How do I calculate a Novated Lease Payment?
The secret to Calculate a Novated Lease is to get accurate meaningful data and information prior to doing the basic tax calculation. The figures you will need include car price, annual salary, Km’s travelled each year, lease term and comprehensive insurance figure. Each of these items requires it’s own calculations;
- The vehicle drive away price – This also needs to include the following elements;
- Drive Away Price
- GST Included in this total price.
- Government on-road costs of 12 months registration and stamp duty.
- FBT Base value = Drive away price minus the government on-road costs.
- Annual Salary – You will need you complete gross annual salary figure before any tax or deductions. $75,000 for this example.
- KM’s per year – This figure is easier to calculate if you work out how many km’s you do each day of the week including weekends then times this by 52 weeks. It is also a good idea to add a little more for holiday drives etc if this is a regular annual part of your lifestyle. The annual km’s will be used to calculate to budgets for fuel, tyres and schedule servicing so the more accurate you are the more accurate the final outcome.
- Lease Term – This will change the lease payment and can vary from 6 months to 5 years, obviously the shorter the lease term the higher the monthly lease payment. The lease term will also affect the final residual value. The ATO has very strict guidelines for the residual value based on the lease term.
- Comprehensive insurance – This figure is one of the components that make up the budget and by shopping for the best deal could save you hundreds of dollars extra every year. If you would like a quick quote please feel free to call us on 1300 990 880 or enquire online and we will send you a quote asap.
Once you have all of this data you can do the basic calculations;
- Lease Calculation – This is a specific finance calculation that needs to be 2 months in arrears and includes the required and correct residual value.
- FBT Employee contribution – This is a simple 20% of the FBT base value calculated above.
- Running cost budget for fuel – (litres per 100kms for the vehicle, check the manufactures specs sheet for this figure) * (annual kms/100) * average cost per litre of fuel (we always budget at a higher rate of $1.75. This accounts for the different ways people drive and traffic conditions.
- Running cost budget for tyres – Most tyres have an average usage of 35,000kms, therefore, divide your annual km’s by the 35,000 average tyre range and times this by the cost of a set of your tyres.
- Running costs for service – refer to your vehicle manufacturers spec sheet on the cost of services and then depending on the number of km’s you travel a year calculate how many services you require and the annual cost of this.
- Registration and insurance have already been calculated.
Once you have all of these figures you can calculate the exact cost of running this vehicle every year as per the below example;
Lease – $7,500
Fuel – $2,100
Tyres – $350
Services – $400
Registration – $750
Insurance – $700
TOTAL VEHICLE ANNUAL RUNNING COST- $11,800
FBT Employee Contribution = $30,000 FBT base value * 20% = $6,000. The ATO allows an employee to contribute this amount to the vehicle running costs after tax to reduce the FBT to $0.00. Therefore the weekly FBT employee contribution is $115.38.
To calculate how much will be deducted before tax you need to do two separate calculations;
- Total vehicle annual running cost minus the FBT employee contribution = $5,800
- GST on the above $5,800 = $5,800/11 = $527
The before-tax deduction is $5,800 minus the GST of $527 = $5,273 /52 weeks = $101.40
Now we have both the before and after tax deductions, we can work out how this will affect your weekly pay.
Total weekly pay = $1442
Minus before tax deduction = $101.40
Therefore new taxable salary = $1,340.60
Tax and Medicare = $301
Minus after tax FBT Contribution = $115.38
Total Take home pay = $924.22 and all running costs on the vehicle are paid for.
However, if you were to pay for the vehicle in after-tax salary without salary packaging this would be the table;
Total weekly pay = $1442
Minus before tax deduction = $0.00
Therefore new taxable salary = $1,442
Tax and Medicare = $336
Minus Total weekly running cost of the car = $227 ($11,800/52 weeks)
Total Take home pay = $879 after paying for the car after tax.
Therefore you can see in this example the income tax savings and GST savings reduced the cost of running this car by $45 per week or $11,700 over the 5 year lease term.
If this sounds a little difficult or daunting please feel free to use our online calculator to do all the hard work, 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.
Have you found your car yet?
To save even more go to www.motorbuys.com.au. Motorbuys is our sister company that 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 on your novated lease and therefore save even more.