Novated leases as a salary sacrifice saves you tax

That’s where the true value of a novated lease comes into play, thanks to the tax breaks involved. At the end of the lease term you have the option to pay off the residual and own the car completely; however this is only worth considering if you are not employed anymore – if you’re retiring for example.

Novation agreements are fully transferable. This means that if an employee leaves their current job or has their position terminated, they will still be able to make payments towards a novated lease, with the lease obligations being transferred directly to the employee rather than their employer.

Income Tax Savings – Under a novated lease, your car’s running costs are paid for with a mix of pre-tax and post-tax dollars, reducing your taxable income. This may allow you to make significant income tax savings, increasing your take-home pay.

While novated leasing might lower your taxable income and make for a more economical alternative to a traditional car loan, the cheapest option will always be buying a car outright.

For all these reasons, three years is the perfect time to hold a vehicle on a novated lease. That way you can be sure you’re driving a modern, reliable car that’s up-to-date with the latest features and that you’re enjoying those benefits in the most tax-effective way possible.

A novated lease is therefore a three-way deal – between an employee, a financier, and the employer. The employee owns the car, and the employer agrees to make the lease repayments to the financier for that car as a condition of employment.

There are two main types of novated lease: Fully maintained – includes the lease amount for the car as well as ongoing costs such as services, fuel, registration, tyres, breakdown assistance and insurance. Non-maintained – is only the lease amount for the car and does not include other expenses.

Payout your lease early: When you take on a novated lease, you agree to lease the vehicle for a set period of time. If you break the lease early, you’ll need to pay the remainder left on the lease, along with the residual value of the vehicle (GST included).

around 7% p.a.

Interest rates on a novated lease

Generally speaking, novated lease interest rates start from around 7% p.a. but your actual rate will be personalised to you and may be higher. The interest rate on a novated lease is fixed, meaning any interest costs will be the same throughout the lease term.

On a five-year lease, the residual value of the vehicle would be 28.13% of the vehicle’s cost, or $17,301 (including GST). If the driver opted for a shorter lease term of three years on the same car, the residual would be higher – 46.88% of the cost of the vehicle, or $28,833 (including GST).