Buying a car is one of the most crucial decisions you can make. It needs a lot of time and effort, plus a big financial investment. Therefore, you need to be sure that you are getting the best deal. The blog will share an overview of novated car leasing along with its benefits.
What is a Novated Lease?
A novated lease helps you finance a new or used car and pay the running costs of a car through pre-tax salary. With a novated lease, you will pay less income tax and can save on GST on the upfront cost of the car and ongoing costs. A novated lease engages a three-way agreement between you, your employers and a novated lease company. However, the car can be used for personal use. As the payments are made from your salary, novated leasing is referred to as salary packaging or salary sacrificing a car. If you don’t know how you can benefit from a novated lease, you can speak to small business accountants.
How Does a Novated Lease Work?
Now, let’s check out how a novated lease works:
- You choose a new or used car you want to buy (your novated lease provider will help you find a vehicle).
- The novated lease provider will arrange for the vehicle to be bought on your behalf (with a GST discount) and then leased to you.
- Your employer makes automated deductions from your pre-tax salary and pays a novated lease company to cover the car lease payments.
- Additionally, you can also include the running cost of the car in your lease (with a GST discount), depending on how many km you drive each year.
- At the end of the term of a novated lease, you pay the vehicle’s residual amount so you own the vehicle or you can renew the lease for a new term.
- According to the ATO, GST doesn’t apply to novated leases in the same manner as it does to other types of car purchases. Moreover, to manage your tax matters, you can seek help from accountants for small businesses.
Is Novated Lease Worth It in 2024?
The following are some reasons why a novated lease is popular in Australia, both for employers and employees:
- You can get a GST saving on car-running costs grouped into the lease.
- You can save on income tax as payments are made from pre-tax salary.
- If you novate an electric car, there will be no fringe benefits tax payable.
- A novated lease company may be able to offer a bulk discount on regular car prices.
- You can use the vehicle 100% for personal use.
- It offers flexibility to change the lease set-up if changing employers.
- There will be a reduction in the payroll tax for employers.
- Staff benefit for employers to provide low admin costs.
How to Qualify for a Novated Lease?
You can be eligible for a novated lease if you are:
- hired on a permanent part-time or full-time basis
- working for an employer who agrees with a novated leasing agreement
- able to meet repayments for the time period of the lease (the lender will check your application and will check your credit score)
- above 21 years of age. In some cases, lenders may approve candidates between 18-21 years old
- purchasing an eligible vehicle.
What If a Novated Lease Ends?
You don’t pay for the car in full over the lease term as there must be a ‘residual value’ amount left at the end of the lease term. The unpaid amount is owed at the end of the lease. This is determined using rules set by the Australian Tax Office. When the novated lease is nearing its end, you have various options:
- upgrade it with a new novated lease
- re-lease your car and make the residual payment
- own the car by making the residual payment
- sell the car and use proceeds to make residual payment
Conclusion
In a nutshell, it can be said that it is worth opting for a novated lease in 2024. Moreover, if you need any kind of help regarding your accounting and tax matters, you can reach Reliable Melbourne Accountants.
Other Useful Links:
Tax Return Accountant