Novated Car Lease: Benefits and Considerations Explained

Key Highlights

Here is a quick overview of what a novated car lease offers you:

• A novated car lease is a three-way agreement between you, your employer, and a leasing company for your new car.

• It uses a salary packaging arrangement, meaning your lease payments are made from your pre-tax income, potentially lowering your overall tax bill.

• Your car’s running costs, including fuel, insurance, and servicing, are bundled into a single, predictable monthly payment.

• You can save on the purchase price of your car by not paying GST on it (up to the ATO limit).

• Eligible electric vehicles are exempt from Fringe Benefits Tax (FBT), offering thousands in additional savings.

Introduction

Are you looking for an easier and cheaper way to get your next car? If you want a good option, a novated car lease could be what you need. In this car lease setup, your car finance and running costs are rolled into a single payment using salary packaging. You will not face lots of different bills or pay costs after tax. With a novated car lease, things get simpler. For people in Australia, it can make owning a car more affordable and easier. This way, you can make the most of your income and keep your budget under control.

Understanding Novated Car Lease in Australia

A novated car lease in Australia is a special way to get a car. The process has you, your employer, and a finance company working together. You pick the car you want. After this, the leasing company sorts out the money side of things for you. Your employer steps in to help with the lease payments. These lease payments come straight from your salary.

The novated car lease arrangement is simple. Your employer will take a set amount of money out of your pay before you pay tax. This covers your car and also the things you need to keep it running. Because this happens before tax, you may save a lot of money. Now, let’s look closer at how this structure works.

What Is a Novated Car Lease?

So, what is a novated car lease? At its core, it is a formal three-way deal where you get a car on a lease, and your employer helps you with the payments. This deal is called a novation agreement. The novation agreement works with your main lease agreement and moves the payment responsibility from you to your employer while you work there.

The process is made to be easy. You pick the car you like, and your employer pays for it. The payments do not change, so you know what you have to pay every month. There will be no surprises. A novated car lease gives you a convenient way compared to normal car financing.

You may ask, what if you move to a new employer? The good news is that a novated car lease lets you take the car and the lease agreement with you if your new employer offers novated leasing. The arrangement is flexible and can be moved, so you keep the benefits with no break in your leasing.

Benefits of Novated Car Leasing

The main reason people choose a novated car lease is because of the way it helps with money. When you use salary packaging, your taxable income can go down a lot. The result is, you get good tax savings. This way, your income can work better for you than if you use normal methods of buying a car.

There is another benefit too. With a novated car lease, you put all your car’s running costs together in the lease payment. You do not have to separate money each month for fuel, insurance, or for fixing the car. So your money plans get simple.

This is how the tax savings, lower taxable income, and easier handling of costs from a novated car lease can help people in real life.

Tax Advantages and Salary Packaging

Salary packaging is the way a novated car lease can help you save on tax. Your lease payments come straight out of your pre-tax pay. So, your taxable income goes down. This means you will pay less income tax when the year is over. The more you earn, the more you can save, because the savings use your marginal tax rate.

With this setup, you get more money to spend. You do not need a pay rise for this. The money that would be taxed covers your car and its running costs.

Here are the main things you get from a novated car lease:

• Reduced Taxable Income: You show a lower income for tax reasons.

• Less Income Tax Paid: You get taxed on a smaller part of what you make.

• Bundled Running Costs: Things like fuel and servicing come out of your pre-tax pay, so you save even more.

GST and Fringe Benefits Tax Considerations

A novated car lease gives you more than just savings on income tax. You also get big GST savings. The leasing company will buy the car for you and claim an input tax credit for the GST. You get this saving too. If your vehicle is under the GST threshold, you will not pay any goods and services tax on the purchase price.

The fringe benefits tax is another cost to think about. That is a tax paid by employers if they give benefits like a car to workers. But with a novated car lease, the deal is set up to lower or even remove this tax for you.

Because of new rules from the Australian Taxation Office, some vehicles benefit more:

• Electric and plug-in hybrid cars that meet the luxury car tax threshold rules do not need to pay fringe benefits tax. This can help you save thousands.

• For other vehicles, most of the fringe benefits tax is handled by making post-tax payments, and your leasing company will do this for you.

Potential Savings Compared to Buying Outright

When you look at a novated car lease and buying a car with a car loan, you get to see some real differences in how much you can save. With a car loan, you get money up front and pay it back from your after-tax pay. Things like fuel, insurance, registration, and servicing also come out of your own money after tax.

But a novated car lease uses your pre-tax pay to cover both your car payments and your running costs. This is one reason why you get most of the tax savings. It helps lower what you spend to own a car over the whole lease. You also get a GST saving on the purchase price when you pick a novated car lease. You won't get this if you just buy your car with cash or a normal loan.

