If you are looking for a car in the market, then you may be considering various finance options like taking a personal loan or something else. But have you heard about Novated lease? In today’s blog, we’ll share information on Novated lease, how does it work, is novated car lease worth it, and the benefits of a novated lease.
What is Novated Lease?
A novated lease is a type of salary packaging that assists you to finance a new, existing, or used car while serving various advantages and tax savings. Novated lease is also known as a salary sacrifice car.
How does Novated Lease Work?
Basically, it is a three-way agreement that would be between you, your employer, and the finance company. You can ask your employer if they can agree to make lease payments on a car by using your pre-tax salary. If they agree on this, then you can take out the lease with the finance company. At that point, it will be up to your employer’s responsibility to make the lease repayments to the finance company directly on your behalf.
With a novated lease, you are not restricted to any specific car type or model, unless agreed by your employer. In most cases, you can select any car you want to lease, irrespective of whether it’s a new, your existing car, or even a used car. One of the best things about the novated lease is that your repayments are partially sourced from your before-tax income, and as a result, you need to pay less tax and have little more net profit. Novated lease benefits you in many ways.
- Some amount is taken from your ‘before-tax’ income
A novated lease enables your employer to take the amount directly from your pay to make payments for your car and its running cost. Some amount is used before you are taxed on it. It can minimise your taxable income, and maximise disposable income.
- Some amount is taken from your ‘after-tax’ income
FBT, which stands for Fringe Benefits Tax is a tax that is used for benefits you get from your employer, but it is not in the cash salary or wages form. However, to assist offset any FBT you may be subject to pay on your novated lease, your deductions can include an amount of your post-tax salary.
- Making a budget for your car’s running costs
The budget convenience of having your car’s running costs distributed over a year is considered one of the best factors of novated leasing. If you pay annually, then it means 26 payroll deductions cover your car payments along with costs such as:
If you pay on weekly basis, then the costs will be spread out more than 52 pay runs and on monthly basis, it will be 12 pay runs. Before the start of the lease, you can predict your annual running costs for your car, and this cost is deducted from your pay over the life of your lease.
- Saves Time
Most often, you may ask ‘are novated leases worth it?’ Well, with the help of novated lease, you can save time that you may usually invest in looking for a car and bargaining with a car salesman.
- Save Money
With the novated lease, you don’t need to pay GST on the purchasing cost of a new car. It may save you thousands upfront that you may otherwise have to pay. Hence, if you are looking for an answer to the question ‘is novated lease worth it in 2022?’ then its answer depends on various circumstances as it offers possible income tax and GST savings.
- Get a Fuel Card
A novated lease comes with several advantages, such as you will get a fuel card. One of the best reasons why a novated lease is worth it, apart from the amazing tax benefits, is that it offers an effective method of managing all your car-related expenses at once. Another advantage of having a fuel card as a part of your novated lease is you can track fuel usage over the year. This is good for employers and employees and can be utilised to minimise expenses and further save money.
At the end of the novated lease, you can consider various points, such as:
- You can upgrade the car model to the latest model.
- You are able to extend your current novated lease.
- If you want to keep the car that you have been leasing, then you can.
- You can also sell your leased car and use the amount from the sale to make payment for the residual value.
Novated lease can be a complex task for you, but if you work with a reliable firm, like accounting melbourne, we can manage these complexities for you. If you don’t know when is a novated lease worth it, then you must know that it depends on different circumstances because in many cases, it offers GST and income tax savings. If you are not aware of novated leases, then our team of professionals can assist you with this. You can rely on our services as we have served several customers with our services.