Do Novated Leases save you money?
Yes you can save on tax with a Novated Lease. The Lease was first established to assist employers such as charities who found it hard to increase their employee salaries at the same rate as their private and government counterparts. These tax incentives (tax free income) helped these lower paid employees to pay general expenses including loans and mortgages. The system was then available to all employees in different financial forms depending on who the employer is and their FBT status with the Australian Taxation Office (ATO).
A Novated Lease is one of the most beneficial items to Salary Packaging simply because it is only concessionally (lower) taxed as opposed to other benefits available where the full FBT is applied.
WHAT DOES THIS MEAN
When an employer provides a financial benefit the ATO will look at that benefit and apply tax to it. This stops employees asking for their normal pay in the form of benefits. EG. Rather than paying me, pay my mortgage, school fees and my car loan directly to the suppliers. This means the ATO misses out on all the tax on your pay. To prevent this the ATO introduced FBT (Fringe Benefits Tax). FBT is charged at 48.5cents in every dollar, which is the same as the highest marginal tax rate. This removes the benefit and an employer paying their employees in any form of financially advantageous means.
However you can save tax on a Novated Lease because the FBT payable on a Novated Lease is only charged on 20% of the value of the vehicle minus the government on-road costs (Registration and Stamp Duty).
The ATO also allows employees to pay a contribution towards the runnings to the value of the FBT to reduce the FBT to $0.00. This is called the ECM (Employee Contribution Method) and is used by every salary packaging company to maximise the tax benefit in every package.
OTHER TAX BENEFITS – GST
Because your employer is using money from your salary to pay for the vehicle they claim all of the GST in the running costs this benefit is passed back to you in full automatically through the payroll process.
The Leasing company is the owner of the vehicle (tax based owner) during the lease term. This allows them to claim the full GST on the purchase price of the vehicle, meaning that you only finance the GST exclusive portion. EG. $50,000 car has about $4,500 in GST, therefore you finance $45,500 not $50,000. This is a big benefit. For more information on Novated Lease GST savings click “GST Savings”.
Use our online Calculator to see how much you can save on tax with a Novated Lease.
Use our Novated Lease calculator, it’s free and we don’t ask for your personal details. This means you can do as many quotes as you like on as many different car prices and salary levels you need.
Need the best price on your new car?
Vehicle Solutions is listed on most car manufactures lists as a Novated Leasing provider. Therefore you automatically qualify for fleet pricing. To save even more go to www.motorbuys.com.au. Motorbuys allows you to source the best new car prices without the pressure and stress of negotiating in person with multiple dealerships. By getting a better vehicle price you pay a lower lease payment and therefore save even more.