In a novated car lease, you do not own the car while the lease is in place. But the benefits of your money are usually better for most people. The mix of getting tax savings and keeping your running costs together makes a novated car lease a good choice if you want to save.

What’s Included in a Novated Car Lease Agreement

A novated car lease agreement is made to be simple. It has all you need for car ownership in one easy payment. With a fully maintained novated car lease, you get not just the car’s finance, but all the main running costs while you have the car.

You get coverage for fuel costs, servicing, insurance, and registration. It also covers any administration costs. All these come together in one payment, so you can make a clear and predictable plan for your car use. It helps you avoid surprise costs that may come with owning a car. Now, let’s see what these parts in a novated car lease really include.

Car Running Costs and Maintenance

One big benefit of a novated car lease is how it deals with the running costs of your car. Instead of you needing to pay for each thing as it comes up, you make a budget for all these costs. This budget is set at the start of your novated car lease and added to your single pre-tax payment. So, you will not get any surprise bills for things like regular services or new tyres.

You and your leasing provider look at your expected yearly running costs for the car of your choice. This budget takes care of all the key things you need to keep the car in good shape and safe on the road.

Usually, the running costs covered by your novated car lease are:

• Fuel or electricity

• Scheduled servicing and maintenance

• Tyre replacements

• Roadside assistance

Insurance and Registration Inclusions

A fully maintained novated car lease makes it easy to handle your yearly costs like insurance and registration. These important bills are added to your budget from the start and show up in your regular payroll deduction. You do not have to worry about remembering when to renew or finding a lot of money in one go to pay for these bills.

Comprehensive car insurance is a must-have with any car lease. It keeps the car safe if there is an accident, theft, or damage. Your leasing provider can help you get the right insurance policy, and the cost will sit in your payment plan.

Your car’s state or territory registration fees are also paid as part of the lease. By including these costs in your novated car lease, you don’t have to handle them on your own. You will drive and know that all the main bills are sorted with just one easy, automatic payment.

Residual Value and End-of-Lease Options

An important concept to understand in a novated car lease is the "residual value." This is a lump sum payment, determined by the Australian Taxation Office, that is due at the end of the lease term. It represents the remaining value of the car, and paying it transfers official ownership to you.

When your lease agreement concludes, you have several flexible options. This choice allows you to adapt to your financial situation and personal needs at the end of the lease. You are not locked into a single outcome.

Your choices at the end of the lease are typically:

Option	Description
Pay the Residual	You can pay the final residual value and take full ownership of the car.
Sell the Car	You can sell the vehicle. If the sale price is higher than the residual value, you keep the profit, tax-free.
Refinance the Car	You can refinance the residual value and begin a new lease for the same vehicle.
Start a New Lease	You can trade in the car, begin a new novated car lease on a brand-new vehicle, and roll the process over.

Eligibility and Vehicle Choices

Wondering if you qualify for a novated car lease or what cars you can pick? The good news is that novated leasing is open to many people in Australia if their employer offers it as a benefit. The leasing company will help you understand if you can get a novated car lease and guide you through the steps.

One best things about a novated car lease is the freedom to choose. Unlike other ways to get a car, you are not stuck with limits. You have many options, so you can find one that fits your needs and what you want to spend. Below, you can see the kinds of cars open to you with novated leasing.

Types of Cars You Can Lease

With a novated car lease, you get to pick the car of your choice. You can choose a new car, or you might like a used vehicle to help save money. This gives you the freedom to find a car that fits your life and your budget.

Novated leasing isn’t just for new cars. You can get a novated car lease on a used vehicle, and this helps you enjoy the benefits while spending less. You also have the option to set up a novated car lease for the car you already own.

Your main options include:

• A new car: Get the newest model and all its features.

• A used vehicle: Enjoy the same novated leasing benefits with a pre-owned car.

• Your existing car: Put your current car on a novated car lease to start saving.

Leasing New vs Used Cars

Choosing between a new car and a used car for your novated car lease depends on what you need and want. A new car gives you the latest tech, better safety features, and a full warranty from the maker. This means you can drive with less worry. But you will have to pay more for a new car, and your lease payments will also be higher.

Getting a used car with a novated car lease can be a smart choice if you want to save money. You can get almost all the same tax and GST benefits that you get with a new car. The car's market value will be lower, too. This means your lease payments will go down, and the residual value at the end of your lease will be less.

In the end, this choice is about what suits you. With a novated car lease, you get to pick if you want a new car or a used car. This lets you match your budget with the car you really want.

Electric Vehicles and Environmental Considerations

If you are thinking about the environment, novated leasing helps you get electric vehicles (EVs) and plug-in hybrids (PHEVs). It is easier than ever to choose these cars now. The Australian government gives a great incentive. These lines up your money benefits with a greener way to travel. So, choosing to go with an EV from a novated car lease helps the planet and also helps your wallet.

