Am I restricted to which car I can buy on a Novated Lease?
Under a Novated Lease, you are only partially restricted to the age and value of the vehicle you choose. For most people, the following restrictions have little to no effect on the vehicle they are looking to purchase.
CAR AGE RESTRICTION
The general rule for the age restriction is no older than ten years at the end of the lease term. This means you can lease a new to 5 years old car over a five-year lease, a six-year-old car over four years, a seven-year-old car over three years and so on…However, this is a general rule set by leasing companies to ensure they are minimising the risk of financing lower value vehicle/assets. In some cases, the leasing company will look at a vehicle that has significant value or will hold/appreciate in value over time such as a vintage car or a rare luxury vehicle. It is always best to check with us on 1300 990 880 before making any decisions.
For Novated Leasing the ATO have set a luxury limit value restriction on the tax benefit received by any employer and passed on to an employee. This limit is based on the vehicle value and as at the time of this article 2017/8 financial year is set at $57,466. So if you Salary Package a vehicle at this level, you are only able to claim depreciation deductions based on the applicable depreciation cost limit of $57,466. Given that FBT is assessed at the highest marginal tax rate (47%) owning a luxury car can become quite expensive from a tax perspective. For private employers, this can be a very expensive mistake to make. FBT is an employer tax that is passed on to the employee through salary deductions. Any vehicle over the luxury limit for employees of a private or public no government employer will cease to be a Novated Lease and will be treated as a company loan. This will create an adjustment to company tax that is passed on to the employee. In the first few years of a lease, this remains a benefit if personal use is low, however as the claim for interest and depreciation reduces the benefit turns into a large cost to the employee.
However, for government employees, this is not the case. In simple terms, the government don’t pay company tax. Therefore there is no adjustment to the company tax and no cost to pass onto the employee.
The Golden Rule – Pick a car that holds it’s valued and get the best price you can.
The most important rule in Salary Packaging a car on a novated lease is to pick a car that holds it’s value and then shop around for the best deal. To get the best price try our online, transparent buying site www.motorbuys.com.au.