If you are looking for a new car in the market – whether upgrading your existing car or switching to an electric vehicle, you may be looking for finance options like taking a personal loan. However, have you thought of a novated lease? Know more about it:
What is a Novated Lease?
Generally, a novated lease brings a third party into the car-buying arrangement with your employer joining you and the seller. It is an agreement between you, your employers, and the leasing solution provider that helps you select the car you want to have and group the finance and all the expected running expenses into a single payment that is deducted from your salary.
Novated leasing is also known as salary sacrifice or car salary packaging scheme. With a novated lease, you need to choose a car and then you can save a significant amount by paying for the car using pre-tax dollars from your salary. In this scenario, the car you choose becomes part of your salary package. You don’t need to worry about making payments because your employer will be responsible for making car payments from your pre-tax income directly to the novated leasing provider.
Is Getting a Novated Lease Worth It?
If your employer agrees to allow you to salary package your lease, then considering novated leasing would be the best option. In terms of budgeting for the expenses of your car, a novated lease would be a great option.
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Novated lease tax benefits
When you package your car with a leasing solution provider, payments will made from your salary before tax is taken out, minimising your taxable income and the tax amount you pay. You can get tax benefits with novated leasing and get more out of your salary.
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No GST
Novated lease is GST-free. You don’t need to pay GST on the vehicle purchase price, service, or fuel and repair costs. The operating and car costs attract GST, but the novated leasing provider claims the input credits before they come to you.
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Save GST on running costs of a vehicle
Your GST-registered employer can claim the GST on a huge proportion of the running costs and save the GST for you. It minimises the cost of the finance, maintenance, fuel, and tyres.
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Salary package any car you want
New or used, small or large, you are allowed to salary package just about any car you want. You are allowed to package a car you already have, even package a car for someone else.
How to Apply for a Novated Lease?
Make sure to follow the steps written below to apply for a novated lease:
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Ask your employer
Before you apply for a novated lease, you need to talk with your employer if they agree to offer this type of benefit.
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Apply
If your employer agrees to give you this benefit, you need to apply for a novated lease and need to be approved for the salary-sacrificing scheme. Your employer needs to provide information about you to the company.
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Set up a lease agreement
The finance company your employer or you choose will liaise with you and your employer to set up a lease agreement, including:
- the lease duration
- kilometres you are likely to travel each year
- the car you want
- Choose a car, liaise with the company and start the lease agreement
Here, you need to choose a car you want and let the leasing company know. They manage the vehicle acquisition and schedule repayments. They will tell you when the car will be yours and when the lease agreement will start.
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Get your payments deducted
After setting up a novated lease, your employer will start deducting the repayments from your pre-tax salary and make payments to the finance company. According to the ATO, employees are allowed to renegotiate a novated lease at any time, subject to the terms and conditions of the contract.
Conclusion
If you find yourself asking whether you should consider novated leasing, then you need to consider your circumstances first. If you want more clarification on this concept, you can ask Reliable Melbourne Accountants.
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