Novated Lease Australia.
