Welcome to the world of novated leasing! If you're wondering how novated leasing works in Australia, you're in the right place. Whether you're new to the concept or just looking for a clearer understanding, we're here to break it down for you. While the process may seem complex with its technical terms and paperwork, we’re committed to making it straightforward and easy to grasp. Let's dive in and simplify how a novated lease can work for you, step by step.
Let’s get started and walk you through the novated lease process step-by-step. But before we dive in, let’s take a moment to cover the basics.
While there are several types of leases available, a novated lease offers unique advantages. Let’s take a closer look at what makes it different.
A novated lease is a car financing agreement between three parties: you, your employer, and a novated lease provider (in this case, us at Novated Choice). It’s a salary packaging option that can help you save on costs as you drive away in your next dream car.
First, you set up a salary sacrifice arrangement with your employer, agreeing to reduce your gross salary by a fixed amount each pay period.
This amount is then directed towards covering the lease payments for your car, whether it's new or used, along with other running costs like registration, fuel, and maintenance. What’s included in your novated lease can vary depending on the provider and the specific plan you choose.
The key advantage is that these payments come out of your pre-tax salary, which can lower your taxable income and reduce your overall tax liability.
In simple terms, you’re using pre-tax dollars to finance your car, potentially offering significant tax savings.
Here are a few more key points to understand how a novated lease works:
To find out if a novated lease is right for you, it's a good idea to talk to your employer and a financial advisor to see how much you could potentially save and access if it makes sense for your situation.
There are several reasons why a novated lease might be a good option for you, depending on your financial situation and car needs. Here are some of the potential benefits:
This is the biggest perk. By sacrificing salary for your car expenses, you're reducing your taxable income, potentially lowering your tax. You can also save on GST (Goods and Services Tax) on the purchase price of the car and some running costs.
Novated leases simplify budgeting by bundling all your car expenses, like lease payments, fuel and maintenance into one fixed monthly payment. You’ll avoid unexpected costs and manage your finances more effectively.
Novated lease companies often have bulk-buying power, which means lower purchase price for your car. You might also snag better deals on insurance and maintenance through the novated lease package.
You can choose a wide range of vehicles, new or used, and you're not restricted to using the car for work purposes. The lease term is also flexible, lasting 1 to 5 years.
It sounds intriguing, but how exactly does a novated lease work? Unlike traditional car financing, it operates quite differently.
To begin, a novated lease involves three key players: you, your employer, and a novated lease provider, such as a financier or fleet management company. If you're wondering how it all comes together, we'll break it down for you right here.
You and your employer agree to reduce your gross salary by a predetermined amount each pay period. This becomes your 'lease payments' for the car.
The novated lease provider helps you choose a car, either new or used and estimate your ongoing running costs, like fuel, registration, maintenance, etc. They then combine the lease payments with these estimated costs into one fixed monthly amount.
Your employer deducts the fixed monthly amount from your pre-tax salary. They then use that money to cover the following:
The novated lease provider handles the car registration and insurance on your behalf, and you can use the car for both personal and work purposes, considering your employer's policy.
Throughout the lease term, lasting 1-5 years on average, you make any additional running cost payments directly to the provider or manage them through a fuel card system.
Here's the key benefit–by paying for the lease and some running costs with pre-tax salary, you reduce your taxable income. You can enjoy lower income tax and GST on the car purchase price right after.
How does novated lease work? Getting a novated lease typically involves the following steps:
Confirm with your employer first about a novated lease. Not all employers offer novated leases as a benefit. Make sure your employer participates in novated leasing programs.
After confirming, research and choose a novated lease provider. There are several novated leasing companies in Australia. You can research them online or ask your employer for recommendations.
Once you've chosen a provider, you can get a free quote. This will involve providing details like your desired car type, estimated annual kilometres driven (work and personal), and salary information.
Upon application, the provider will help you submit a finance application to get approval for the lease. You must provide your financial information and credit history.
If your finance is approved, a novation agreement will be prepared. This outlines the terms and conditions of the lease, including your salary sacrifice amount and responsibilities.
You can select a new or used car that meets your needs and your employer's policy. The provider can assist you in this process.
Carefully review the lease agreement and novation agreement before signing. Additionally, finalise your preferred car features, like the model, features, and any optional extras.
Once everything is finalised, the novated lease provider will handle car registration and insurance, and you'll receive your car.
Your employer will start deducting the agreed amount from your pre-tax salary and use it to cover lease payments and running costs.
You might manage some ongoing costs like fuel directly with providers or through a fuel card system set up by the novated lease provider.
Here are some additional tips on your novated lease plan:
It's important to remember that a novated lease isn't a one-size-fits-all solution. However, for many Australians, it can provide substantial savings on car costs and offer notable tax advantages. Since everyone’s circumstances are unique, it's essential to carefully consider the pros and cons before deciding.
Curious if a novated lease is the right choice for you? Head over to the Novated Choice website and crunch some numbers on our handy novated lease calculator! This free tool allows you to plug in your details and get a personalised estimate of your potential savings. Ready to get a car as part of your salary with a novated lease? Tell us the car you want, we handle the rest. Book a call here.