With a novated lease, your employer deducts a portion of your finance payments and vehicle running costs from your pre-tax salary, so you pay less tax and have more money to spend on payday. You also pay a portion of your payment from your post tax salary so there’ll be no FBT to pay.
Here’s an example of how it works for John – an office worker who earns an annual gross salary of $85,000.
With a car loan, John purchases his car for the advertised cost, makes his car loan payments and pays his running costs from his post-tax salary.
However, with a novated lease, he pays no GST on the purchase price, instantly saving 10%. He makes one payment to cover his car loan and all his running costs before he receives his salary. Part of this payment is deducted from his post-tax salary so that he doesn’t have to pay any Fringe Benefits Tax. The remaining amount comes from his pre-tax salary. John’s employer passes on the GST savings on the finance payments and the running costs of his car, so John goes on saving throughout his lease.
John chooses a Toyota Camry Altise which costs $26,490 drive away.
|With a Car Loan||With a Novated Lease|
|John’s salary||85,000||John’s salary||85,000|
|Pre-tax payment||Pre-tax payment||4,620|
|John’s taxable salary||85,000||John’s taxable salary||80,380|
|Tax and Medicare||20,872||Tax and Medicare||19,278|
|Salary after tax||64,128||Salary after tax||61,050|
|Johns car loan payment*||7,332||Johns after-tax payment||5,030|
|John’s running costs||4,553|
|Money available after car costs||52,243||Money available after car costs||56,020|
|Extra money with novated leasing per year||3,777|
*Car loan rate 10% (effective rate) pa, 5 year lease, NL rate 9.73% (effective rate) pa
John will receive over $3,777 extra a year by purchasing his car with a novated lease!
And he should save even more. Any discount we receive by using our buying power to purchase the car on his behalf will be passed on to John. So he not only saves on the purchase price but goes on saving through his lease.