Are you planning to finance a new car this year? If yes, you may wonder how to go for it. Many of you may have heard about leasing a new car purchase, but have you learnt about a novated lease? Novated lease is helpful in buying a new car while saving more on taxes. In today’s blog, we’ll cover every aspect of a novated lease, novated lease pros and cons and why you should consider taking a novated lease in 2024.
Is a Novated Lease Worth It?
The answer is yes, a novated lease is very much worth it for a lot of people. In simple terms, a novated lease is an agreement between you, your employer, and a finance company. With a novated lease, you can finance the cost of a car and as a result, it can reduce your taxable income. The alternative to a novated lease is a car loan, but in this scheme, you can’t get the tax benefits of novated lease.
• Tax Benefits
If you choose the novated lease option, you will be making novated lease repayments prior to tax, and as a result, you will be reducing your taxable income. You can also make your salary stretch further rather than making a repayment with what’s left of your income or salary after tax, you can save money every month.
• Fuel Savings
You need to pay the same amount for fuel each month, regardless of whether the petrol cost rises or falls. If the petrol price rises, you will save more. Your fuel card consists of a fleet discount and since you make payment for fuel using pre-tax income, you will never have to worry about fluctuation of fuel costs for the duration of your novated lease.
• Fixed Payments
Much like running expenses and fuel costs, your repayment amount will remain the same every month. Lease payments are fixed from the start of the agreement, and your employer will pay them for you. You don’t need to stress about budgeting for car payments.
• Better Access to Finance
Novated leases boost your net income figures, so you’ll have better access to finances. It helps you with long-term financial planning, such as home loans. A novated lease can reduce the burden on your shoulders by making your employer responsible for your running costs and lease payments. Now, your post-tax income is unburdened with car maintenance costs or repayments.
Generally, a novated lease runs for 2, 3, or 5 years. As novated leases are flexible, you can change your car when the lease ends. You have two options with your outstanding sum. You can either repay it and keep your current car or exchange the car for a new one. It is possible to transfer your novated lease to a new employer, but it is recommended to discuss this beforehand. Moreover, there are no restrictions on using your car for personal or business-related journeys. If you need a flexible and reliable loan structure, a novated lease is the best option for you.
• Avoid Depreciation
The best thing about a novated lease’s flexibility is that you don’t need to worry about depreciation. You are not financially committed to a car for any more than 2 or 3 years if you don’t want to be, and it helps to ensure that your next car comes complete with new quality and safety specifications.
Disadvantages of Novated Lease
The following are some cons of a novated lease:
• Some employers may make you sign an agreement with their choice of leasing company. In this case, you can’t look for a better deal or a provider giving a higher level of customer service.
• Only salaried employees can opt for the novated lease option. If you are self-employed, you can’t pay for a car with a novated lease.
• Novated leasing is becoming common as a benefit for employees – both for government employees and in the private sector – however, it is not available for all employers.
• Unless you purchase an eligible EV or PHEV, your novated lease will be liable to fringe benefits tax (FBT).
• Only passenger vehicles can be financed with a novated lease that is designed to carry a load of less than 1000kg.
• To own the car outright, there will be residual payment you need to make at the end of the lease term.
Now that you know the answer to the question ‘Is novated lease worth it in 2024′ and the advantages and disadvantages of a novated lease, so now you can decide whether you should opt for a novated lease. You can find more information on novated leases by contacting Reliable Melbourne Accountants.
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