Buying a car? Novated leasing might save you even more long-term.
What is novated leasing?
Novated leasing is a three-way agreement between your employer, a financier, and you as an employee to purchase a car through a lease agreement. It is arranged as part of a salary package. The employee sacrifices part of their pre-taxable income to go toward the cost of the lease. The car’s GST purchase price and depreciation are claimed by the employer which reduces the amount an employee must sacrifice. Running costs are also claimed which reduces the amount of fringe benefits tax.
Novated leasing tax advantages
Novated leasing is an ATO-approved way of reducing tax for both employers and employees. An employee can reduce their pre-tax income with a novated lease which reduced their overall tax payable. The car becomes a fringe benefit but is paid for by the employee using their pre-tax dollars or salary. The employee can also claim running costs such as fuel, insurance, and servicing as part of the agreement, most of these costs will be used with pre-tax dollars further reducing costs further.