Useful Information You Should Know About Novated Leases

You might be curious about the advantages if you’re an employee thinking about a novated lease with your employer. Why is it superior to more conventional kinds of auto financing and what are the benefits to you?

So, stop wondering now! We provide all the information you require in this blog. Instead of relying on rumors, read our succinct overview and make your judgment.

Novated Lease: What Is It?

A finance arrangement utilized in salary packing is called a novated lease. That basically means that your company uses a mix of pre-tax and post-tax salary deductions to cover your car leasing and operating expenses out of your take-home pay. Without compromising your way of life,  novated leasing in Australia enables you to drive whatever make or model of the car you choose. On the purchase cost and operating expenses of a used or new car, or even the vehicle you presently drive, you could save money.

What’s the Procedure?

It entails signing a lease agreement with a financial provider or a bank, as well as a “salary sacrifice” arrangement with the person’s employer to fund repayments. In essence, this is a three-party contract between a financier, employer, and employee.

The employee’s pre-tax wage is then used by the employer to make repayments to the loan company on their behalf. If the contract can be transferred to the new employer if the employee switches jobs, the car follows them. Also available is a direct payment from the employee.

According to how it works, a worker who earns a $70,000 before-tax yearly wage and receives novated lease payments of $10,000 per year will see a reduction in their taxable income to $60,000 annually. As a result, less income tax is paid overall.

You can consult an accountant to determine whether a novated lease is appropriate for your unique situation. A person’s income, the price of the car, and continuous operating expenses all affect how cost-effective a novated lease is.

Types of Novated Leasing

 Non-maintained and fully maintained novated leasing agreements are the two basic varieties.

A non-maintained arrangement just covers the car’s lease payment and leaves out any further expenses the employee will be responsible for paying for the vehicle.

However, the lease payment for the vehicle plus any ongoing expenses, like gasoline, servicing, registration, tires, insurance, and on-the-road help in the event of a breakdown or accident, are included in a fully maintained contract.

As a result, a single payment is generated, which some people prefer because it includes all of the vehicle’s expenses.

Advantages and Disadvantages of a Novated Lease

A novated lease has some advantages and disadvantages. With a novated lease, you may be able to reduce your auto payments, receive tax benefits, and upgrade your vehicle, but you do not own the vehicle. After the lease term, there can be residual value to pay, in addition to administrative fees and possibly increased interest rates. If you’re thinking about taking up a novated lease on a vehicle, be aware that if your employment changes or is lost, you can still be responsible for paying the car’s balance.

Advantages

Potential tax advantages – novated lease repayments paid from your pre-tax salary may lower your taxable income. Also, if you don’t buy the vehicle, you can avoid paying GST on the purchase cost.

Possibility to upgrade – Usually, at the end of your lease, you’ll have the option of trading in your car for a different model without needing to go through the hassle of selling the old one.

Consolidated payments – With a fully maintained novated lease, your employer and the finance firm will jointly manage a single regular deduction from your pre-tax wage to cover all of your car expenses. As a result, you won’t need to pay a sizable down payment on the car or any other associated expenses.

Disadvantages

You don’t own the car –  you aren’t allowed to make any changes to it and you can’t use it as collateral for other loans or financial obligations.

Residual value due at lease end – Unless you renew the leasing agreement or sell the automobile with the costs paid by the sale after the lease period, you must pay the residual value due at lease end. The payable residual value may be substantial.

If you lose your work or move jobs, you might be responsible for the car – You are responsible for paying the car’s costs if your new company rejects this request. This implies that you must either keep paying the loan firm your debts or end the lease completely.

In the end, we genuinely hope that you will find this useful and that it will facilitate your decision-making process or at the very least increase your understanding of novated car leasing.