The big advantage of novated leasing is that you do not pay the fringe benefits tax on eligible EVs and PHEVs. This is true if their price is below the luxury car tax threshold. That means you save a lot of money each year over leasing a petrol or diesel car. In return, the higher purchase price of electric vehicles becomes much easier to handle for many people.

A novated car lease has even more good points when you think about GST savings and paying for charging. You can put these costs together and pay with your pre-tax earnings. Next to all these benefits, novated leasing ends up as one of the best ways to get and drive an electric vehicle in Australia.

The Application Process for Novated Leasing

Starting a novated car lease is simple and quick. The leasing company helps you at each step, from when you first ask about it to when you get the keys to your new car. They take care of the details, so you can spend your time on the fun part—choosing your car.

The process to apply for a novated car lease is made to be fast and easy. With a novated car lease, you do not have the weeks-long wait you get with some other loans. Most people hear back in only a few hours. The next parts will show the steps you need to take and what paperwork is needed to help you get your new car soon.

Steps to Apply for a Novated Car Lease

The way to apply for a novated car lease is made simple, with the leasing company there to help you each step of the way. You can go from wanting a car to driving it very fast and easily. There will not be any big waits, and things will move ahead without much trouble.

You first have to check if your employer has novated leasing as an option. If they have it, the novated car lease process gets much easier. After this, your leasing company will handle talking with you, your employer, and the car dealership. They do all the work needed to finish off the novation agreement for your novated car lease.

The main steps are here:

• Choose your car and get a quote: Pick the car that you want. Get a fast quote so you can see how much you might save.

• Confirm with your employer: See if your job allows novated leasing deals.

• Complete the finance pre-approval: Your leasing company takes you through the easy finance form to get you set up.

With a novated car lease, you, your employer, and the leasing company work together to make sure things go well. Each step of the way is made to be clear and quick, from picking your car to signing your novation agreement.

Required Documentation and Approval Times

To finish the application for a novated car lease, you have to give some basic personal and financial details. This includes things like proof of who you are, your payslips to show what you earn, and information about your job. The leasing company will give you a clear list of what you need for the novated car lease.

One big plus with applying for a novated car lease is that the approval is quick. Regular car loans often take a long time and can be hard to work with. A leasing company will get back to you fast with an answer about your lease agreement. Many times, you can get pre-approved for your novated car lease within just a few hours. You do not have to wait days or weeks.

Because it is fast, it means you can pick a car and drive it home much sooner. The leasing company deals with all the forms and talks to people for you. They make the novated car lease process easy, smooth, and worry-free.

Using Novated Car Lease Calculators

A novated car lease calculator is an easy tool you can use online to see the money benefits you may get from a novated car lease. You need to enter a few details, like your pay and some car information. It will then give you a quick idea of your possible savings and what your regular lease payments may be. This helps you see if a novated car lease is right for your needs or if it fits your budget.

To give you a clear number, the novated car lease calculator uses your yearly pay, the car’s price, and how many kilometres you think you will drive each year. This helps you see the tax savings you get by lowering your taxable income. It also helps you plan for running costs, like fuel and servicing for the car.

At the end, you get a simple summary that splits your payments into money taken before tax and after tax. You will see how much you save with a novated car lease compared to if you bought the car with a normal loan. The novated car lease calculator does all the hard work for you and makes the numbers easy to understand.

Conclusion

A novated car lease is a good choice if you want to drive a new car or a used car with some great tax perks. This type of car lease is flexible and can fit different needs. When you know what’s in the lease agreement and understand the details about novated leasing, it’s easier to pick what’s best for you. This goes for if you’re looking at an electric car or just want a car that suits your life and budget.

If you want to find out more about how a novated car lease can work for you, you can get a free talk with an expert. They will help you see your leasing choices and help you start your car lease journey.

Frequently Asked Questions

Can you lease any car with a novated car lease?

Yes, a novated car lease lets you pick almost any car you like. You can choose a new car, a used vehicle, or even the car you already own. Just keep in mind the luxury car tax threshold. This is important because it can change the tax benefits you get from a novated car lease.

Is a novated car lease suitable for frequent job changers?

Yes, a novated car lease can be moved with you. If you get a new job, you can often take the novation agreement to your new employer. This way, you keep the salary packaging arrangement and keep making lease payments. All this works if your new employer allows a novated car lease and offers salary packaging.

How do monthly repayments on a novated car lease get calculated?

Your lease payments are made up of the car’s finance cost, budgeted running costs like fuel and insurance, and any administration costs. All these are put together into one payment. A novated car lease calculator helps you get an idea of what the payment might be, based on your income and the car you pick.

What factors should I consider before entering into a novated car lease agreement?

Before you sign, make sure you know the terms in the lease agreement. Look at the final residual value payment and see what this means for you. Think about whether there will be any fringe benefits tax and what may happen because of it. Know your choices for what you can do at the end of the lease, so you can plan.